UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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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 13(a) of the Exchange Act. ☐
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State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked priced of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: N/A. There is
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of March 12, 2024, there were
GTJ REIT, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
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PART I |
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ITEM 1. |
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3 |
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ITEM 1A. |
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8 |
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ITEM 1B. |
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27 |
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ITEM 1C. |
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28 |
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ITEM 2. |
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29 |
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ITEM 3. |
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31 |
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ITEM 4. |
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31 |
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PART II |
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ITEM 5. |
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32 |
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ITEM 6. |
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35 |
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ITEM 7. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 7A. |
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ITEM 8. |
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44 |
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ITEM 9. |
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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71 |
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ITEM 9A. |
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71 |
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ITEM 9B. |
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72 |
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ITEM 9C. |
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DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
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72 |
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PART III |
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ITEM 10. |
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73 |
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ITEM 11. |
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78 |
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ITEM 12. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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83 |
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ITEM 13. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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84 |
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ITEM 14. |
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PART IV |
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ITEM 15. |
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88 |
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ITEM 16. |
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1
FORWARD-LOOKING STATEMENTS
Certain information included in this Annual Report on Form 10-K contains or may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Historical results and trends should not be taken as indicative of future operations. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” “seek,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to:
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Although we believe the assumptions underlying the forward-looking statements, and the forward-looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved. The forward-looking statements are made as of the date of this Annual Report on Form 10-K, and we assume no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements, unless otherwise required by law.
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PART I
ITEM 1. BUSINESS
Overview
GTJ REIT, Inc. (the “Company,” “we,” “us,” “our,” or “GTJ REIT”) is a self-administered and self-managed real estate investment trust (“REIT”) which, as of the date of this report, owns and operates, through GTJ Realty, LP, a limited partnership owned and controlled by the Company (the “Operating Partnership”) a total of 49 commercial properties in New York, New Jersey, Connecticut, Delaware and North Carolina. We focus primarily on the acquisition, ownership, management and operation of commercial real estate.
The Company was incorporated on June 26, 2006 in Maryland. On March 29, 2007, the Company completed a merger transaction with Triboro Coach Corp., Jamaica Central Railways, Inc., and Green Bus Lines, Inc., (together collectively referred to as the “Bus Companies”). The effect of the merger transaction was to complete a reorganization (the “Reorganization”) of the ownership of the Bus Companies into GTJ REIT, with the former stockholders of the Bus Companies becoming stockholders in GTJ REIT. The Company then commenced operations as a fully integrated real estate company, and elected to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended (the “Code”), effective July 1, 2007.
On January 17, 2013, the Company closed on a business combination with Wu/Lighthouse Portfolio, LLC, in which the Operating Partnership acquired all outstanding ownership interests of a portfolio consisting of 25 commercial properties (the “Acquired Properties”) located in New York, New Jersey and Connecticut, in exchange for 33.29% of the outstanding limited partnership interest in the Operating Partnership. The outstanding limited partnership interest in the Operating Partnership exchanged for the Acquired Properties was increased to 33.78% due to post-closing adjustments. The subsequent redemption of certain shares of GTJ REIT, common stock and the purchase of a portion of the outstanding limited partnership interest resulted in a net decrease in the outstanding limited partnership interest in the Operating Partnership to 16.69%. As a result of the transaction, the Company’s then existing 7 properties, the subsequent acquisition of 19 properties and the sale of 2 properties from 2014 through the date of this report, the Company currently beneficially owns an 83.31% interest in a total of 49 properties consisting of approximately 6.3 million square feet of primarily industrial properties on approximately 399 acres of land in New York, New Jersey, Connecticut, Delaware and North Carolina. The following is information with respect to leases and occupancy of our properties:
Our 2024 contractual rental income includes, after giving effect to any abatements, concessions or adjustments, rental income that is payable in 2024 under leases existing at December 31, 2023. Contractual rental income excludes straight-line rent and amortization of intangibles. Approximately 43% of our 2024 contractual rental income and 42% of our 2023 contractual rental income is derived from five leases with the City of New York, six leases with Federal Express, and one lease with Avis Rent-A-Car Systems.
2023 Highlights
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” for a reconciliation of AFFO to net income attributable to common stockholders.
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Description of Business
We intend to further expand our real estate portfolio beyond the current portfolio of 49 properties owned as of the date of this report. We seek to acquire commercial real estate at favorable prices, focusing on the industrial product sector. We believe that quality tenants seek well-managed properties that offer superior and dependable services, particularly in competitive markets. We believe that a critical success factor in property acquisition lies in possessing the ability and flexibility to move quickly when an opportunity presents itself.
We intend to acquire fee ownership interests, but may also enter into joint venture arrangements. We seek to maximize current cash flows and seek long-term increases in the value of our assets. Our policy is to acquire assets where we believe opportunities exist for appropriate risk adjusted investment returns. We seek to accomplish this by investing in quality properties in geographic markets that we believe to be attractive and offer the potential of current and future demand, renovating acquired properties as appropriate, maintaining and efficiently operating our properties, and establishing good relationships with our tenants and the local communities.
We intend to invest primarily in quality commercial real estate, specifically targeting industrial properties since they:
To the extent it is in the best interests of our stockholders, we will seek to invest in a diversified portfolio of properties that will satisfy our primary investment objectives of providing our stockholders with stable cash flow, preservation of capital, and growth of income and principal, without taking undue risk. We anticipate that the majority of properties we acquire will have both the potential for growth in value and the ability to provide current cash distributions to stockholders. In addition, we may continue to look for attractive opportunities to divest certain of our properties or interests in our properties, potentially redeploying that capital in our focus markets or in other markets.
We intend to acquire properties with financing from mortgage or other debt or may acquire properties subject to existing indebtedness. We may also acquire properties, including a portfolio of properties, in exchange for an interest in our Operating Partnership (GTJ Realty, LP). We do not intend to incur aggregate indebtedness in excess of 75% of the gross fair value of our properties. Fair value, defined as the amount at which an investment could be exchanged in a current transaction with market participants, will be determined by management, using analytical data and other available information, including independent appraisals.
Decisions relating to the purchase or sale of properties are approved by our Board of Directors (the “Board of Directors” or “Board”). Our Board is responsible for monitoring the administrative procedures, investment operations, and performance of our Company to ensure our policies are carried out. Our Board oversees our investment policies to determine that our policies are in the best interests of our stockholders.
Our Business Objective
Our business objective is to maintain and increase, over time, the cash available for distribution to our stockholders and enhance stockholder value by:
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Typical Property Attributes
The properties in our portfolio typically have the following attributes:
Considerations Related to Potential Acquisitions
The following are some of the material considerations which we evaluate in relation to potential acquisitions:
We will not acquire any property until we obtain an environmental assessment for each property and are satisfied with the environmental status of the property.
We anticipate that the purchase price of properties we acquire will vary depending on the general interest rate environment and availability of credit in addition to tenant profile, value of leases in place, property condition, size and location. We are not specifically limited in the number, size, or geographic location of properties we may acquire. The number and mix of properties we may acquire will depend upon existing real estate and market conditions and other relevant circumstances. Our operating costs will vary based on the amount of debt we incur in connection with financing the acquisition. It is difficult to predict the actual number or timing of properties that we will acquire because the purchase price of properties will vary widely and our investment in each will vary based on the amount and cost of debt financing.
Acquisition Strategies
We seek to acquire properties that have locations, demographics and other investment attributes that we believe to be attractive. We believe that long-term leases provide a predictable income stream over the term of the lease, making fluctuations in market rental rates and in real estate values less significant to achieving our overall investment objectives. Our preference is to acquire single-tenant properties that are subject to long-term net or ground leases that include periodic contractual rental increases or rent increases based on increases in the consumer price index. Periodic contractual rental increases provide reliable increases in future rent payments and rent increases based on the consumer price index provide protection against inflation. Historically, long-term leases
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have made it easier for us to obtain longer-term, fixed-rate mortgage financing, thereby moderating the interest rate risk. We may, however, acquire a property that is subject to a short-term lease when we believe the property represents a good opportunity for recurring income, potential repositioning and residual value. Although the acquisition of single-tenant properties subject to net and ground leases is the focus of our investment strategy, we will also consider investments in, among other things, properties that can be repositioned or redeveloped and multi-tenant properties.
Generally, we hold the properties we acquire for an extended period of time. Our investment criteria are intended to identify properties from which increased asset value and overall return can be realized from an extended period of ownership. Although our investment criteria favor an extended period of ownership, we will dispose of a property if we regard the disposition of the property as an opportunity to realize the overall value of the property sooner or to avoid future risks by achieving a determinable return from the property.
Our charter documents do not limit the number of properties in which we may invest, or the amount or percentage of our assets that may be invested in any specific property or property type. We will continue to form entities to acquire interests in real properties, either alone or with other investors, and we may acquire interests in joint ventures or other entities that own real property.
Competitive Strengths
We compete for the purchase of commercial property with a variety of investors, including domestic and foreign entities, other REITs, insurance companies, and pension funds, as well as corporate and individual developers and owners of real estate, some of which are publicly traded. We believe that our investment strategy and operating model distinguish us from other owners, operators and acquirers of industrial real estate in a number of ways, including:
Our Policies With Respect to Borrowing
We presently anticipate that we will borrow funds, secured by the acquired property, as we purchase new properties. We may later refinance or increase mortgage indebtedness by obtaining additional loans secured by selected properties. Our Board reviews our aggregate borrowings to ensure that such borrowings are reasonable in relation to our assets.
We may also seek an acquisition facility to finance the purchase of additional properties, finance capital and/or tenant improvements or major repairs and maintenance and, if necessary, for working capital needs, or to meet our distribution requirements. We anticipate that aggregate borrowings, both secured and unsecured, will not exceed 75% of the gross fair value of our properties.
When incurring secured debt, we will seek to incur nonrecourse indebtedness, which means that the lenders’ rights in the event of our default generally will be limited to foreclosure on the property(ies) that secured the obligation. However, we may have to accept limited recourse financing, where we remain liable for any shortfall between the debt and the proceeds of sale of the mortgaged property. If we incur mortgage indebtedness, we will endeavor to obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year. However, we acknowledge that some mortgages are likely to provide for one large payment, and therefore, we may incur floating or adjustable-rate financing depending on market conditions.
Sale or Other Disposition of Our Properties
Management, with approval from our Board, determines whether a particular property should be sold or otherwise disposed of after consideration of the relevant factors, including performance or projected performance of the property, prevailing economic, market, property and tenant conditions, with a view toward achieving our principal investment objectives including
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maximizing capital appreciation and the effect on our obligations under existing agreements. We cannot assure you that these objectives will always be realized.
Changes in Our Investment Objectives
Subject to the limitations in our charter, our bylaws, and the Maryland General Corporation Law, our business and policies will be controlled by our Board. Our Board has the right to establish policies concerning investments and the right, power, and obligation to monitor our procedures, investment operations, and performance of our Company. Thus, stockholders must be aware that the Board, acting consistently with our organizational documents, applicable law, and their fiduciary obligations, may elect to modify our objectives and policies from time to time.
Employees
As of December 31, 2023, we had a total of 13 employees, 12 of whom are full time, who were employed at GTJ REIT. We consider our relations with our employees to be good. We believe that our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. We believe in investing in talent at all levels within our organization. Employees are encouraged to take full advantage of professional development opportunities.
The health and safety of our employees is of utmost importance to us. We strive to make our workplace a safe place for employees during the workday. Diversity, equity and inclusion are fundamental values of our business. We believe that our potential for success is maximized by having a diverse workforce that is reflective of our society and the communities we serve. We are committed to providing equal employment opportunities without regard to any actual or perceived characteristic protected by applicable local, state or federal laws.
Our Compliance with Governmental Regulations
Many laws and government regulations are applicable to our Company and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.
Costs of Compliance with the Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990, or ADA, all public accommodations must meet federal requirements for access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited, nor have investigations of our properties been conducted to determine compliance. Therefore, we may incur additional costs in connection with the ADA. There are also federal, state, and local laws which also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA or any other legislation, our financial condition, results of operations, cash flow, and ability to satisfy our debt service obligations and pay dividends and distributions could be adversely affected.
Costs of Government Environmental Regulation and Private Litigation
Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. If we incur substantial costs to comply with any governmental environmental laws and regulations or the results of private litigation, our financial condition, results of operations, cash flow, and ability to satisfy our debt obligations and pay dividends and distributions could be adversely affected.
Use of Hazardous Substances by Some of Our Tenants
Some of our tenants may handle hazardous or toxic substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. We require the tenants, in their respective leases, to comply with these environmental laws and regulations and to indemnify us for any related liabilities. We are unaware of any material noncompliance, liability, or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties. If we incur substantial costs in order to comply with any environmental
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laws and regulations, our financial condition, results of operations, cash flow, and ability to satisfy our debt obligations and pay dividends and distributions could be adversely affected.
Other Federal, State, and Local Regulations
Our properties are subject to various federal, state, and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. Although we believe that our properties are currently in material compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which we generally obtain at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow, and ability to satisfy our debt service obligations and pay dividends and distributions could be adversely affected.
Our Corporate Information
Our principal executive offices are located at 1399 Franklin Avenue, Suite 100, Garden City, New York 11530. Our telephone number is (516) 693-5500. Our website is www.gtjreit.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this report or any other report or document we file with or furnish to the Securities and Exchange Commission (the “SEC”).
How to Obtain Our SEC Filings
All reports we file with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to any of those reports that we file with the SEC are available free of charge as soon as reasonably practicable through our website at www.gtjreit.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this report or any other report or document we file with or furnish to the SEC.
ITEM 1A. RISK FACTORS
You should carefully consider the specific factors listed below, together with the cautionary statement under the caption “Forward Looking-Statements” and the other information included in this Annual Report on Form 10-K. If any of the following significant risk factors set forth below actually occur, our business, financial condition, or results of operation could be materially adversely affected and the value of our common stock could decline and potentially affect our ability to pay dividends and distributions.
Summary of Risk Factors
Risks Related to our Organization and Structure
Risks Related to Our Business and Properties
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Risks Related to our Common Stock
Tax Risks Related to our Business and Structure
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Acquisition and Divestiture Risks
Risks Related to Our Use of Borrowed Funds
Possible Adverse Consequences of Limits on Ownership and Transfer of our Shares
Anti-takeover Provisions Related to Us
Risks Related to our Organization and Structure
Our failure to continue to qualify as a REIT would subject us to corporate level income tax, which would materially impact funds available for distribution.
We intend to continue to operate in a manner so as to qualify as a REIT. Qualifying as a REIT requires us to meet a number of tests on an ongoing basis, including tests regarding the nature of our assets, the sources of our income, the ownership of our outstanding shares of beneficial interest, and the amount of our distributions to our stockholders. A number of the tests established to qualify as a REIT for tax purposes are fact specific. Therefore, while we intend to continue to qualify as a REIT, it may not be possible at this time to assess our ability to satisfy these various tests on a continuing basis. Additionally, we cannot guarantee that we will remain qualified as a REIT in the future.
If we fail to qualify as a REIT in any year, we would be required to pay federal income tax on our net income. Our payment of income tax would substantially decrease the amount of cash available to be distributed to our stockholders. In addition, we would no longer be required to distribute substantially all of our taxable income to our stockholders. Unless our failure to qualify as a REIT is excused under relief provisions of the federal income tax laws, we could not re-elect REIT status until the fifth calendar year following the year in which we failed to qualify.
We depend on key personnel and the loss of their full service could adversely affect us.
Our success depends to a significant degree upon the continued contributions of certain key personnel including, but not limited to, our management team, whose continued service is not guaranteed, and each of whom would be difficult to replace. If any of our key personnel were to cease employment with us, our operating results could suffer. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave is dependent on the competitive nature
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of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely impact our financial condition and cash flows. Further, such a loss could be negatively perceived in the marketplace.
Our growth depends on external sources of capital which are outside of our control, which may affect our ability to seize strategic opportunities, satisfy debt obligations and make distributions to our stockholders.
In order to maintain our qualification as a REIT, we are generally required under the Code to distribute annually at least 90% of our net taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we may rely on third‑party sources to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage. Our access to third‑party sources of capital depends, in part, on general market conditions, the market’s perception of our growth potential, our current debt levels, our current and expected future earnings, our cash flow and cash dividends, among other factors. 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 or satisfy our debt service obligations. Further, in order to meet the REIT distribution requirements and maintain our REIT status and to avoid the payment of income and excise taxes, we may need to borrow funds on a short‑term basis even if the then prevailing market conditions are not favorable for these borrowings. These short‑term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes or the effect of non‑deductible capital expenditures, the creation of reserves, certain restrictions on distributions under loan documents or required debt or amortization payments. To the extent that capital is not available to acquire properties, profits may not be realized or their realization may be delayed, which could result in an earnings stream that is less predictable than some of our competitors and result in us not meeting our projected earnings and distributable cash flow levels in a particular reporting period. Failure to meet our projected earnings and distributable cash flow levels in a particular reporting period could have an adverse effect on our financial condition.
To maintain our REIT status, we may be forced to forego otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and reduce our stockholders’ overall return.
To continue to qualify as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our stockholders’ investment.
Risks Related to Our Business and Properties
We depend upon our tenants to pay rent in a timely manner, and their inability or unwillingness to pay rent could impact our ability to pay our indebtedness, leading to possible defaults, and reduce cash available for distribution to our stockholders.
Our real property, particularly those we may purchase in the future, will be subject to varying degrees of risk that generally arise from such ownership. The underlying value of our properties and the ability to make distributions to our stockholders depend upon the ability of the tenants of our properties to generate enough income to pay their rents in a timely manner. Their inability or unwillingness to do so may be impacted by the profitability of our tenants’ businesses or other constraints on their finances. Changes beyond our control may adversely affect our tenants’ ability to make lease payments and consequently would substantially reduce our income from operations and our ability to meet our debt service requirements and make distributions to our stockholders.
A default by a tenant, the failure of a tenant’s guarantor to fulfill its obligations, or other premature termination of a lease could, depending upon the size of the leased premises and our ability to successfully find a substitute tenant, have a materially adverse effect on our revenues, the value of our common stock or our cash available for distribution to our stockholders.
If we are unable to find tenants for our properties, particularly those we may purchase in the future, or find replacement tenants when leases expire and are not renewed by the tenants, our revenues, cash available for distribution to our stockholders and our ability to serve our debt obligations will be reduced.
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Approximately 43% of our 2024 contractual rental income and 42% of our 2023 contractual rental income is derived from leases with the City of New York for five locations, six leases with Federal Express, and one lease with Avis Rent-A-Car Systems, Inc. A tenant’s default or financial distress could significantly reduce our revenues.
Virtually all of our leases with the City of New York, Federal Express and Avis Rent-A-Car Systems, Inc. are triple net leases and provide for escalations. Any disruption or delay in these tenants’ ability to perform under the leases could cause interruptions in the receipt of, or loss of, a significant amount of rental revenues and could result in requiring us to pay operating expenses currently paid by the tenants which could substantially reduce our income from operations and our ability to meet our debt service requirements and make distributions to our stockholders.
Significant inflation could adversely affect our business and financial results.
Inflation rates, particularly in the United States, have increased recently to levels not seen in years. Increased inflation could adversely affect us by increasing costs of land, construction and renovation. In a highly inflationary environment, we may be unable to raise rental rates at or above the rate of inflation, which could reduce our profit margins. In March 2022, the U.S. Federal Reserve began to raise interest rates in an effort to curb inflation. Although the Federal Reserve has indicated that interest rates may be decreased in 2024, further interest rate increases by the Federal Reserve are possible. Such increases in the cost of capital could adversely impact our ability to finance operations and acquire properties. Increased interest rates may also result in less liquid property markets, limiting our ability to sell existing assets. In addition, our cost of labor and materials could increase, which could have an adverse impact on our business or financial results. While increases in most operating expenses at our properties can be passed on to our commercial tenants, some tenants have fixed reimbursement charges and expenses at these properties may not be able to be passed on to tenants. Unreimbursed increased operating expenses may reduce cash flow available for payment of mortgage debt and interest and for distributions to shareholders.
We may not be able to effectively operate our business if we are unable to attract and retain qualified personnel due to a tight labor market in areas in which we operate.
Our success depends on our ability to continue to attract, retain, and motivate qualified personnel. Currently, the U.S. job market is experiencing labor shortages at record levels. Factors impacting the labor shortage include people leaving the workforce entirely, higher pay from competitors, demand for flexible working hours and remote work, and many other factors. The increased ability of employees in the workforce to work from home or in other remote work arrangements has made it and may continue to make it more difficult for us to compete in the job market. Our inability to attract, retain, and motivate qualified personnel could have a material adverse effect on our ability to operate our business.
All but two of our properties are located in New York, New Jersey and Connecticut making us vulnerable to changes in economic, regulatory or other conditions in the Northeast that could have a material adverse effect on our results of operations.
All of our properties are located in New York, New Jersey and Connecticut, except for one property located in Delaware and one property acquired in 2023 which is located in North Carolina. This geographic concentration in the Northeast exposes us to greater risks than if we owned properties in multiple geographic regions. General economic conditions in the Northeast may significantly affect the occupancy and rental rates of our properties. Further, the economic condition of the region may also depend on a few industries and, therefore, an economic downturn in one of these industry sectors may adversely affect our performance. In addition to economic conditions, we may also be subject to changes in the region’s regulatory environment (such as increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors) or other adverse conditions or events (such as natural disasters). Thus, adverse developments and/or conditions in the Northeast region could reduce demand for space, impact the credit-worthiness of our tenants or force our tenants to curtail operations, which could impair their ability to meet their rent obligations to us and, accordingly, could have a material adverse effect on our results of operations, and our ability to meet our debt service requirements and make distributions to our stockholders.
Our revenues and the value of our portfolio are affected by a number of factors that affect investments in leased real estate generally.
We are subject to the general risks of investing in leased real estate. These include the non-performance of lease obligations by tenants, leasehold improvements that will be costly or difficult to remove or certain upgrades that may be needed should it become necessary to re-rent the leased space for other uses, rights of termination of leases due to events of casualty or condemnation affecting the leased space or the property or due to interruption of the tenant’s quiet enjoyment of the leased premises, and obligations of a landlord to restore the leased premises or the property following events of casualty or condemnation. The occurrence of any of these events could adversely impact our results of operations, liquidity and financial condition.
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In addition, if our competitors offer space at rental rates below our current rates or the market rates, we may lose current or potential tenants to other properties in our markets. Additionally, we may need to reduce rental rates below our current rates in order to retain tenants upon expiration of their leases or to attract new tenants. As a result, our results of operations, cash flow and distributions to our stockholders may be adversely affected.
A number of risks to which our properties may be exposed may not be covered by insurance, which could result in losses which are uninsured.
We could suffer a loss due to the cost to repair any damage to properties that are not insured or are underinsured. There are types of losses, generally of a catastrophic nature, such as losses due to terrorism, wars, earthquakes, or acts of God that are either uninsurable or not economically insurable. Generally, we will not obtain insurance for hurricanes, tornadoes, earthquakes, floods, or other acts of God unless required by a lender or we determine that such insurance is necessary and may be obtained on a cost-effective basis. If such a catastrophic event were to occur, or cause the destruction of one or more of our properties, we could lose both our invested capital and anticipated profits from such property.
We may be unable to renew our current leases, lease vacant space, including vacant space resulting from tenant defaults, or re-lease space as our current leases expire.
We cannot assure you that leases at our properties will be renewed or that such properties will be re-leased at favorable rental rates. If the rental rates for our properties decrease, our tenants do not renew their leases or we do not re-lease a significant portion of our available space, including vacant space resulting from tenant defaults, and space for which leases are scheduled to expire, our financial condition, results of operations, cash flows, cash available for distribution to stockholders and our ability to satisfy our debt service obligations could be materially adversely affected. In addition, if we are unable to renew leases or re-lease a property, the resale value of that property could be diminished because the market value of a particular property will depend in part upon the value of the leases of such property.
Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.
We review the carrying value of our properties when circumstances, such as adverse market conditions indicate potential impairment may exist. We base our review on an estimate of the future cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. Significant management judgment is involved in determining if impairment indicators exist, assessing investments for recoverability, and, if required, measuring the fair value of the real estate investments. If our evaluation indicates that we may be unable to recover the carrying value of a real estate investment, an impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses would have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause us to reevaluate the assumptions used in our impairment analysis. Impairment charges could adversely affect our financial condition.
Stockholders may not receive any distributions from the sale of one of our properties, or not receive such distributions in a timely manner, because we may have to provide financing to the purchaser of such property, resulting in an inability or delay of distributions to stockholders.
When appropriate, we may structure the sale of a real property as a “like-kind exchange” under the federal income tax laws so that we may acquire qualifying like-kind replacement property meeting our investment objectives without recognizing taxable gain on the sale. Furthermore, we may reinvest in additional properties proceeds from the sale, financing, refinancing, or other disposition or, secondarily, use such proceeds for capital improvements or maintenance and repair of existing properties or to increase our reserves for such purposes. The objective of reinvesting such portion of the sale, financing, and refinancing proceeds is to increase the total value of real estate assets that we own, and the future cash flow derived from such assets to pay distributions to our stockholders.
Despite this policy, our Board of Directors may distribute to our stockholders all or a portion of the proceeds from the sale, financing, refinancing, or other disposition of a property. In determining whether any of such proceeds should be distributed to our stockholders, our Board of Directors considers, among other factors, the desirability of properties available for purchase, real estate market conditions, and compliance with the REIT distribution requirements.
In connection with a sale of a property, our preference will be to obtain an all-cash sale price. However, we may accept a purchase money obligation secured by a mortgage on the property as partial payment. The terms of payment upon sale will be affected
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by the salient economic and market conditions. To the extent we receive notes, securities, or other property instead of cash from sales, such proceeds, other than any interest payable on such proceeds, will not be included in net sale proceeds available for distribution until and to the extent the notes or other property are actually paid, sold, refinanced, or otherwise disposed of. Thus, the distribution of the proceeds of a sale to stockholders may need to be paid from other sources.
Disruptions in the financial markets could affect our ability to obtain financing and may negatively impact our liquidity, financial condition and operating results.
From time to time, the capital and credit markets in the United States and other countries experience significant price volatility, dislocations and liquidity disruptions, which can cause the market prices of many securities and the spreads on prospective debt financings to fluctuate substantially. These circumstances can materially impact liquidity in the financial markets, making terms for certain financings less attractive, and in some cases, result in the unavailability of financing. For example, the closures of Silicon Valley Bank ("SVB"), New York Signature Bank ("NYSB") and First Republic Bank ("FRB") and their placement into receivership with the Federal Deposit Insurance Corporation ("FDIC") created bank-specific and broader financial institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at SVB and NYSB would have access to their funds, even those in excess of the standard FDIC insurance limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur.
A significant amount of our existing indebtedness was issued through capital markets transactions. We anticipate that the capital markets could be a source of refinancing of our existing indebtedness in the future. This source of refinancing may not be available if volatility in or disruption of the capital markets occurs. If our ability to issue additional debt or equity securities or to borrow money were to be impaired by volatility in or disruption of the capital markets, it could have a material adverse effect on our liquidity and financial condition.
Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
We regularly maintain cash balances at third-party financial institutions in excess of the FDIC insurance limit, including FRB. The FDIC took control and was appointed receiver of SVB and NYSB on March 10, 2023 and March 12, 2023, respectively. In addition, the FDIC was appointed receiver and took control of FRB on May 1, 2023. JPMorgan Chase ("JPM") acquired most of the assets and all bank deposits of FRB on May 1, 2023. All deposits at FRB, whether insured or uninsured, are now managed by JPM. The Company does not have any direct exposure to SVB or NYSB. However, if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash and cash equivalents may be threatened and could have a material adverse effect on our business and financial condition.
Many real estate costs are fixed, even if income from properties decreases.
Our financial results depend on leasing space to tenants on terms favorable to us. Our income and funds available for distribution to our stockholders will decrease if a significant number of our tenants cannot pay their rent or we are unable to lease properties on favorable terms. In addition, if a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and we may incur substantial legal costs. Costs associated with real property, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the property.
We may be unable to complete development and re-development projects on advantageous terms.
As part of our business, we develop new properties and re-develop existing properties as conditions warrant. This part of our business involves significant risks, including the following:
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To the extent these risks result in increased debt service expense, construction costs and delays in budgeted leasing, they could adversely affect our financial condition, results of operations, cash flow and ability to make distributions to our stockholders.
Our performance and our ability to make distributions to our stockholders and the value of our securities are subject to general economic conditions and risks associated with our real estate assets.
The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to pay distributions to our stockholders could be adversely affected. In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) that generally do not decline when circumstances reduce the income from the property. Income from and the value of our properties may be adversely affected by:
In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or public perception that any of these events may occur, could result in a general decrease in rents or an increased occurrence of defaults under existing leases, which would adversely affect our financial condition and results of operations. For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.
We may become subject to litigation, which could have a material and adverse effect on our financial condition, results of operations and cash flow.
We may become subject to litigation, including claims relating to our operations, offerings, and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. Resolution of these types of matters could adversely impact our financial condition, results of operations and cash flow. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.
Eminent domain could lead to material losses on our investment in our properties.
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 for a number of years, and we could effectively have no profit potential from properties acquired by the government through eminent domain.
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Terrorist attacks and other acts of violence or war may affect the value of the Company's common stock, the industry in which we conduct our operations and our profitability.
Terrorist attacks may harm our results of operations and financial condition. We cannot assure you that there will not be terrorist attacks in the localities in which we conduct business. More generally, concern over geopolitical issues, such as armed conflicts and war, could adversely impact our business. For example, the conflict between Russia and Ukraine, and resulting market volatility, could adversely affect our business, financial condition or results of operations. In response to the conflict between Russia and Ukraine, the United States and other countries have imposed sanctions or other restrictive actions against Russia. Any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the worldwide financial markets and economy. These attacks or armed conflicts may adversely impact our operations or financial condition. In addition, losses resulting from these types of events may be uninsurable.
We face network and system risks including those related to cybersecurity attacks that have the potential to disrupt our operations, cause material harm to our financial condition, result in the misappropriation of assets, compromise confidential information and/or damage our business relationships and we can provide no assurance that the steps we and our service providers take in response to these risks will be effective.
We rely extensively on our information technology networks and systems to access, as well as those of third parties, to process, transmit and store proprietary and confidential information. These networks and systems manage our business, and our business is at risk from and may be impacted by cybersecurity attacks, including but not limited to phishing schemes, system, network or internet failures, cyber-attacks, ransomware and other malware, social engineering, malicious activities or negligence on the part of employees or contractors, or other network or system disruptions. These could include attempts to gain unauthorized access to our data and computer systems. The risk of a cybersecurity attack, including by computer hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks around the world have increased. Any such incident may result in disruption of our operations, material harm to our financial condition, cash flows, misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting our business, liability for impacted information or assets, increased third party cybersecurity protection costs, regulatory scrutiny or enforcement, litigation and damage to our stakeholder relationships. We employ a number of measures to prevent, detect and mitigate these types of threats. These measures include but are not limited to security operations center monitored endpoint detection response and threat hunting, multi-factor authentication, firewall advanced threat protection, frequent backups, regular vulnerability scanning, and critical system redundancy for core applications; however, there is no guarantee such efforts will be successful in preventing a cybersecurity attack. A cybersecurity attack could compromise the confidential information of our employees, tenants and vendors. In addition, increased regulation of data collection, use and retention practices, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm the Company. We also rely on third-party service providers in our conduct of our business, and we can provide no assurance that the security measures of those providers will be effective. These risks require increasing resources from us to analyze and mitigate, and there is no assurance that our efforts will be effective.
Political and economic uncertainty could have an adverse effect on our business.
We cannot predict how current political and economic uncertainty, including uncertainty related to taxation, the recent rise of inflation, supply chain disruptions, the conflict between Russia and Ukraine, ongoing hostilities between Israel and Hamas, rising interest rates, as well as the resulting governmental policies, will affect our critical tenants, joint venture partners, lenders, financial institutions and general economic conditions, including the health and confidence of the consumer and the volatility of the stock market.
Political and economic uncertainty poses a risk to us in that it may cause consumers to postpone discretionary spending in response to tighter credit, reduced consumer confidence and other macroeconomic factors affecting consumer spending behavior, resulting in a downturn in the business of our tenants. In the event current political and economic uncertainty results in financial turmoil affecting the banking system and financial markets generally or significant financial service institution failures, there could be a new or incremental tightening in the credit markets, low liquidity, and extreme volatility in fixed income, credit, currency and equity markets. Each of these could have an adverse effect on our business, financial condition and operating results.
In addition, disagreements over the federal budget have led to the shutdown of the U.S. government for periods of time in the past and may recur in the future. To the extent changes in the political environment have a negative impact on our business or the financial and mortgage markets, our business, results of operations, and financial condition could be materially and adversely impacted.
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A pandemic, epidemic, outbreak of a contagious disease, or other health crises may adversely affect our tenants’ financial condition and the profitability of our properties.
Our business and the businesses of our tenants could be materially and adversely affected by the risks, or the public perception of the risks, related to another pandemic or other health crisis, similar to the prior outbreak of novel coronavirus (COVID-19). Such events could result in the complete or partial closure of one or more of our tenants’ facilities or distribution centers, temporary or long-term disruption in our tenants’ supply chains from local and international suppliers, and /or delays in the delivery of our tenants’ inventory. Such events could severely disrupt our tenants’ operations and have a material adverse effect on our business, financial condition and results of operations. In addition, if such events lead to a significant or prolonged impact on capital or credit markets or economic growth, then our business, financial condition and results of operations could be adversely affected.
Actions by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties.
We compete with other owners, operators and developers of real estate, some of which own properties similar to ours in the same markets and submarkets 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 potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, cash flows, cash available for distribution, value of our securities and ability to satisfy our debt service obligations could be materially adversely affected.
A property that incurs a vacancy could be difficult to sell or re‑lease, which could adversely affect our results of operations, cash flows, cash available for distribution, and the value of our securities.
A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. In addition, certain of the properties we acquire may have some level of vacancy at the time of closing. Certain of our properties may be specifically suited to the particular needs of a tenant. We may have difficulty obtaining a new tenant for any vacant space we have in our properties. If the vacancy continues for a long period of time, we may suffer reduced revenue resulting in less cash available to be distributed to stockholders. In addition, the resale value of a property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.
We may not have funding for future tenant improvements, which could adversely affect our results of operations, cash flows, cash available for distribution, and the value of our securities.
When a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract one or more new tenants, we will be required to expend funds to construct new tenant improvements in the vacated space. Except with respect to our current reserves for capital expenditures, tenant improvements and leasing commissions, we cannot assure you that we will have adequate sources of funding available to us for such purposes in the future.
Bankruptcy laws will limit our remedies if a tenant becomes bankrupt and rejects its lease, resulting in an inability to collect balances due on our leases.
If a tenant becomes bankrupt or insolvent, that could diminish the income we receive from that tenant’s leases. Our tenants may experience downturns in their operating results due to adverse changes to their business or economic conditions, and those tenants that are highly leveraged may have a higher possibility of filing for bankruptcy or insolvency. We may not be able to evict a tenant solely because of its bankruptcy. On the other hand, a bankruptcy court might authorize the tenant to terminate its leases with us. If that happens, our claim against the bankrupt tenant for unpaid future rent would be an unsecured prepetition claim subject to statutory limitations, and therefore such amounts received in bankruptcy are likely to be substantially less than the remaining rent we otherwise were owed under the leases. In addition, any claim we have for unpaid past rent could be substantially less than the amount owed. If the lease for such a property is rejected in bankruptcy, our revenue would be reduced and could adversely impact our ability to pay distributions to stockholders.
Environmentally hazardous conditions may adversely affect our operating results.
Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean‑up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, natural resources or property damage or other costs, including investigation and clean‑up costs, resulting from the
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environmental contamination. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies or, in certain circumstances, private parties. In connection with the acquisition and ownership of our properties, we may be exposed to such costs. The cost of defending against environmental claims, of compliance with environmental regulatory requirements or of remediating any contaminated property could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to our stockholders.
Climate change may adversely affect our business.
We cannot predict the rate at which climate change will progress. However, the physical effects of climate change could have a material adverse effect on our properties, operations, and business. To the extent that climate change impacts changes in weather patterns, our markets could experience severe weather, including hurricanes, tornadoes, and severe winter storms due to increases in storm intensity and unpredictable weather patterns. Over time, these weather conditions could result in declining demand for space at our properties, delays in construction, resulting in increased construction costs, or in our inability to operate the buildings at all. Climate change and severe weather may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable, by increasing the costs of energy, maintenance, repair of water and/or wind damage, and snow removal at our properties.
In recent years, the assessment of the potential impact of climate change has begun to impact the activities of government authorities 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.
Various federal, state and local laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by greenhouse gas emissions. Although these laws and regulations have not had any known material adverse effects on our properties, business operations, or our tenants to date, changes in federal, state, and local legislation and regulation based on concerns about climate change could result in increased capital expenditures on our existing properties and our new development properties (for example, to improve their energy efficiency and/or resistance to severe weather) without a corresponding increase in revenue, which may result in adverse impacts to our net income. The impact of climate change on weather patterns or the occurrence of significant weather events could impact economic activity or the value of our properties in specific markets.
We rely on a limited number of vendors to provide key services, including, but not limited to, utilities and construction services, at certain of our properties. Our business and property operations may be adversely affected if these vendors fail to adequately provide key services at our properties as a result of unanticipated events, including those resulting from climate change. If a vendor fails to adequately provide utilities, construction, or other important services, we may experience significant interruptions in service and disruptions to business operations at our properties, incur remediation costs, and become subject to claims and damage to our reputation.
The occurrence of any of these events or conditions may result in physical damage to our properties and 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.
Our properties are located in urban areas, which means the vitality of our properties is reliant on sound transportation and utility infrastructure. If that infrastructure is compromised in any way by an extreme weather event, such a compromise could have an adverse impact on our local economies and populations, as well as on our tenants’ ability to do business in our buildings.
Our properties are subject to transitional risks related to climate-related policy change.
De-carbonization of grid-supplied energy could lead to increased energy costs and operating expenses for our buildings. Retrofitting our building systems to consume less energy could lead to increased capital costs. Buildings which consume fossil fuel onsite may be subject to penalties. In addition, the full transition of grid-supplied energy to renewable sources (as has been mandated by the Climate Leadership and Community Protection Act in New York State) could lead to increased energy costs and operating expenses for our buildings. This legislation has not had a material impact on the Company's operations.
We may become subject to costs, taxes or penalties, or increases therein, associated with natural resource or energy usage, such as a “carbon tax” and by local legislation such as laws passed to impose limits or eliminate any onsite fossil fuel combustion in
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new construction and major renovations. These costs, taxes or penalties could increase our operating costs and decrease the cash available to pay our obligations or distribute to our equity owners.
Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distribution.
Our properties are subject to the Americans with Disabilities Act of 1990 (“ADA”). Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party to ensure compliance with the ADA. However, we cannot assure stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may affect cash available for distribution and the amount of distributions to stockholders.
Our officers and directors may have other interests which may conflict with their duties to us and our stockholders, and which may have adverse effects on the interests of us and our stockholders.
Our officers and directors may have other interests which could conflict with their duties to us and our stockholders, and which may have adverse effects on the interests of us and our stockholders. For example, certain of such persons may have interests in other real estate related ventures and may have to determine how to allocate an opportunity between us and such other ventures. Also, such persons may have to decide whether we should purchase or dispose of real property from or to an entity with which they are related, or conduct other transactions, and if so, the terms thereof. Our officers and directors are expected to disclose, in a timely and fair manner, such instances, and we require that potential conflicts be brought to the attention of our Board of Directors and that determinations will be made by a majority of directors who have no interest in the transaction. As of this time, only two officers and directors conduct a real property business apart from their activities with us. These individuals are Paul Cooper, our Chairman, Chief Executive Officer, and Director, and Louis Sheinker, our President, Chief Operating Officer, Secretary, and Director. See Note 8, “Related Party Transactions” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and furnish a report on our internal control over financial reporting, and if any deficiencies or material weaknesses exist, our financial statements may be adversely affected.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 which requires us to assess and attest to the effectiveness of our internal control over financial reporting. Since we are defined as a smaller reporting company and non-accelerated filer pursuant to Rule 12b-2 of the Exchange Act, our independent registered public accounting firm is not required to opine as to the adequacy of our assessment and effectiveness of our internal control over financial reporting. If any deficiencies or material weaknesses exist as a result of our assessment of our internal controls over financial reporting, our financial statements may be materially adversely affected.
Our UPREIT structure may result in potential conflicts of interest.
Persons holding limited partnership interests have the right to vote on certain amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of our stockholders. Additionally, we control the general partner of the Operating Partnership. The general partner owes duties to the limited partners which obligate the general partner to act in the best interests of the limited partners of the Operating Partnership. Circumstances may arise in the future when the interests of limited partners of the Operating Partnership may conflict with the interests of our stockholders.
No rule or regulation requires that we calculate our NAV in a certain way, and our Board of Directors, including a majority of our independent directors, may adopt changes to the valuation procedures.
There are no existing rules or regulatory bodies that specifically govern the manner in which we calculate our NAV. As a result, it is important that stockholders pay particular attention to the specific methodologies and assumptions we use to calculate our NAV. Other REITs may use different methodologies or assumptions to determine their NAV. In addition, each year our Board of Directors, including a majority of our independent directors, will review the appropriateness of our valuation procedures and may, at any time, adopt changes to the valuation procedures. Such changes may have an adverse effect on our NAV and the price at which stockholders may sell shares to us under our share redemption program (the “Program”).
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If we set aside insufficient capital reserves, we may be required to defer necessary capital improvements.
If we do not have enough capital reserves to supply needed funds for capital improvements throughout the life of the investment in a property, and there is insufficient cash available from our operations, we may be required to defer necessary improvements to the property, which may cause the property to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted to the property. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively impacted.
If we enter into long-term leases with tenants, those leases may not result in fair value over time.
Long-term leases do not allow for significant changes in rental payments and do not expire in the near term. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, significant increases in future property operating costs could result in receiving less than fair value from these leases. Such circumstances would adversely affect our revenues and funds available for distribution.
Risks Related to our Common Stock
The absence of a public market for our common stock will make it difficult for a stockholder to sell shares, which may have to be held for an indefinite period.
Current and prospective stockholders should understand that our common stock is illiquid, as there is currently no public market, and they must be prepared to hold their shares of common stock for an indefinite length of time. We have no current plans to cause our common stock to be listed on any securities exchange or quoted on any market system or in any established market either immediately or at any definite time in the future. While our Board of Directors may attempt to cause our common stock to be listed or quoted in the future, there can be no assurance that this event will occur. Accordingly, stockholders will find it difficult to resell their shares of common stock. Thus, our common stock should be considered a long-term investment. In addition, there are restrictions on the transfer of our common stock. In order to qualify as a REIT, our shares must be beneficially owned by 100 or more persons at all times and no more than 50% of the value of our issued and outstanding shares may be owned directly or indirectly by five or fewer individuals and certain entities at all times. Our charter provides that no person may own more than 9.9% of the issued and outstanding shares of our common stock. Any attempted ownership of our shares that would result in a violation of one or more of these limits will result in such shares being transferred to an “excess share trust” so that such shares will be disposed of in a manner consistent with the REIT ownership requirements. In addition, any attempted transfer of our shares that would cause us to be beneficially owned by less than 100 persons will be disallowed.
Our stockholders’ interests may be diluted by issuances under our 2007 Incentive Award Plan, 2017 Incentive Award Plan, 2021 Long-Term Equity Plan and other common stock or preferred stock issuances, which could result in lower returns to our stockholders.
We had a 2007 Incentive Award Plan that provided for awards in the form of restricted shares, incentive stock options, non-qualified stock options and stock appreciation rights. The aggregate number of shares of common stock which may have been awarded under the 2007 Incentive Award Plan was 1,000,000 shares. The 2007 Incentive Award Plan expired by its terms on June 11, 2017, and there are non-vested shares and unexercised options outstanding that were granted under the 2007 Incentive Award Plan.
We have adopted the 2017 Incentive Award Plan, under which 2,000,000 shares of common stock are reserved for issuance, and under which we may grant stock, stock units, incentive stock options, non-qualified stock options, and stock appreciation rights to our officers, employees, consultants, and directors. On November 2, 2021, our Board of Directors approved the 2021 Long-Term Equity Plan, which memorializes the terms and conditions of long-term equity incentive awards that can be earned by our chief executive officer and our president pursuant to their second amended and restated employment agreements. The effect of these grants, including the subsequent exercise of stock options, could be to dilute the value of the stockholders’ investments.
In addition, our Board of Directors is authorized, without stockholder approval, to cause us to issue additional shares of our common stock, or shares of preferred stock on which it can set the terms, and to raise capital through the issuance of options, warrants and other rights, on terms and for consideration as the Board of Directors in its sole discretion may determine, subject to certain restrictions in our charter. Any such issuance could result in dilution to stockholders. The Board of Directors may, in its sole discretion, authorize us to issue common stock or other interests or our securities to persons from whom we purchase real property or other assets, as part or all of the purchase price. The Board of Directors, in its sole discretion, may determine the value of any common stock or other equity or debt securities issued in consideration of property or services provided, or to be provided, to us.
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Real estate investments are not as liquid as other types of assets, which may reduce the economic returns we are able to provide to our stockholders.
Real estate investments are not as liquid as other types of investments, and this lack of liquidity may limit our ability to react promptly to changes in economic, financial, investment or other conditions. In addition, significant expenditures associated with real estate investments, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investments. In addition, we intend to comply with the safe harbor rules relating to the number of properties that can be disposed of in a year, the tax basis and the costs of improvements made to these properties, and meet other tests which enable a REIT to avoid punitive taxation on the sale of assets. Thus, our ability at any time to sell assets may be restricted. This lack of liquidity may limit our ability to vary our portfolio promptly in response to changes in economic, financial, investment or other conditions and, as a result, could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on our common stock.
Our stockholders are limited in their ability to sell shares of common stock pursuant to our share redemption program. Stockholders may not be able to sell any shares of our common stock back to us, and if they do sell their shares, they may not receive the price they paid.
Our Program may provide our stockholders with a limited opportunity to have their shares of our common stock redeemed by us at a discount to the NAV per share. Our Program contains certain restrictions and limitations, including those relating to the dollar amount of shares of our common stock that we can redeem at any given time. Specifically, effective as of August 8, 2022, the Program limits the number of shares to be redeemed to no more than $2.0 million of shares in any calendar year (prior limit was $1.0 million of shares in any calendar year) and such repurchase is subject to funds being available. In addition, our Board of Directors reserves the right to amend, suspend or terminate the Program at any time upon 30 days’ notice to our stockholders. Therefore, our stockholders may not have the opportunity to make a redemption request prior to a potential termination of the Program and our stockholders may not be able to sell any of their shares of our common stock back to us pursuant to our Program. Moreover, if our stockholders do sell their shares of common stock back to us pursuant to the Program, they may not receive the same price they paid for any shares of our common stock being redeemed.
Since the Program became effective in 2017, the Company has received redemption requests each year exceeding the Program’s annual limit (other than in 2020 when the Program was suspended). As a result, we were unable to purchase all shares presented for redemption. The Company honored the requests it received on a pro rata basis in accordance with the policy on priority of redemptions set forth in the Program, subject to giving certain priorities in accordance with the Program. The Company treats any unsatisfied portions of redemption requests as requests for redemption in the next semi-annual period. Because of the restrictions of our Program, our stockholders may not be able to sell their shares under the Program, and if stockholders are able to sell their shares, they may not recover the amount of their investment in us.
The actual value of shares that we repurchase under our Program may be substantially less than what we pay.
The terms of our Program generally require us to repurchase shares at a price equal to 90% of our most recently disclosed estimated NAV per share. On March 19, 2024 the Company received its annual valuation as of December 31, 2023 for the calculation of NAV under the Program. Our Board of Directors approved an estimated per share NAV of our common stock of $29.00 based on the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding (based upon interpolated shares from the conversion of units from the Company’s operating partnership), calculated as of December 31, 2023. The annual valuation resulted in an adjustment to the redemption price under the Program from $21.05 to $26.10 per share (90% of the NAV per share). The Company has filed a Current Report on Form 8-K with the SEC on March 20, 2024, and mailed to its stockholders an announcement of the redemption price adjustment. The redemption price of $26.10 per share will be effective for the semi-annual period running from December 1, 2023 to May 31, 2024 and until such time as the Board determines a new estimated per share NAV. Our stockholders are permitted to withdraw any redemption requests upon written notice to us at any time prior to ten (10) days before the end of the applicable semi-annual period.
The estimated NAV per share of our common stock is calculated as of a specific date and is expected to fluctuate over time in response to future events. However, we anticipate only determining an estimated NAV per share annually. In the event that the value of our shares decreases due to market or other conditions, the price at which we repurchase our shares pursuant to our Program might reflect a premium to our NAV. If the actual NAV of our shares is less than the price paid for the shares to be repurchased, any repurchases made would be immediately dilutive to our remaining stockholders.
In determining our most recent NAV per share, we relied upon a valuation of our properties as of December 31, 2023. Valuations and appraisals of our properties are estimates of fair value and may not necessarily correspond to realizable value upon the sale of
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such properties, therefore our new NAV per share may not reflect the amount that would be realized upon a sale of each of our properties.
For the purposes of calculating our NAV per share, an independent third-party appraiser valued our properties as of December 31, 2023. The valuation methodologies used to value our properties involved certain subjective judgments. Ultimate realization of the value of an asset depends to a great extent on economic and other conditions beyond our control and the control of the independent appraiser. Further, valuations do not necessarily represent the price at which an asset would sell, since market prices of assets can only be determined by negotiation between a willing buyer and seller. Therefore, the valuations of our properties and other assets may not correspond to the timely realizable value upon a sale of those assets.
Our NAV per share is based upon subjective judgments, assumptions and opinions, which may or may not turn out to be correct. Therefore, our NAV per share may not reflect the precise amount that might be paid to stockholders for their shares in a transaction.
Our NAV per share was based on an estimate of the value of our properties – consisting principally of illiquid commercial real estate – as of December 31, 2023. The valuation methodologies used by the independent appraiser retained by our Board of Directors to estimate the value of our properties as of December 31, 2023 involved subjective judgments, assumptions and opinions, which may or may not turn out to be correct. As a result, our NAV per share may not reflect the precise amount that might be paid to stockholders for their shares in a transaction.
Tax Risks Related to our Business and Structure
The requirement to distribute at least 90% of our taxable REIT income may require us to incur debt, sell assets, or issue additional securities for cash, which would increase the risks associated with your investment.
In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our taxable REIT income, other than any capital gains, and without regard to the deduction for dividends paid. To the extent that we distribute at least 90% but less than 100% of our taxable income in a calendar year, we will incur no federal corporate income tax on our distributed net income, but will incur a federal corporate income tax on any undistributed amounts. In addition, we will incur a 4% nondeductible excise tax if the actual amount we distribute to our stockholders in a calendar year is less than a minimum amount required. We intend to distribute at least 90% of our taxable income to our stockholders each year so that we will satisfy the distribution requirement and avoid the 4% excise tax. However, we could be required to include earnings in our taxable income before we actually receive the related cash. In the event that we do not distribute 100% of our taxable income, we will be subject to taxation at the REIT level on the amount of undistributed taxable income and to the extent we distribute such amount, you will be subject to taxation on it at the stockholder level.
We cannot assure you that we will make distributions. Our policy is to make such distributions on a quarterly basis. We will seek to minimize, to the extent possible, the fluctuations in distributions that might result if distribution payments were based solely on actual cash received during the distribution period. To implement this policy, we may use cash received during prior periods or cash received subsequent to the distribution period and prior to the payment date for such distribution payment, to pay annualized distributions consistent with the distribution level established from time to time by our Board of Directors. Our ability to maintain this policy will depend upon, among other things, the availability of cash and applicable requirements for qualification as a REIT under the Code. Therefore, we cannot guarantee that there will be cash available to pay distributions or that distributions will not fluctuate. If cash available for distribution is insufficient to pay distributions to our stockholders, we may distribute payment in the form of shares of our common stock or obtain the necessary funds by borrowing, issuing new securities, or selling assets. These methods of obtaining funds could affect future distributions by increasing operating costs.
To the extent that distributions to our stockholders are made out of our current or accumulated earnings and profits, such distributions would be taxable as ordinary income. To the extent that our distributions exceed our current and accumulated earnings and profits, such amounts will constitute a return of capital to our stockholders for federal income tax purposes, to the extent of their basis in their stock, and any amount in excess of their stock basis would constitute capital gains.
If we fail to remain qualified as a REIT for federal income tax purposes, we will not be able to deduct our distributions, and our income will be subject to taxation, which would reduce the cash available for distribution to our stockholders.
The requirements for qualification as a REIT are complex and administrative and judicial interpretations of the federal income tax laws governing REITs are limited. Our continued qualification as a REIT will depend on our ability to meet various requirements concerning, among other things, the ownership of our outstanding shares of beneficial interest, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. If we fail to meet these requirements and do not qualify for certain statutory relief provisions, our distributions to our stockholders will not be deductible by us and we will be subject to a corporate level tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates,
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substantially reducing our cash available to make distributions to our stockholders. In addition, if we failed to maintain our qualification as a REIT, we would no longer be required to make distributions for federal income tax purposes. Incurring corporate income tax liability might cause us to borrow funds, liquidate some of our investments or take other steps that could negatively affect our operating results. Moreover, if our REIT status is terminated because of our failure to meet a REIT qualification requirement or if we voluntarily revoke our election, unless relief provisions applicable to certain REIT qualification failures apply, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost. We may not qualify for relief provisions for REIT qualification failures and even if we can qualify for such relief, we may be required to make penalty payments, which could be significant in amount.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are taxed at individual rates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual income tax rates to perceive investments in REITs to be relatively less attractive than investments in stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. However, for tax years beginning after December 31, 2017, but before January 1, 2026, certain stockholders may be able to deduct up to 20% of “qualified REIT dividends” pursuant to Section 199A of the Internal Revenue Code of 1986, as amended (the “Code”), subject to certain limitations set forth in the Code.
We may be subject to adverse legislative or regulatory tax changes affecting REITs that could have a negative effect on us.
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, with or without retroactive application, could adversely affect our stockholders or us. We cannot predict how changes in the tax laws might affect our stockholders or us. New legislation, 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.
If the Operating Partnership fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and our REIT status would be terminated.
We intend to maintain the status of the Operating Partnership as a partnership for federal income tax purposes. However, if the Internal Revenue Service (“IRS”) were to successfully challenge the status of the Operating Partnership as a partnership, it 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 result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the return on our stockholders’ investments. In addition, if any of the entities through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, the underlying entity would become subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership and jeopardizing our ability to maintain REIT status.
If the Operating Partnership is classified as a “publicly traded partnership” under the Code, our operations and our ability to pay distributions to our stockholders could be adversely affected.
We believe that the Operating Partnership will be treated as a partnership, and not as an association or a publicly traded partnership for federal income tax purposes. In this regard, the Code generally classifies “publicly traded partnerships” (as defined in Section 7704 of the Code) as associations taxable as corporations (rather than as partnerships), unless substantially all of their taxable income consists of specified types of passive income. In order to minimize the risk that the Code would classify the Operating Partnership as a “publicly traded partnership” for tax purposes, we placed certain restrictions on the transfer and/or repurchase of partnership units in the Operating Partnership. However, if the IRS successfully determines that the Operating Partnership should be taxed as a corporation, the Operating Partnership would be required to pay U.S. federal income tax at corporate rates on its net income, its partners would be treated as stockholders of the Operating Partnership and distributions to partners would constitute non-deductible distributions in computing the Operating Partnership’s taxable income. In addition, we could fail to qualify as a REIT and the imposition of a corporate tax on the Operating Partnership would reduce the amount of cash available for distribution to our stockholders.
The “prohibited transactions” tax may limit our ability to dispose of our properties.
A REIT’s net gain or income from “prohibited transactions” is subject to a 100% penalty tax. In general, prohibited transactions are sale or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the
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ordinary course of business. Although a safe harbor regarding the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we will be able to comply with the safe harbor with respect to any sale of our properties or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in an otherwise attractive sale of property or may conduct such a sale through a taxable REIT subsidiary (which would subject such sale to federal and state income taxation).
Distributions to tax-exempt stockholders may be classified as unrelated business taxable income.
In general, neither ordinary, nor capital gains, distributions with respect to our common stock, nor gain from the sale of our common stock, should constitute unrelated business taxable income, or UBTI, to a tax-exempt stockholder. However, under certain limited circumstances, income and gain recognized by certain tax-exempt stockholders could be treated, in whole or in part, as UBTI.
Non-U.S. stockholders may be subject to FIRPTA taxation upon the sale of their shares of our common stock.
Subject to the exceptions described herein, a non-U.S. person generally is subject to U.S. federal income tax on gain recognized on a disposition of our stock under the Foreign Investment in Real Property Tax Act, or FIRPTA. However, such FIRPTA tax will not apply if we are “domestically controlled,” meaning less than 50% of our stock, by value, has been owned directly or indirectly by non-U.S. persons during a specified look-back period. In addition, even if we were not domestically controlled, such tax would not apply to such non-U.S. stockholder if our common stock was traded on an established securities market and such stockholder did not, at any time during the five-year period prior to a sale of our common stock, directly or indirectly own more than 5% of the value of our outstanding common stock. We cannot assure you that we will qualify as a “domestically controlled” REIT, although we expect our stock will be regularly traded on an established securities market.
Our capital gain distributions to non-U.S. stockholders attributable to our sales of U.S. real property interests may be subject to tax under FIRPTA.
A non-U.S. stockholder generally is subject to U.S. income tax on our capital gain distributions attributable to our sale of U.S. real property interests under FIRPTA. However, if our common stock is regularly traded on an established securities market, such distribution will not be subject to such tax if such stockholder did not, at any time during the one-year period preceding the distribution, directly or indirectly own more than 5% of the value of our outstanding common stock. While we expect our stock will be regularly traded on an established securities market, if it is not so traded, or if we are unable to determine the level of ownership of a particular non-U.S. stockholder, we may be required to withhold 21% of any distribution to such stockholder that we designate as a capital gain dividend.
Acquisition and Divestiture Risks
We may be unable to acquire properties on advantageous terms or acquisitions may not perform as we expect.
The acquisition of properties entails various risks, including risks that our investments may not perform as expected and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. Unanticipated difficulties and expenditures relating to any acquired properties, and newly acquired properties might require significant attention of the Company's management that would otherwise be devoted to our existing business. There is no assurance that we will fully realize the potential benefits of any past or future acquisition. Further, we face significant competition for attractive investment opportunities from other well-capitalized real estate investors, including publicly-traded REITs and private investors. This competition increases as investments in real estate become attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties and purchase prices may increase. Any of the above risks could adversely affect our financial condition, results of operations, cash flow and ability to make distributions to our stockholders and the value of our securities.
We may not be able to diversify our real property portfolio due to the number and size of our competitors.
Competition may adversely affect acquisition of properties and leasing operations. We compete for the purchase of commercial property with a variety of investors, including domestic and foreign entities, other REITs, insurance companies and pension funds, as well as corporate and individual developers and owners of real estate, some of which are publicly traded. Many of our competitors have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments. If our competitors prevent us from buying the properties that we have targeted for acquisition, we may not be able to meet our property acquisition goals. We may also incur costs on unsuccessful acquisitions that we will not be able to recover.
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We have obtained only limited warranties when we purchase properties and have only limited recourse if our due diligence did not identify any issues that lower the value of our properties.
We often purchase properties in their “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 often contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all our invested capital in the property as well as the loss of income from that property.
Lack of liquidity of real estate could make it difficult for us to sell properties within our desired time frame.
Our business is subject to risks normally associated with investment primarily in real estate. Real estate investments are relatively illiquid. Our ability to vary our portfolio in response to changes in economic and other conditions will be limited. We cannot assure you that we will be able to dispose of a property or interests in a property when we want or need to. Consequently, the sale price for any property we have purchased or may purchase in the future may not recoup or exceed the amount of our investment.
We may be unable to sell a property if or when we decide to do so, including as a result of uncertain market conditions, which could adversely affect the return on your investment.
We expect to hold the various real properties in which we invest until such time as we decide that a sale or other disposition is appropriate given our investment objectives. These sales or divestitures may affect our costs, revenues, profitability, and financial condition. Divestitures have inherent risks, including possible delays in closing transactions, the risk of lower-than-expected sales proceeds, and potential post-closing claims for indemnification. Our ability to dispose of properties or interests in properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties and potential negative impacts of climate change. We cannot predict the various market conditions affecting real estate investments which will exist at any particular time in the future. Due to the uncertainty of market conditions which may affect the future disposition of our properties, we cannot assure you that we will be able to sell our properties at a profit in the future. Accordingly, the extent to which you will receive cash distributions and realize potential appreciation on our real estate investments will be dependent upon fluctuating market conditions. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.
Our inability to identify or find funding for acquisitions could prevent us from diversification or growth and could adversely impact the value of an investment in us.
We may not be able to identify or obtain financing to acquire additional real properties. We are required to distribute at least 90% of our taxable income, excluding net capital gains, to our stockholders each year, and thus our ability to retain internally generated cash is very limited. Accordingly, our ability to acquire properties or to make capital improvements or renovate properties will depend on our available cash flow and our ability to obtain financing from third parties or the sellers of properties.
Investing in or owning properties through joint ventures creates a risk of loss to us as a result of the possible inaction or misconduct of a joint venture partner.
We may decide to acquire certain properties, or divest interests in existing properties, using a joint venture structure. Investments in joint ventures may involve certain risks not present were a third party not involved, including, for example:
Actions by such a co-venturer or partner might have the result of subjecting the applicable property to liabilities in excess of those otherwise contemplated and may have the effect of reducing our cash available for distribution. It also may be difficult for us to sell our interest in any such joint venture or partnership in such property.
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Risks Related to Our Use of Borrowed Funds
We have incurred and plan to incur mortgage and other indebtedness, which could result in material risk to our business if there is a default, including the loss of the real property.
Borrowings by us may increase the risks of owning shares of our company. If there is a shortfall between the cash flow generated by our properties and the cash flow needed to service our indebtedness, then the amount available for distributions to our stockholders will be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. If any mortgages or other indebtedness contain cross-collateralization or cross-default provisions, a default on a single loan could affect multiple properties.
Additionally, when providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may also contain covenants that limit our ability to further leverage a property. Our credit facility with Key Bank contains various affirmative and negative covenants, including, among others, with respect to liquidity, minimum occupancy, total indebtedness and minimum net worth. These or other limitations may limit our flexibility and our ability to achieve our operating plans. Our failure to meet such restrictions and covenants may result in an event of default under our line of credit and result in the foreclosure of some or all of our properties.
As we incur indebtedness which may be needed for operations, we increase expenses which could result in a decrease in cash available for distribution to our stockholders.
Debt service payments decrease cash available for distribution. In the event the fair market value of our properties was to increase, we could incur more debt without a commensurate increase in cash flow to service the debt.
Debt financing, the degree of leverage and rising interest rates could reduce our cash flow.
We use debt to allow us to make more investments than we otherwise could. Our use of leverage presents an additional element of risk in the event that the cash flow from our properties is insufficient to meet both debt payment obligations and the distribution requirements of the REIT provisions of the Code. In addition, rising interest rates have reduced our cash flow and future interest rate increases will reduce our cash flow by increasing the amount of interest due on our floating rate debt and on our fixed rate debt as it matures and is refinanced.
Prolonged disruptions in the financial markets could affect our ability to obtain financing on reasonable terms and have other adverse effects on us and the value of our common stock.
Global stock and credit markets experience price volatility, dislocations, and liquidity disruptions, which cause market prices of many stocks to fluctuate, availability of debt to be curtailed and the spreads on prospective debt financings to widen considerably. These circumstances materially impact liquidity in the financial markets, making terms for certain financings less attractive, and, in certain cases, result in the unavailability of certain types of financing. Our profitability will be adversely affected if we are unable to obtain cost-effective financing for our investments. A prolonged downturn in the stock or credit markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. These events in the stock and credit markets may also make it more difficult for us to raise capital.
We have incurred and will incur indebtedness secured by our properties, which may subject our properties to foreclosure in the event of a default.
Incurring mortgage indebtedness increases the risk of possible loss. Most of our borrowings would be secured by mortgages on our properties. The Company’s current total secured indebtedness as of December 31, 2023 was $469.1 million. If we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan, which would adversely affect distributions to stockholders. For federal tax purposes, any such foreclosure would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage and, if the outstanding balance of the debt secured by the mortgage exceeds the basis of the property to our company, there could be taxable income upon a foreclosure. To the extent lenders require our company to cross-collateralize our properties, or our loan agreements contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure. In addition, the foreclosure of certain of our properties may trigger additional liabilities for us, such as payments which may be required pursuant to the Tax Protection Agreement.
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Possible Adverse Consequences of Limits on Ownership and Transfer of our Shares
The limitation on ownership of our stock in our charter will prevent you from acquiring more than 9.9% of our common stock and may force you to sell common stock back to us.
Our charter limits the beneficial and constructive ownership of our capital stock by any single stockholder to 9.9% of the number of outstanding shares of each class or series of our stock including our common stock. We refer to these limitations as the ownership limits. Our charter also prohibits the beneficial or constructive ownership of our capital stock by any stockholder that would result in (1) our capital stock being beneficially owned by fewer than 100 persons, (2) five or fewer individuals, including natural persons, private foundations, specified employee benefit plans and trusts, and charitable trusts, owning more than 50% of our capital stock, applying broad attribution rules imposed by the federal tax laws, and (3) our company otherwise failing to qualify as a REIT for federal tax purposes. In addition, any attempted transfer of our capital stock that would result in the Company being beneficially owned by less than 100 persons will be disallowed.
Anti-takeover Provisions Related to Us
Limitations on share ownership and transfer may deter a sale of our company in which you could profit.
The limits on ownership and transfer of our equity securities in our charter may have the effect of delaying, deferring, or preventing a transaction or a change in control of our company that might involve a premium price for your common stock. The ownership limits and restrictions on transferability will continue to apply until our Board of Directors determines that it is no longer in our best interest to continue to qualify as a REIT.
Our ability to issue preferred stock with terms fixed by the Board of Directors may include a preference in distributions superior to our common stock and also may deter or prevent a sale of our company in which a stockholder could otherwise profit.
Our ability to issue preferred stock and other securities without your approval also could deter or prevent someone from acquiring our company. Our Board of Directors may establish the preferences and rights, including a preference in distributions superior to our common stockholders, of any issued preferred stock designed to prevent, or with the effect of preventing, someone from acquiring control of our company.
Maryland anti-takeover statute restrictions may deter others from seeking to acquire our company in a transaction in which a stockholder could profit.
Maryland law contains many provisions, such as the business combination statute and the control share acquisition statute, that are designed to prevent, or have the effect of preventing, someone from acquiring control of our company without approval of our Board of Directors. Our bylaws exempt our company from the control share acquisition statute (which eliminates voting rights for certain levels of shares that could exercise control over us) and our Board of Directors has adopted a resolution opting out of the business combination statute (which prohibits a merger or consolidation of us and a 10% stockholder for a period of time) with respect to affiliates of our company. However, if the bylaw provisions exempting our company from the control share acquisition statute or the board resolution opting out of the business combination statute were repealed by the Board of Directors, in its sole discretion, these provisions of Maryland Law could delay or prevent offers to acquire our company and increase the difficulty of consummating any such offers.
Because of our staggered Board of Directors, opposition candidates would have to be elected in two separate years to constitute a majority of the Board of Directors, which may deter a change of control from which a stockholder could profit.
We presently have eight members of our Board of Directors. Each director has or will have a three-year term. Accordingly, in order to change a majority of our Board of Directors, a third party would have to wage a successful proxy contest in two successive years, which is a situation that may deter proxy contests.
Certain provisions of our charter make stockholder action more difficult, which could deter changes beneficial to our stockholders.
We have certain provisions in our charter and bylaws that require super-majority voting and regulate the opportunity to nominate directors and to bring proposals to a vote by the stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C. CYBERSECURITY
We are committed to ensuring the confidentiality, availability and integrity of our data. Our cybersecurity strategy is informed, maintained and updated through various methodologies and external resources. As the concerns and issues evolve in cybersecurity, we remain focused on resiliency and continuous improvement to help enhance our cyber posture. We regularly reevaluate the threat landscape and evolve our controls to address new vulnerabilities and threats.
Risk Management and Strategy
We regularly utilize information technology and data to operate our business. We have implemented and maintain various information security processes designed to identify, assess and manage material risks from cybersecurity threats to critical computer networks, third party hosted services, communications systems, software, and hardware. Our critical data includes confidential, personal, and proprietary data (collectively “Information Assets”). The Company’s risk management program is designed to manage identified material risks, which would include material cybersecurity risks. We rely on a team of internal and external resources, including external information technology and information security vendors to assess how identified cybersecurity threats could impact our business. These assessments may leverage, among other processes, industry tools and metrics designed to assist in the assessment of risks from such cybersecurity threats.
Accordingly, we work with third party providers to assess the environment to identify cybersecurity threats, determine their likelihood of occurring, and assess potential material impact to our business. Based on the risk assessment, we implement and maintain risk management processes designed to protect the confidentiality, integrity, and availability of our Information Assets and mitigate harm to our business.
We implement and maintain various technical, physical and organizational controls designed to manage and mitigate material risks from cybersecurity threats to our Information Assets. The cybersecurity risk management and mitigation measures we implement for certain of our Information Assets include: policies and procedures designed to address information security, including external assessments to consider our exposure to cybersecurity threats, environment, compliance with risk mitigation procedures, and effectiveness of relevant controls; documented risk assessments; encryption of data; network security controls; physical and electronic access controls; asset management, tracking and disposal; systems monitoring; and employee security training. We also have a cybersecurity training and compliance program in place for the Company whereby our connected employees are tested routinely through simulated phishing attempts.
We have not identified known risks, including as a result of prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations or financial condition. We face certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations or financial condition. For a description of the risks from cybersecurity threats that may materially affect us and how they may do so, refer to Part I, Item 1A. Risk Factors for additional information about cybersecurity-related risks.
Governance
Our cybersecurity risk assessment and management processes are implemented and maintained by Company management. The Chief Executive Officer, President and Chief Financial Officer discuss the cybersecurity programming. The Chief Financial Officer is responsible for the ongoing engagement of outside third parties to evaluate and update controls as recommended. Management is also responsible for working with appropriate third party vendors to evaluate the Company’s risk profile and to update the controls for the Company’s technology resources. Management is tasked with integrating cybersecurity considerations into the Company’s overall risk management strategy, focus on appropriate priorities and approving related budgets, helping prepare for cybersecurity incidents, and soliciting and reviewing security assessments.
Our board of directors addresses the Company’s cybersecurity risk management as part of its general oversight function. The Board is responsible for overseeing the Company’s cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats. The Board also has access to various reports, summaries or presentations related to cybersecurity threats, risk, and mitigation.
Management is involved with the Company’s efforts to prevent, detect, and mitigate cybersecurity incidents by overseeing preparation of cybersecurity policies and procedures. Management participates in cybersecurity incident response by anticipating and directing the Company’s response to cybersecurity incidents. Our cybersecurity incident response processes are designed to identify and escalate certain cybersecurity incidents and vulnerabilities to members of management. Depending on the circumstances, management may work with third party experts and escalate to the Board as necessary.
28
ITEM 2. PROPERTIES
The Company’s 49 properties as of December 31, 2023 are as follows:
|
|
Property Type |
|
Square Feet |
|
|
Land Acreage |
|
||
New York |
|
|
|
|
|
|
|
|
||
103 Fairview Park Drive, Elmsford, NY |
|
Industrial |
|
|
112,447 |
|
|
|
5.6 |
|
412 Fairview Park Drive, Elmsford, NY (1) |
|
Industrial |
|
|
439,956 |
|
|
|
10.1 |
|
401 Fieldcrest Drive, Elmsford, NY (1) |
|
Industrial |
|
|
313,632 |
|
|
|
7.2 |
|
404 Fieldcrest Drive, Elmsford, NY |
|
Industrial |
|
|
78,674 |
|
|
|
8.7 |
|
199 Ridgewood Drive, Elmsford, NY |
|
Industrial |
|
|
28,050 |
|
|
|
5.4 |
|
203 Ridgewood Drive, Elmsford, NY |
|
Industrial |
|
|
32,000 |
|
|
|
7.0 |
|
36 Midland Avenue, Port Chester, NY |
|
Industrial |
|
|
78,287 |
|
|
|
3.6 |
|
100-110 Midland Avenue, Port Chester, NY |
|
Industrial |
|
|
162,444 |
|
|
|
7.5 |
|
112 Midland Avenue, Port Chester, NY |
|
Retail |
|
|
3,200 |
|
|
|
1.1 |
|
8 Slater Street, Port Chester, NY |
|
Industrial |
|
|
68,812 |
|
|
|
2.3 |
|
165-25 147th Avenue, Jamaica, NY |
|
Industrial |
|
|
151,068 |
|
|
|
6.6 |
|
114-15 Guy Brewer Boulevard, Jamaica, NY |
|
Industrial |
|
|
75,800 |
|
|
|
4.6 |
|
49-19 Rockaway Beach Boulevard, Far Rockaway, NY |
|
Industrial |
|
|
28,790 |
|
|
|
3.0 |
|
23-85 87th Street, East Elmhurst, NY (1) |
|
Industrial |
|
|
363,500 |
|
|
|
7.1 |
|
85-01 24th Avenue, East Elmhurst, NY |
|
Industrial |
|
|
118,430 |
|
|
|
6.4 |
|
612 Wortman Avenue, Brooklyn, NY (1) |
|
Industrial |
|
|
453,435 |
|
|
|
10.4 |
|
28-20 Borden Avenue, Long Island City, NY (1) |
|
Industrial |
|
|
83,635 |
|
|
|
1.9 |
|
606 Cozine Avenue, Brooklyn, NY |
|
Industrial |
|
|
57,786 |
|
|
|
1.3 |
|
201 Neelytown Road, Montgomery, NY |
|
Industrial |
|
|
248,370 |
|
|
|
43.7 |
|
New Jersey |
|
|
|
|
|
|
|
|
||
100 American Road, Morris Plains, NJ |
|
Industrial |
|
|
127,797 |
|
|
|
7.0 |
|
200 American Road, Morris Plains, NJ |
|
Industrial |
|
|
45,898 |
|
|
|
6.0 |
|
300 American Road, Morris Plains, NJ |
|
Industrial |
|
|
84,863 |
|
|
|
10.3 |
|
400 American Road, Morris Plains, NJ |
|
Industrial |
|
|
93,039 |
|
|
|
9.2 |
|
500 American Road, Morris Plains, NJ |
|
Industrial |
|
|
98,169 |
|
|
|
11.4 |
|
20 East Halsey Road, Parsippany, NJ |
|
Industrial |
|
|
60,600 |
|
|
|
7.8 |
|
1110 Centennial Avenue, Piscataway, NJ |
|
Industrial |
|
|
21,189 |
|
|
|
2.8 |
|
11 Constitution Avenue, Piscataway, NJ |
|
Industrial |
|
|
60,516 |
|
|
|
5.6 |
|
21 Constitution Avenue, Piscataway, NJ |
|
Industrial |
|
|
288,140 |
|
|
|
21.1 |
|
4 Corporate Place, Piscataway, NJ |
|
Industrial |
|
|
151,641 |
|
|
|
8.4 |
|
8 Corporate Place, Piscataway, NJ |
|
Industrial |
|
|
143,115 |
|
|
|
8.4 |
|
25 Corporate Place, Piscataway, NJ |
|
Office/Data Center |
|
|
49,355 |
|
|
|
7.4 |
|
1938 Olney Avenue, Cherry Hill, NJ |
|
Industrial |
|
|
109,771 |
|
|
|
7.2 |
|
Connecticut |
|
|
|
|
|
|
|
|
||
466 Bridgeport Avenue, Shelton, CT |
|
Industrial |
|
|
46,649 |
|
|
|
4.3 |
|
470 Bridgeport Avenue, Shelton, CT |
|
Industrial |
|
|
152,610 |
|
|
|
12.8 |
|
15 Progress Drive/ 30 Commerce Drive, Shelton, CT |
|
Industrial |
|
|
53,570 |
|
|
|
10.0 |
|
33 Platt Road, Shelton, CT |
|
Industrial |
|
|
125,794 |
|
|
|
21.5 |
|
950 Bridgeport Avenue, Milford, CT |
|
Industrial |
|
|
104,126 |
|
|
|
5.2 |
|
12 Cascade Boulevard, Orange, CT |
|
Industrial |
|
|
98,634 |
|
|
|
4.8 |
|
15 Executive Boulevard, Orange, CT |
|
Industrial |
|
|
112,093 |
|
|
|
5.2 |
|
25 Executive Boulevard, Orange, CT |
|
Industrial |
|
|
27,151 |
|
|
|
2.8 |
|
35 Executive Boulevard, Orange, CT |
|
Industrial |
|
|
41,600 |
|
|
|
3.8 |
|
22 Marsh Hill Road, Orange, CT |
|
Industrial |
|
|
89,630 |
|
|
|
6.4 |
|
269 Lambert Road, Orange, CT |
|
Industrial |
|
|
102,610 |
|
|
|
6.3 |
|
110 Old County Circle, Windsor Locks, CT |
|
Industrial |
|
|
226,695 |
|
|
|
15.6 |
|
120 Old County Circle, Windsor Locks, CT |
|
Industrial |
|
|
83,200 |
|
|
|
7.0 |
|
4 Meadow Street, Norwalk, CT |
|
Industrial |
|
|
50,460 |
|
|
|
2.9 |
|
777 Brook Street, Rocky Hill, CT |
|
Industrial |
|
|
92,500 |
|
|
|
12.1 |
|
Delaware |
|
|
|
|
|
|
|
|
||
300 McIntire Drive, Newark, DE |
|
Industrial |
|
|
208,656 |
|
|
|
12.4 |
|
North Carolina |
|
|
|
|
|
|
|
|
||
1000 Exchange Street, Charlotte, NC (1) |
|
Industrial |
|
|
435,600 |
|
|
|
10.0 |
|
Total |
|
|
|
|
6,283,987 |
|
|
|
399.2 |
|
29
Our Leases
Substantially all of our leases are net or ground leases under which the tenant, in addition to its rental obligation, typically is responsible for expenses attributable to the operation of the property, such as real estate taxes and operating costs. The tenant is also generally responsible for maintaining the property and for restoration following a casualty or partial condemnation. The tenant is typically obligated to indemnify us for claims arising from the property and is responsible for maintaining insurance coverage for the property it leases and naming us an additional insured. The Company typically evaluates a tenant’s credit quality by reviewing the tenant’s financial information, rating agency reports and credit reports, when available, and other sources of information that can be useful in determining a tenant’s credit worthiness and financial condition. The Company monitors the tenants’ credit worthiness and financial condition throughout the term of their leases by requiring them to provide financial and other information necessary as per the terms of their respective leases, by reviewing rating agency reports and credit reports, when available and reviewing other available sources of information.
Our typical lease provides for contractual rent increases periodically throughout the term of the lease or for rent increases pursuant to a formula based on the consumer price index. Our policy has been to acquire properties that are subject to existing long-term leases or to enter into long-term leases with our tenants. Our leases generally provide the tenant with one or more renewal options.
The following table sets forth scheduled lease expirations of leases for our properties as of December 31, 2023:
Year of Lease Expiration(1) |
|
Number of |
|
|
Square Foot of |
|
|
2024 Contractual |
|
|
Percent of 2024 |
|
||||
2024 |
|
|
4 |
|
|
|
207,287 |
|
|
$ |
640,625 |
|
|
|
1 |
% |
2025 |
|
|
6 |
|
|
|
793,623 |
|
|
|
3,348,495 |
|
|
|
5 |
% |
2026 |
|
|
9 |
|
|
|
442,385 |
|
|
|
4,632,189 |
|
|
|
7 |
% |
2027 |
|
|
12 |
|
|
|
1,099,468 |
|
|
|
17,220,735 |
|
|
|
27 |
% |
2028 |
|
|
6 |
|
|
|
751,507 |
|
|
|
10,049,943 |
|
|
|
16 |
% |
2029 |
|
|
4 |
|
|
|
194,524 |
|
|
|
2,782,983 |
|
|
|
5 |
% |
2030 |
|
|
4 |
|
|
|
427,166 |
|
|
|
3,932,551 |
|
|
|
6 |
% |
2031 |
|
|
6 |
|
|
|
613,069 |
|
|
|
6,021,758 |
|
|
|
10 |
% |
2032 |
|
|
5 |
|
|
|
972,304 |
|
|
|
4,911,706 |
|
|
|
8 |
% |
2033 |
|
|
5 |
|
|
|
566,337 |
|
|
|
9,585,769 |
|
|
|
15 |
% |
2034 and after |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
61 |
|
|
|
6,067,670 |
|
|
$ |
63,126,754 |
|
|
|
100 |
% |
Portfolio of Real Estate Investments
The following represents information about our portfolio as of December 31, 2023:
Location of Property |
|
Number of |
|
Number of |
|
|
Number of |
|
|
2024 Contractual |
|
|
Percent of 2024 |
|
||||
NYC, NY |
|
Industrial |
|
|
9 |
|
|
|
8 |
|
|
$ |
27,498,321 |
|
|
|
44 |
% |
New York |
|
Industrial/Retail |
|
|
18 |
|
|
|
11 |
|
|
$ |
11,472,208 |
|
|
|
18 |
% |
Connecticut |
|
Industrial |
|
|
15 |
|
|
|
15 |
|
|
$ |
9,003,604 |
|
|
|
14 |
% |
New Jersey |
|
Industrial/Office |
|
|
17 |
|
|
|
13 |
|
|
$ |
12,264,142 |
|
|
|
19 |
% |
Delaware |
|
Industrial |
|
|
1 |
|
|
|
1 |
|
|
$ |
1,180,777 |
|
|
|
2 |
% |
North Carolina |
|
Industrial |
|
|
1 |
|
|
|
1 |
|
|
$ |
1,707,702 |
|
|
|
3 |
% |
Total |
|
|
|
|
61 |
|
|
|
49 |
|
|
$ |
63,126,754 |
|
|
|
100 |
% |
Financing, Re-Renting and Disposition of Our Properties
We may borrow funds on a secured and unsecured basis and intend to do so in the future. We also mortgage specific properties on a non-recourse basis subject to industry standard carve-outs, to enhance the return on our investment. The proceeds of
30
mortgage loans may be used for property acquisitions, investments in joint ventures or other entities that own real property, to reduce bank debt and for working capital purposes. Net proceeds received from the sale of a property are generally required to be used to repay amounts outstanding under debt secured by the property sold. See Note 4. “Mortgage Notes Payable” and Note 5. “Secured Revolving Credit Facility & Term Loan Payable” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
With respect to properties we acquire on a free and clear basis, we usually seek to obtain long-term fixed-rate mortgage financing, when available at acceptable terms, shortly after the acquisition of such property to avoid the risk of movement of interest rates and fluctuating supply and demand in the mortgage markets. We also will acquire a property that is subject to (and will assume) a fixed-rate mortgage. Some of our properties may be financed on a cross-defaulted or cross-collateralized basis.
After termination or expiration of any lease relating to any of our properties, we will seek to re-rent or sell such property in a manner that will maximize the return to us, considering, among other factors, the income potential and market value of such property. We acquire properties for long-term investment for income purposes and do not typically engage in the turnover of investments. We will consider the sale of a property if a sale appears advantageous in view of our investment objectives. We may take back a purchase money mortgage as partial payment in lieu of cash in connection with any sale and may consider local customary and prevailing market conditions in negotiating the terms of repayment. If there is a substantial tax gain, we may seek to enter into a tax deferred transaction and reinvest the proceeds in another property. It is our policy to use any cash realized from the sale of properties, net of any distributions to stockholders, to pay down amounts due under our credit facility, if any, and for the acquisition of additional properties.
Real Property Used By the Company in Its Business
The real property used by us as of December 31, 2023, for the day-to-day conduct of our businesses is as follows (this property is leased):
Location |
|
Facility |
|
Monthly Rent/ |
|
Purpose |
Garden City, NY |
|
Office |
|
$28,588/ 1/31/2032 |
|
Executive Offices |
ITEM 3. LEGAL PROCEEDINGS
We are involved in lawsuits and other disputes which, from time to time, arise in the ordinary course of business. However, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on our financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
31
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Equity
Currently, there is no public market for our common stock, and we do not expect a market to develop in the near future. We have no current plans to list our common stock on any securities exchange or quoted on any market system.
Outstanding Common Stock and Holders
As of March 12, 2024, we had 13,326,965 shares issued and outstanding, held by 588 stockholders of record (of which less than 500 are non-accredited investors for the purposes of Section 12(g) of the Exchange Act).
Distributions
Our Board of Directors has declared and paid cash dividends on a quarterly basis. On March 12, 2024, our Board of Directors declared a supplemental quarterly cash dividend of $0.66 per share of common stock, payable with respect to the year ended December 31, 2023, to common stockholders of record as of the close of business on March 31, 2024, payable on April 12, 2024. On March 12, 2024, our Board of Directors declared a cash dividend of $0.12 per share of common stock, payable with respect to the first quarter ended March 31, 2024, to stockholders of record as of the close of business on March 31, 2024, payable on April 15, 2024. The following table shows the declaration dates and the amounts distributed per share for the years ended December 31, 2023 and 2022:
Record |
|
Dividend |
|
Declaration |
|
Payment |
|
$ Amount |
12/31/2023 |
|
Regular |
|
11/7/2023 |
|
1/12/2024 |
|
0.10 |
|
|
|
|
|
|
|
|
|
9/30/2023 |
|
Regular |
|
8/1/2023 |
|
10/16/2023 |
|
0.10 |
|
|
|
|
|
|
|
|
|
6/30/2023 |
|
Regular |
|
6/8/2023 |
|
7/14/2023 |
|
0.10 |
|
|
|
|
|
|
|
|
|
3/31/2023 |
|
Regular |
|
3/14/2023 |
|
4/17/2023 |
|
0.10 |
|
|
|
|
|
|
|
|
|
3/31/2023 |
|
Supplemental |
|
3/14/2023 |
|
4/14/2023 |
|
0.33 |
|
|
|
|
|
|
|
|
|
12/31/2022 |
|
Regular |
|
11/2/2022 |
|
1/13/2023 |
|
0.10 |
|
|
|
|
|
|
|
|
|
9/30/2022 |
|
Regular |
|
8/2/2022 |
|
10/14/2022 |
|
0.10 |
|
|
|
|
|
|
|
|
|
6/30/2022 |
|
Regular |
|
6/9/2022 |
|
7/15/2022 |
|
0.10 |
|
|
|
|
|
|
|
|
|
3/31/2022 |
|
Regular |
|
3/15/2022 |
|
4/18/2022 |
|
0.10 |
|
|
|
|
|
|
|
|
|
3/31/2022 |
|
Supplemental |
|
3/15/2022 |
|
4/15/2022 |
|
0.32 |
We have determined for income tax purposes that the 2023 regular dividends were considered ordinary dividend distributions. The total distributions paid in 2023 were the result of cash flow from operations.
Although we intend to continue to declare and pay quarterly dividends, no assurances can be made as to the amounts of any future payments. The declaration of any future dividends is within the discretion of the Board of Directors and will be dependent upon, among other things, our earnings, financial condition and capital requirements, as well as any other factors deemed relevant by the Board. Two principal factors in determining the amounts of distributions are (i) the Code requirement that a REIT distribute to stockholders at least 90% of its REIT taxable income, and (ii) the amount of available cash.
32
Purchase of Securities:
Share Redemption Program
Our common stock is currently not registered under Section 12 of the Exchange Act and there is no established public market for shares of our common stock. In order to provide our stockholders with interim liquidity, on November 8, 2016, the Board of Directors approved a share redemption program authorizing redemption of the Company’s shares of common stock (the “Shares”), subject to certain conditions and limitations. On June 30, 2022, the Board of Directors amended and restated the share redemption program, effective as of August 8, 2022 (the "Program"), in order to increase the limit of the amount of redemptions permitted each year from $1 million to $2 million, and starting in 2023, to limit the number of redemptions receiving priority for death or disability to $1 million each year. The following is a summary of terms and provisions of the Program:
Under the Program, the redemption price per Share is equal to 90% of the NAV per Share as of the end of the most recently completed calendar year. The NAV is approved annually by the Company’s Board of Directors. The following table presents the results of the Program:
33
|
Valuation Date |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
||||
|
December 31, |
|
NAV |
|
|
Redemption Price |
|
|
Shares Redeemed |
|
|
Redemption Date |
|
Consideration |
|
||||
|
2016 |
|
$ |
13.94 |
|
|
$ |
12.55 |
|
|
|
79,681 |
|
|
November 30, 2017 |
|
$ |
999,997 |
|
|
2017 |
|
$ |
14.36 |
|
|
$ |
12.92 |
|
|
|
77,399 |
|
|
May 31, 2018 |
|
$ |
999,995 |
|
|
2018 |
|
$ |
15.09 |
|
|
$ |
13.58 |
|
|
|
73,637 |
|
|
May 31, 2019 |
|
$ |
999,990 |
|
(1) |
2019 |
|
$ |
15.54 |
|
|
$ |
13.99 |
|
|
|
- |
|
|
- |
|
$ |
- |
|
|
2020 |
|
$ |
17.52 |
|
|
$ |
15.77 |
|
|
|
63,411 |
|
|
November 30, 2021 |
|
$ |
999,991 |
|
|
2021 |
|
$ |
22.25 |
|
|
$ |
20.03 |
|
|
|
49,925 |
|
|
June 3, 2022 |
|
$ |
999,998 |
|
|
2021 |
|
$ |
22.25 |
|
|
$ |
20.03 |
|
|
|
49,925 |
|
|
December 1, 2022 |
|
$ |
999,998 |
|
|
2022 |
|
$ |
23.39 |
|
|
$ |
21.05 |
|
|
|
95,011 |
|
|
June 2, 2023 |
|
$ |
1,999,982 |
|
On July 6, 2021, the Program was temporarily suspended during the Company’s self-tender offer and remained suspended for ten (10) business days following the expiration of the offer. The first redemption date following the recommencement of the Program was November 30, 2021.
Since the Program became effective in 2017, the Company received redemption requests during each year exceeding the Program’s annual limit (other than in 2020 when the Program was suspended). As a result, the Company was unable to purchase all Shares presented for redemption. The Company honored the requests it received on a pro rata basis in accordance with the policy on priority of redemptions set forth in the Program, subject to giving certain priorities in accordance with the Program. The Company treats any unsatisfied portions of redemption requests as requests for redemption in the next semi-annual period.
On March 19, 2024, the Company received its annual valuation as of December 31, 2023. The annual valuation resulted in an adjustment to the redemption price under the Program from $21.05 to $26.10 per share. The Company has filed a Current Report on Form 8-K with the SEC on March 20, 2024, and mailed to its stockholders an announcement of the redemption price adjustment. The redemption price of $26.10 per share will be effective for the semi-annual period running from December 1, 2023 to May 31, 2024 and until such time as the Board determines a new estimated per share NAV. The Company’s stockholders are permitted to withdraw any redemption requests upon written notice to the Company at any time prior to ten (10) days before the end of the applicable semi-annual period.
Tender Offers:
On February 15, 2019, MacKenzie Badger Acquisition Co. 4, LLC, MPF DeWaay Premier Fund 3, LLC, MPF Northstar Fund, LP, MPF Northstar Fund 2, LP and Mackenzie Capital Management, LP commenced a tender offer to purchase up to 100,000 shares of the Company’s common stock, par value $0.0001 per share, for cash at a purchase price equal to $7.00 per share. The offer and withdrawal rights expired at 11:59 p.m., Pacific Time, on March 22, 2019. No shares were tendered pursuant to the tender offer.
On February 15, 2019, the Company commenced a self-tender offer to purchase up to 100,000 shares of the Company’s common stock, par value $0.0001 per share, for cash at a purchase price equal to $8.50 per share. The offer and withdrawal rights expired at 12:00 midnight, New York City Time, on April 5, 2019. The Program was temporarily suspended during this offer as required by SEC rules. No repurchases were made under the Program during the offer and for ten (10) business days thereafter. Pursuant to the self-tender offer, 37,910 shares were tendered and the Company purchased these shares for $322,235 on April 9, 2019. The suspension of the Program was terminated on April 22, 2019, and thereafter the Company recommenced purchases under the Program.
On February 13, 2020, the Company commenced a self-tender offer to purchase up to 425,531 shares of the Company’s common stock, par value $0.0001 per share, for cash at a purchase price equal to $11.75 per share. On March 30, 2020, the Company announced that it had terminated the offer as a result of conditions to the offer not having been satisfied resulting from the COVID-19 pandemic. As a result of this termination, no shares were purchased in the offer and all shares previously tendered and not withdrawn were promptly returned to tendering holders.
On July 6, 2021, the Company commenced a self-tender offer to purchase up to 428,571 shares of the Company’s common stock, par value $0.0001 per share, for cash at a purchase price equal to $14.00 per share, for an aggregate of $5,999,994 of Shares. The offer and withdrawal rights expired at 12:00 midnight, New York City Time, on August 9, 2021. The Program was temporarily suspended during this offer as required by SEC rules. No repurchases were made under the Program during the offer and
34
for ten (10) business days thereafter. Pursuant to the self-tender offer, 377,107 shares were tendered and the Company purchased these shares for $5,279,498 on August 11, 2021. The suspension of the Program was terminated on August 24, 2021, and thereafter the Company recommenced purchases under the Program.
ITEM 6. [RESERVED]
Not Applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussions contain forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in this report under “Forward-Looking Statements” and under “Risk Factors.” You should read the following discussion in conjunction with our consolidated financial statements and notes appearing elsewhere in this filing. Past performance is not a guarantee of future results. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed in “Risk Factors” and elsewhere in this report and the risks discussed in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof, unless otherwise required by law.
Executive Summary
We are a fully integrated, self-administered and self-managed REIT, engaged in the acquisition, ownership, and management of commercial real estate. As of December 31, 2023, we owned 49 properties, which are predominately industrial/warehouse locations leased on a net lease basis. The Company typically evaluates a tenant’s credit quality by reviewing its financial information, rating agency reports and credit reports, when available, and other sources of information that can be useful in determining a tenant’s creditworthiness and financial condition.
On January 17, 2013, we acquired all outstanding ownership interests of a portfolio consisting of 25 commercial properties located in New York, New Jersey, and Connecticut in exchange for 33.29% of the outstanding limited partnership interest in the Operating Partnership. The outstanding limited partnership interest in the Operating Partnership was increased to 33.78% due to post-closing adjustments. The subsequent redemption of certain shares of GTJ REIT common stock and purchases of a portion of the outstanding limited partnership interest have resulted in a net decrease in the outstanding limited partnership interest in the Operating Partnership to 16.69% as of December 31, 2023. As a result of this acquisition, the Company's then existing 7 properties, the subsequent acquisition of 19 properties and the sale of 2 properties from 2014 through 2023, the Company beneficially owns an 83.31% interest in a total of 49 properties consisting of approximately 6.3 million square feet of primarily industrial properties on approximately 399 acres of land in New York, New Jersey, Connecticut, Delaware and North Carolina as of December 31, 2023.
We continue to seek opportunities to acquire properties. We will seek to acquire properties within geographic areas that will satisfy our primary investment objectives of providing our stockholders with stable cash flow, preservation of capital and growth of income and principal without taking undue risk. Because a significant factor in the valuation of income-producing property is the potential for future income, we anticipate that the majority of properties that we will acquire will have both the potential for growth in value and provide for cash distributions to stockholders.
Critical Accounting Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our consolidated financial statements. Actual results could differ from these estimates. A summary of our significant accounting policies is presented in Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this report. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this report and require the application of significant judgment by management and, as a result, are subject to a degree of uncertainty.
35
Revenue Recognition:
We recognize our rental revenue on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Rental revenue related to tenants where the collectability of lease payments is not deemed probable will be recorded on a cash basis and the write-off of the entire tenant receivable, including straight-line rent receivable, is presented as a reduction of revenue rather than as an operating expense on the statement of operations. In those instances in which we fund tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When we determine that the tenant allowances are lease incentives, we commence revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The properties are being leased to tenants under operating leases.
Property operating expense recoveries from tenants of common area maintenance, real estate taxes, insurance, and other recoverable costs are recognized in rental income in the period the related expenses are incurred. Property operating expenses paid directly by tenants to third parties are excluded from rental income.
Real Estate:
Real estate assets are stated at cost, less accumulated depreciation and amortization. All costs related to the improvement or replacements of real estate properties are capitalized. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.
The Company capitalizes all direct costs of real estate under development until the end of the development period. In addition, the Company capitalizes the indirect cost of insurance and real estate taxes allocable to real estate under development during the development period. The Company also capitalizes interest using the avoided cost method for real estate under development during the development period. The Company will cease the capitalization of these costs when development activities are substantially completed and the property is available for occupancy by tenants, but no later than one year from the completion of major construction activity at which time the property is placed in service and depreciation commences. If the Company suspends substantially all activities related to development of a qualifying asset, the Company will cease capitalization of these costs until activities are resumed.
Upon the acquisition of real estate properties, the relative fair value of the real estate purchased is allocated to the acquired tangible assets (generally consisting of land, buildings and building improvements, and tenant improvements) and identified intangible assets and liabilities (generally consisting of above-market and below-market leases and the origination value of in-place leases) in accordance with GAAP. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property “as-if-vacant.” In allocating the purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the differences between contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants. Fixed-rate renewal options have been included in the calculation of the fair value of acquired leases where applicable. The aggregate value of in-place leases is measured based on the avoided costs associated with lack of revenue over a market-oriented lease-up period, the avoided leasing commissions, and other avoided costs common in similar leasing transactions.
Mortgage notes payable assumed in connection with acquisitions are recorded at their fair value using current market interest rates for similar debt at the time of acquisitions.
The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on our evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The value of in-place leases is amortized over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of the related intangible assets or liabilities is recorded as income or expense in the period.
Real Estate Impairment:
Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the
36
undiscounted future cash flows that are expected to result from the real estate investment’s use and eventual disposition. Such cash flow analyses consider assumptions such as expected future market rents, future revenue, market capitalization rates and holding periods, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate holdings. These assessments could have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made. Management has determined that there were no impairment charges relating to its remaining long-lived assets during the years ended December 31, 2023 and December 31, 2022, respectively.
Income Taxes:
We are organized and conduct our operations to qualify as a REIT for Federal income tax purposes. Accordingly, we will generally not be subject to Federal income taxation on that portion of our distributable income that qualifies as REIT taxable income, to the extent that we distribute at least 90% of our REIT taxable income to our stockholders and comply with certain other requirements as defined under the Code.
We also participate in certain activities conducted by entities which elected to be treated as taxable subsidiaries under the Code. As such we are subject to federal, state and local taxes on the income from these activities.
For our taxable subsidiaries, we account for income taxes under the asset and liability method, as required by the provisions of Accounting Standards Codification (“ASC”) 740-10-30. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance for deferred tax assets for which we do not consider realization of such assets to be more likely than not.
Stock-Based Compensation:
We account for stock-based compensation in accordance with ASC 718, which establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of the award, and the expense is recognized in earnings at the grant date (for the portion that vests immediately) or ratably over the respective vesting periods. The impact of the forfeiture of stock-based awards is recognized as forfeitures occur.
37
Summary of Operations
Results of Operations:
Year Ended December 31, 2023 as compared with Year Ended December 31, 2022
The following table sets forth our results of operations for the years indicated (in thousands):
|
|
Year Ended December 31, |
|
|
Increase/(Decrease) |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
Percent |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental income |
|
$ |
75,273 |
|
|
$ |
65,534 |
|
|
$ |
9,739 |
|
|
|
15 |
% |
Total revenues |
|
|
75,273 |
|
|
|
65,534 |
|
|
|
9,739 |
|
|
|
15 |
% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
15,489 |
|
|
|
14,829 |
|
|
|
660 |
|
|
|
4 |
% |
General and administrative |
|
|
11,795 |
|
|
|
12,617 |
|
|
|
(822 |
) |
|
|
-7 |
% |
Depreciation and amortization |
|
|
13,794 |
|
|
|
12,948 |
|
|
|
846 |
|
|
|
7 |
% |
Total operating expenses |
|
|
41,078 |
|
|
|
40,394 |
|
|
|
684 |
|
|
|
2 |
% |
Operating income before gain on sale of real estate |
|
|
34,195 |
|
|
|
25,140 |
|
|
|
9,055 |
|
|
|
36 |
% |
Gain on sale of real estate |
|
|
— |
|
|
|
14,593 |
|
|
|
(14,593 |
) |
|
|
100 |
% |
Operating income |
|
|
34,195 |
|
|
|
39,733 |
|
|
|
(5,538 |
) |
|
|
-14 |
% |
Interest expense |
|
|
(24,570 |
) |
|
|
(19,453 |
) |
|
|
(5,117 |
) |
|
|
-26 |
% |
Equity in earnings of unconsolidated affiliate |
|
|
189 |
|
|
|
153 |
|
|
|
36 |
|
|
|
24 |
% |
Other income, net |
|
|
1,450 |
|
|
|
1,559 |
|
|
|
(109 |
) |
|
|
-7 |
% |
Net income |
|
|
11,264 |
|
|
|
21,992 |
|
|
|
(10,728 |
) |
|
|
-49 |
% |
Less: Net income attributable to noncontrolling interest |
|
|
1,779 |
|
|
|
6,567 |
|
|
|
(4,788 |
) |
|
|
-73 |
% |
Net income attributable to common stockholders |
|
$ |
9,485 |
|
|
$ |
15,425 |
|
|
$ |
(5,940 |
) |
|
|
-39 |
% |
Revenues
Rental income increased approximately $9.8 million, or 15%, to $75.3 million for the year ended December 31, 2023 from $65.5 million for the year ended December 31, 2022. This increase is primarily attributable to increased rental income due to higher rental rates in 2023 compared to 2022 and the Company's newly acquired property in Charlotte, North Carolina.
Operating Expenses
Operating expenses increased $0.7 million, or 2%, to $41.1 million for the year ended December 31, 2023 from $40.4 million for the year ended December 31, 2022, primarily due to $0.7 million of higher property operating expenses, $0.8 million of higher depreciation and amortization expense, partially offset by a decrease in general and administrative expenses of $0.8 million. The increase in property operating expenses is primarily due to higher real estate taxes, repair and maintenance expenses and insurance costs in 2023 compared to 2022. The increase in depreciation and amortization expense is primarily attributable to the Company’s newly acquired property in Charlotte, North Carolina. The decrease in general and administrative expenses is primarily attributable to lower professional fees in 2023 compared to 2022.
Gain on Sale of Real Estate
Gain on sale of real estate is attributable to the sale of a property located in East New York, New York for $29.4 million on November 9, 2022.
Interest Expense
Interest expense increased $5.1 million, or 26%, to $24.6 million for the year ended December 31, 2023 from $19.5 million for the year ended December 31, 2022. The increase is primarily due to a higher interest rate and higher average principal balance and interest rate on the Company’s credit facility with Key Bank in 2023 compared to 2022.
38
Liquidity and Capital Resources
We derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties. These revenues include fixed base rents and recoveries of certain property operating expenses that we have incurred and that we pass through to the individual tenants.
Our primary cash disbursements consist of property operating expenses (which include real estate taxes, repairs and maintenance, insurance, and utilities), general and administrative expenses (which include compensation costs, office expenses, professional fees and other administrative expenses), leasing and acquisition costs (which include third-party costs paid to brokers and consultants), and principal payments and interest expense on our mortgage loans.
Our sources of liquidity and capital include cash flow from operations, cash and cash equivalents, borrowings under our revolving credit facility, refinancing existing mortgage loans, obtaining loans secured by our unencumbered properties, and property sales.
On December 2, 2015, the Company (through its Operating Partnership) entered into the Key Bank Credit Agreement with Key Bank for a $50.0 million revolving credit facility with an initial term of two years, with a one-year extension option, subject to certain other customary conditions (the “Key Bank Credit Agreement”). The Company, through the extension option and various amendments to the Key Bank Credit Agreement, extended the maturity date of the revolving credit facility to June 30, 2022.
On October 22, 2021, the Operating Partnership entered into a First Amended and Restated Credit Agreement with Key Bank and the other lenders parties thereto (the “First Amended and Restated Credit Agreement”). The First Amended and Restated Credit Agreement provided for a $60 million senior secured credit facility consisting of (i) a $10 million revolving line of credit facility, with an initial term of three years and two one-year extension options and (ii) a $50 million term loan facility, with an initial term of four years and a one-year extension option, which was funded in a single advance on October 22, 2021. Up to $10 million of the total commitments under the credit facility will be available for the issuance of letters of credit and swing line loans.
So long as no default or event of default has occurred and is continuing, the Operating Partnership shall have the right, from time to time, to request an increase in the size of the term loan, request an additional incremental term loan facility, or increase commitments under the revolving line of credit facility, collectively in an aggregate amount that would not cause the Credit Facility to exceed $125 million.
On August 5, 2022, the Operating Partnership entered into a First Amendment (the “First Amendment”) to the First Amended and Restated Credit Agreement with Key Bank, as agent and lender, First Financial Bank, as lender, and the Company and certain direct and indirect subsidiaries of the Company as guarantors. The First Amendment amended the First Amended and Restated Credit Agreement to, among other things, (i) increase the amount available under the revolving line of credit facility from $10 million to $40 million, (ii) extend the maturity date of the revolving line of credit facility from October 22, 2024 to August 5, 2025, (iii) extend the maturity date of the term loan facility from October 22, 2025 to August 5, 2026, (iv) replace the interest rate option based on LIBOR with interest rate options based on the Secured Overnight Financing Rate (“SOFR”), including term SOFR and daily simple SOFR, and (v) add certain subsidiaries of the Operating Partnership as guarantors, and mortgages encumbering properties owned by such subsidiaries as collateral.
In addition, on August 5, 2022, certain subsidiaries of the Operating Partnership refinanced the AIG Loan (as defined below) on certain properties by entering into new loan agreements (collectively the “New AIG Loan Agreements”) with AIG Asset Management (U.S.), LLC, as administrative agent, and the other lenders from time to time party thereto. The New AIG Loan Agreements provide for secured loans in the aggregate principal amount of $225.0 million.
Our available liquidity at December 31, 2023 was approximately $27.9 million, consisting of cash and cash equivalents. As of December 31, 2023, the Company had $90.0 million outstanding borrowings under the Key Bank credit facility, consisting of borrowings of $50.0 million under its term loan facility with Key Bank and $40.0 million of borrowings under its revolving line of credit facility with Key Bank.
We expect to meet substantially all of our operating cash requirements, dividend payments required to maintain our REIT status and an estimated $2.0 million of 2024 principal mortgage debt amortization from cash flows from operations. To the extent that cash flow from operations is not adequate to cover all of our operating needs, we will be required to use our available cash and cash equivalents to satisfy operating requirements. There is a maturity of mortgage principal with People’s United Bank of $14.4 million in 2024. We expect to pay this maturing debt with any remaining cash flow from operations or our available cash and cash equivalents. Additionally, in the normal course of our business, we may sell properties or interests in properties when we determine that it is in our best interests, which also generates additional liquidity. As it relates to the maturing debt in 2025 and 2026, we may not have
39
sufficient liquidity on hand to repay such indebtedness, and, therefore, we expect to refinance at least a portion of this indebtedness or select other alternatives based upon market conditions as these loans mature; however, there can be no assurance that we will be able to obtain financing at acceptable terms.
Net Cash Flows
Year Ended December 31, 2023 vs. Year Ended December 31, 2022
Operating Activities
Net cash provided by operating activities was $25.7 million for the year ended December 31, 2023 compared to $21.8 million for the year ended December 31, 2022. Cash provided by operating activities included (i) income before depreciation, amortization, stock compensation, rental income in excess of amounts billed, non-cash lease expense and income from equity investment in unconsolidated affiliate of $27.1 million, (ii) an increase in other liabilities of approximately $1.1 million primarily due to increased prepaid rent and (iii) distributions from unconsolidated affiliate of $0.2 million, partially offset by (iv) an increase in other assets of $0.8 million primarily due to increased deferred leasing costs and (v) a decrease in accounts payable and accrued expenses of $1.9 million due to decreased lease incentives payable, tenant improvements payable and distributions payable to non-controlling interests.
For the 2022 period, cash provided by operating activities of $21.8 million included (i) income before depreciation, amortization, gain on sale of real estate, gain on extinguishment of debt, stock compensation, rental income in excess of amounts billed, non-cash lease expense, income from equity investment in unconsolidated affiliate and income from recovery of a portion of property related to casualty loss of $22.8 million, (ii) distributions from unconsolidated affiliate of $0.1 million, (iii) an increase in accounts payable and accrued expenses of $3.4 million primarily due to increased leasing commissions payable and lease incentives payable, partially offset by (iv) an increase in other assets of $4.5 million primarily due to increased deferred leasing costs and lease incentives.
Investing Activities
Net cash used in investing activities was $31.4 million for the year ended December 31, 2023. Cash used in investing activities resulted from (i) the acquisition of one property for $29.0 million and (ii) property improvements of $2.4 million.
Net cash provided by investing activities was $21.8 million for the year ended December 31, 2022. Cash provided by investing activities resulted from (i) proceeds from the disposition of properties, net of $28.4 million, (ii) proceeds of insurance recovery of a portion of property related to casualty loss of $0.6 million, partially offset by (iii) property improvements of approximately $7.2 million.
Financing Activities
Net cash used in financing activities was approximately $25.4 million for the year ended December 31, 2023 compared to $11.8 million for the year ended December 31, 2022. Cash used in financing activities resulted from (i) the purchase of limited partnership interest in operating partnership of $32.2 million, (ii) the payment of mortgage principal of $1.8 million, (iii) the payment of the Company’s fourth quarter 2022 dividend, 2022 supplemental dividend and 2023 quarterly dividends totaling $9.7 million, (iv) distributions to non-controlling interests of $4.1 million, (v) repurchases of the Company’s common stock of $2.1 million and (vi) financing costs for mortgage note payable of $0.5 million relating to refinancing transaction with Transamerica Life Insurance Company, partially offset by (vii) proceeds of mortgage notes payable of $25.0 million from refinancing with Transamerica Life Insurance Company.
For the 2022 period, cash used in financing activities of $11.8 million resulted from (i) settlement of pension withdrawal liability of $0.7 million, (ii) the payment of mortgage principal of $1.3 million, (iii) the repayment of our outstanding mortgage notes payable of $233.1 million associated with the refinancing of debt with American International Group, (iv) the payment of the Company’s fourth quarter 2021 dividend, 2021 supplemental dividend and 2022 quarterly dividends totaling $9.6 million, (v) distributions to non-controlling interests of $4.9 million, (vi) purchase of limited partnership interest in operating partnership of $16.8 million, (vii) repurchases of the Company’s common stock of $2.0 million, (viii) financing costs for revolving credit facility with Key Bank of $0.5 million and (ix) financing costs for mortgage note payable of $7.9 million relating to the refinancing transaction with American International Group, partially offset by (x) the proceeds of mortgage notes payable of $225.0 million from refinancing with American International Group and (xi) the proceeds of $40.0 million from the Company’s revolving line of credit facility with Key Bank.
40
Non-GAAP Financial Measures
Funds from Operations and Adjusted Funds from Operations
We consider Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”), each of which are non-GAAP measures, to be additional measures of an equity REIT’s operating performance. We report FFO in addition to our net income and net cash provided by operating activities. Management has adopted the definition suggested by the National Association of Real Estate Investment Trusts (“NAREIT”) and defines FFO to equal net income computed in accordance with GAAP, excluding gains or losses from sales of property, excluding impairment write-downs of depreciated property, plus real estate-related depreciation and amortization. We believe these measurements provide a more complete understanding of our performance when compared year over year and better reflect the impact on our operations from trends in occupancy rates, rental rates, operating costs and general and administrative expenses which may not be immediately apparent from net income.
Management considers FFO a meaningful, additional measure of operating performance because it primarily excludes the assumption that the value of our real estate assets diminishes predictably over time and industry analysts have accepted it as a performance measure. FFO is presented to assist investors in analyzing our performance. It is helpful because it excludes various items included in net income that are not indicative of our operating performance, such as gains or losses from sales of property, impairment write-downs and depreciation and amortization. Management believes AFFO to be a meaningful, additional measure of operating performance because it provides information consistent with the Company’s analysis of its operating performance by excluding non-cash income and expense items such as straight-lined rent, amortization of other intangible assets and financing costs, our realized gain from an investment in a limited partnership, write-off of property related to casualty loss and stock compensation expense, which are not indicative of the results of our operating portfolio.
However, FFO and AFFO:
FFO and AFFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs.
The following table provides a reconciliation of net income attributable to common stockholders in accordance with GAAP to FFO and AFFO for the years ended December 31, 2023 and 2022 (All amounts are net of noncontrolling interest).
The reconciliation of net income attributable to common stockholders in accordance with GAAP to FFO and AFFO (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Net income attributable to common stockholders |
|
$ |
9,485 |
|
|
$ |
15,425 |
|
Add NAREIT defined adjustments: |
|
|
|
|
|
|
||
Real estate depreciation |
|
|
8,819 |
|
|
|
6,919 |
|
Gain on sale of properties |
|
— |
|
|
|
(10,083 |
) |
|
Amortization of in-place leases and deferred leasing costs |
|
|
2,800 |
|
|
|
2,132 |
|
Funds From Operations (“FFO”) attributable to common stockholders, as defined by NAREIT: |
|
|
21,104 |
|
|
|
14,393 |
|
Adjustments to arrive at Adjusted FFO (“AFFO”): |
|
|
|
|
|
|
||
Straight-lined rents |
|
|
(901 |
) |
|
|
596 |
|
Amortization of other intangible assets |
|
|
(189 |
) |
|
|
(216 |
) |
Amortization of financing costs |
|
|
1,303 |
|
|
|
895 |
|
Insurance recoveries related to casualty loss |
|
— |
|
|
|
(468 |
) |
|
Gain on settlement of pension withdrawal liability |
|
— |
|
|
|
(87 |
) |
|
Stock compensation expense |
|
|
1,594 |
|
|
|
1,143 |
|
AFFO attributable to common stockholders, as defined by GTJ REIT, Inc. |
|
$ |
22,911 |
|
|
$ |
16,256 |
|
The Company believes FFO and AFFO to be the most appropriate supplemental disclosure of operating performance for a REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO and AFFO provide a uniform supplemental basis for evaluating the earnings performance of REITs considering the unique capital structure of each REIT.
41
Acquisitions and Dispositions
East New York, New York
On November 9, 2022, the Company (through its Operating Partnership) sold a 58,003 square-foot single story warehouse/industrial building located in East New York, New York for $29.4 million.
Charlotte, North Carolina
On January 18, 2023, the Company (through its Operating Partnership) acquired for cash a 435,600 square-foot parcel of land and land improvements located in Charlotte, North Carolina for $28.7 million, exclusive of closing costs, which is subject to a 10-year lease to FedEx Ground expiring on July 31, 2032.
Cash Payments for Financing
Payment of interest under our mortgage notes payable will consume a portion of our cash flow, reducing taxable income and consequently, the resulting distributions to be made to our stockholders.
Trend in Financial Resources
We expect to receive additional rent payments over time due to scheduled increases in rent set forth in the leases on our real properties. It should be noted, however, that the additional rent payments are expected to result in an approximately equal obligation to make additional distributions to stockholders, and will therefore, not result in a material increase in working capital.
Environmental Matters
As of December 31, 2023, three of the Company’s six former bus depot sites received final regulatory closure, satisfying outstanding clean-up obligations related to legacy site contamination issues. Three sites continue with on-going cleanup, monitoring and reporting activities. The Company has determined that there is no accrued liability needed for these on-going activities on the accompanying consolidated balance sheets.
Divestiture
On February 16, 2012, we received a notice from the Joint Industry Board of the Electrical Industry claiming a pension withdrawal liability in the amount of $1.5 million in connection with the divestiture of Shelter Electric Maintenance Corp. The Company determined the liability was probable, and the Company agreed to pay the obligation in monthly installments of approximately $8,100 over a twenty-year term. In September 2022, the Company entered into a settlement agreement whereby the remaining liability for this obligation of approximately $811,000 was paid with a settlement payment of approximately $684,000. As a result, the Company recorded a gain on settlement of pension withdrawal liability of approximately $127,000 and is included in other income on the Company’s consolidated statement of operations for the year ended December 31, 2022.
Inflation
Inflation has recently increased substantially in the United States. In response, the Federal Reserve increased interest rates throughout 2022 and 2023, and, although the Federal Reserve has indicated that interest rates may be decreased in 2024, further interest rate increases by the Federal Reserve are possible. Higher interest rates imposed by the Federal Reserve to address inflation may increase our interest expense on our variable rate borrowings. In addition, increased inflation could have a negative impact on the Company’s property operating expenses, as these costs could increase at a rate higher than the Company’s rents. Our properties have tenants whose leases include expense reimbursements and other provisions to minimize the effect of inflation. However, rising costs could adversely affect our tenants’ businesses, and there is no guarantee our tenants would be able to absorb these expense increases and continue to pay us their portion of property operating expenses and rent.
42
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks that arise from changes in interest rates, foreign currency exchange rates and other market changes affect market sensitive instruments. In pursuing our business strategies, the primary market risk which we are exposed to is interest rate risk. On August 5, 2022, the Operating Partnership entered into the First Amendment which provides for a $90 million senior secured credit facility (the “Credit Facility”), consisting of (i) a $40 million revolving line of credit facility and (ii) a $50 million term loan facility. Loans drawn down by the Operating Partnership under the Credit Facility must specify, at the Operating Partnership’s option, whether they are base rate loans, daily simple SOFR rate loans or term SOFR loans. Borrowings under the Credit Facility bear interest at a rate equal to, at the Operating Partnership’s option, either (1) daily simple SOFR plus 0.1% (but in no case shall the rate be less than zero), (2) term SOFR plus 0.1% (but in no case shall the rate be less than zero) (“Adjusted Term SOFR”), or (3) a base rate determined by reference to the greatest of (a) the fluctuating annual rate of interest announced from time to time by Key Bank as its “prime rate,”, (b) 0.50% above the federal funds effective rate, (c) Adjusted Term SOFR for a one month tenor plus 1.0% and (d) 1.0%, and in each case of clauses (1), (2) and (3), plus an applicable margin, depending upon the overall leverage of the properties and whether the loan is under the Revolver or Term Loan facilities. As of December 31, 2023, interest expense on the outstanding borrowings of our Credit Facility with Key Bank would increase by as much as $900,000 annually if SOFR increased by 100 basis points.
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GTJ REIT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
GTJ REIT, Inc.
Garden City, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of GTJ REIT, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, equity, and cash flows for the years then ended, and the related notes and financial statement schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of impairment of real estate held for investment
As described in Note 2 to the consolidated financial statements, management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. Significant management judgment is involved in determining if impairment indicators exist, assessing investments for recoverability, and, if required, measuring the fair value of the real estate investments. The review of recoverability is based on an estimate of the undiscounted future cash flows that are expected to result from the real estate investment’s use and eventual disposition. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value.
45
Auditing management’s judgments related to the identification of impairment indicators and assessment of real estate investments for recoverability involved especially challenging auditor judgment due to the high degree of subjectivity and significant estimation of the analyses. Assumptions within the cash flow analyses considered to be subjective and involve significant estimation include the terminal cap rate and the projected occupancy level of each property for which an impairment indicator has been identified.
How the Critical Audit Matter Was Addressed in the Audit
The primary procedures we performed to address this critical audit matter included:
/s/ Baker Tilly US, LLP
We have served as the Company’s auditor since 2023.
New York, New York
March 21, 2024
46
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2023 and 2022
(amounts in thousands, except share and per share data)
|
|
2023 |
|
|
2022 |
|
||
ASSETS |
|
|
|
|
|
|
||
Real estate, at cost: |
|
|
|
|
|
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Total real estate, at cost |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Net real estate held for investment |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Restricted cash |
|
|
|
|
|
|
||
Rental income in excess of amount billed |
|
|
|
|
|
|
||
Acquired lease intangible assets, net |
|
|
|
|
|
|
||
Investment in unconsolidated affiliate |
|
|
|
|
|
|
||
Right-of-use asset – operating lease, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
||
Mortgage notes payable, net |
|
$ |
|
|
$ |
|
||
Term loan payable, net |
|
|
|
|
|
|
||
Secured revolving credit facility |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Dividends payable |
|
|
|
|
|
|
||
Acquired lease intangible liabilities, net |
|
|
|
|
|
|
||
Right-of-use liability – operating lease |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Equity: |
|
|
|
|
|
|
||
Series A, Preferred stock, $ |
|
|
|
|
|
|
||
Series B, Preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Distributions in excess of net income |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ equity |
|
|
|
|
|
|
||
Noncontrolling interest |
|
|
|
|
|
|
||
Total equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these consolidated financial statements.
47
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share and per share data)
|
|
2023 |
|
|
2022 |
|
||
Revenues: |
|
|
|
|
|
|
||
Rental income |
|
$ |
|
|
$ |
|
||
Total revenues |
|
|
|
|
|
|
||
Operating Expenses: |
|
|
|
|
|
|
||
Property operating expenses |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Operating income before gain on sale of real estate |
|
|
|
|
|
|
||
Gain on sale of real estate |
|
|
— |
|
|
|
|
|
Operating income |
|
|
|
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
Equity in earnings of unconsolidated affiliate |
|
|
|
|
|
|
||
Other income, net |
|
|
|
|
|
|
||
Net income |
|
|
|
|
|
|
||
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
||
Net income attributable to common stockholders |
|
$ |
|
|
$ |
|
||
Net income per common share attributable to common stockholders – basic earnings per |
|
$ |
|
|
$ |
|
||
Net income per common share attributable to common stockholders – diluted earnings |
|
$ |
|
|
$ |
|
||
Weighted average common shares outstanding – basic |
|
|
|
|
|
|
||
Weighted average common shares outstanding – diluted |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these consolidated financial statements.
48
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
Common Stock |
|
|
Additional- |
|
|
Distributions |
|
|
Total |
|
|
|
|
|
|
|
|||||||||||
|
|
Preferred |
|
|
Outstanding |
|
|
Par |
|
|
Paid-In- |
|
|
in Excess of |
|
|
Stockholders’ |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
|
|
Stock |
|
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Net Income |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
||||||||
Balance at January 1, 2022 |
|
|
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Common stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Repurchases — common stock |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Purchases — LP interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reallocation of equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Balance at December 31, 2022 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Common stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Repurchases — common stock |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Purchases — LP interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reallocation of equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Balance at December 31, 2023 |
|
|
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
49
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2023 and 2022
(amounts in thousands)
|
|
2023 |
|
|
2022 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Gain on sale of real estate |
|
|
— |
|
|
|
( |
) |
Gain on settlement of pension withdrawal liability |
|
|
— |
|
|
|
( |
) |
Depreciation |
|
|
|
|
|
|
||
Amortization of intangible assets and deferred charges |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
(Income) from insurance recovery or write-off of a portion of property related to |
|
|
— |
|
|
|
( |
) |
Non-cash lease expense |
|
|
|
|
|
|
||
Rental income (in excess of) less than amount billed |
|
|
( |
) |
|
|
|
|
Income from equity investment in unconsolidated affiliate |
|
|
( |
) |
|
|
( |
) |
Distributions from unconsolidated affiliate |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Expenditures for improvements to real estate |
|
|
( |
) |
|
|
( |
) |
Cash paid for property acquisition |
|
|
( |
) |
|
|
— |
|
Proceeds from disposition of property, net |
|
|
— |
|
|
|
|
|
Return on capital from unconsolidated affiliate |
|
|
|
|
|
— |
|
|
Proceeds of recovery of a portion of property related to casualty loss |
|
|
— |
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from mortgage notes payable |
|
|
|
|
|
|
||
Financing costs from mortgage notes payable |
|
|
( |
) |
|
|
( |
) |
Payment of mortgage notes payable |
|
|
— |
|
|
|
( |
) |
Proceeds from revolving credit facility |
|
|
— |
|
|
|
|
|
Loan costs from revolving credit facility |
|
|
— |
|
|
|
( |
) |
Payment of mortgage principal |
|
|
( |
) |
|
|
( |
) |
Purchase of limited partnership interest |
|
|
( |
) |
|
|
( |
) |
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
Extinguishment of pension withdrawal liability |
|
|
— |
|
|
|
( |
) |
Cash distributions to noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
Cash dividends paid |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents including restricted cash of $ |
|
|
|
|
|
|
||
Cash and cash equivalents including restricted cash of $ |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL DISCLOSURE CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Non-cash expenditures for real estate |
|
$ |
|
|
$ |
|
||
Right-of-use asset and liability |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these consolidated financial statements.
50
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
GTJ REIT, Inc. (the “Company” or “GTJ REIT”) was incorporated on June 26, 2006, under the Maryland General Corporation Law. The Company is focused primarily on the acquisition, ownership, management, and operation of commercial real estate.
The Company has elected to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended (the “Code”) and elected December 31 as its fiscal year end. Under the REIT operating structure, the Company is permitted to deduct the dividends paid to its stockholders when determining its taxable income. Assuming dividends equal or exceed the Company’s taxable income, the Company generally will not be required to pay federal corporate income taxes on such income.
Any references to square footage, acreage, property count, or occupancy percentages, and any amounts derived from these values in these notes to the consolidated financial statements are unaudited.
On January 17, 2013, the Company closed on a business combination with Wu/Lighthouse Portfolio, LLC, in which a limited partnership (the “Operating Partnership”) owned and controlled by the Company, acquired all outstanding ownership interests of a portfolio consisting of
During 2020, the Company agreed upon certain rent relief requests, most often in the form of rent deferral requests, as a result of COVID-19. Not all tenant requests resulted in amended agreements, nor did the Company forego its contractual rights under its lease agreements. These rent relief requests from the Company’s tenants did not have a material impact on the Company’s results of operations, financial condition or cash flows as of and for the years ended December 31, 2023 and December 31, 2022. The rent relief requests resulted in the total payments required by the modified contract being substantially the same or less than the total payments required by the original contract. Therefore, the Company has elected to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under lease accounting pronouncements as though enforceable rights and obligations for the concessions existed, regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract.
The effects of the COVID-19 pandemic did not impact the Company’s results of operations, financial condition and cash flows for the years ended December 31, 2023 and December 31, 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the financial statements of the Company and its wholly owned subsidiaries. If the Company determines that it has an interest in a variable interest entity within the meaning of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity. Our Operating Partnership meets the criteria of a variable interest entity. The Company is the primary beneficiary and, accordingly, we consolidate our Operating Partnership. All material intercompany transactions have been eliminated in consolidation. The ownership interests of the other investors in the Operating Partnership are recorded as noncontrolling interests.
None of the prior year amounts have been reclassified for consistency with the current year presentation.
51
Use of Estimates:
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates could change, which may result in impairments of certain assets. Significant estimates include the useful lives of long- lived assets including property, equipment and intangible assets, impairment of assets, collectability of receivables, contingencies, stock-based compensation, and fair value of assets and liabilities acquired in business combinations.
Real Estate:
Real estate assets are stated at cost, less accumulated depreciation and amortization. All costs related to the improvement or replacement of real estate properties, including interest expense on development properties, are capitalized. Acquisition-related costs are capitalized for asset acquisitions. Additions, renovations, and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs, and improvements that do not materially prolong the normal useful life of an asset, are charged to operations as incurred.
The Company capitalizes all direct costs of real estate under development until the end of the development period. In addition, the Company capitalizes the indirect cost of insurance and real estate taxes allocable to real estate under development during the development period. The Company also capitalizes interest using the avoided cost method for real estate under development during the development period. The Company will cease the capitalization of these costs when development activities are substantially completed and the property is available for occupancy by tenants, but no later than one year from the completion of major construction activity at which time the property is placed in service and depreciation commences. If the Company suspends substantially all activities related to development of a qualifying asset, the Company will cease capitalization of these costs until activities are resumed. The Company had
Upon the acquisition of real estate properties, the relative fair value of the real estate purchased is allocated to the acquired tangible assets (generally consisting of land, buildings and building improvements, and tenant improvements) and identified intangible assets and liabilities (generally consisting of above-market and below-market leases and the origination value of in-place leases) in accordance with GAAP. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property “as-if-vacant.” In allocating the purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the differences between contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants. The aggregate value of in-place leases is measured based on the avoided costs associated with lack of revenue over a market-oriented lease-up period, the avoided leasing commissions, and other avoided costs common in similar leasing transactions.
Mortgage notes payable assumed in connection with acquisitions are recorded at their fair value using current market interest rates for similar debt at the time of acquisitions. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The values of in-place leases are amortized over the remaining term of the respective leases and are included in depreciation and amortization in the accompanying consolidated statements of operations. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of the related intangible assets or liabilities is recorded as income or expense in the period. The total net impact to rental revenues due to the amortization of above-market and below-market leases was a net increase in rental revenue of approximately $
As of December 31, 2023, approximately $
52
balance sheets. As of December 31, 2023, and 2022, $
The following table presents the projected increase (decrease) to rental revenue from the amortization of the acquired above-market and below-market lease intangibles and the increase to amortization expense of the in-place lease intangibles for properties owned at December 31, 2023, over the next five years and thereafter (in thousands):
|
|
Net increase (decrease) to rental revenues |
|
|
Increase to amortization expense |
|
||
2024 |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
( |
) |
|
|
|
|
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
Thereafter |
|
|
( |
) |
|
|
|
|
|
|
$ |
|
|
$ |
|
||
Investment in Unconsolidated Affiliate:
The Company has an investment in an entity that is accounted for under the equity method of accounting. The equity method of accounting is used when an investor has influence, but not control, over the investee. The Company records its share of the profits and losses of the investee in the period when these profits and losses are also reflected in the accounts of the investee.
On February 28, 2018, the Company purchased a
The Company recognizes income for distributions in excess of its investment where there is no recourse to the Company and no intention or obligation to contribute additional capital. For investments in which there is recourse to the Company or an obligation or intention to contribute additional capital exists, distributions in excess of the investment are recorded as a liability. When characterizing distributions from equity investees within the Company’s consolidated statement of cash flows, all distributions received are first applied as returns on investment to the extent there are cumulative earnings related to the respective investment and are classified as cash inflows from operating activities. If cumulative distributions are in excess of cumulative earnings, distributions are considered a return of investment. In such cases, the distribution is classified as cash inflows from investing activities.
The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the periods presented there were no impairment charges related to the Company’s investment in unconsolidated affiliate.
The total assets and liabilities of the Company’s investment in unconsolidated affiliate as of December 31, 2023 were $
Depreciation and Amortization:
The Company uses the straight-line method for depreciation and amortization. Properties and property improvements are depreciated over their estimated useful lives, which range from
53
Deferred Charges:
Deferred charges consist principally of leasing commissions, which are amortized over the life of the related tenant leases, and financing costs relating to our revolving credit facility, which are amortized over the terms of the respective debt agreements. These deferred charges are included in other assets on the consolidated balance sheets. If leases or loans are terminated, the unamortized charges are expensed.
Real Estate Impairment:
Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. Significant management judgment is involved in determining if impairment indicators exist, assessing investments for recoverability, and, if required, measuring the fair value of the real estate investments. The review of recoverability is based on an estimate of the undiscounted future cash flows that are expected to result from the real estate investment’s use and eventual disposition. Such cash flow analyses consider assumptions such as expected future market rents, future revenue, market capitalization rates and holding periods, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of the Company’s real estate holdings. These assessments could have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made. Management has determined that there was
Reportable Segments:
As of December 31, 2023, the Company primarily operated in
Revenue Recognition:
Rental income includes the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the term of the lease. In order for management to determine, in its judgment, that the unbilled rent receivable applicable to each specific property is collectible, management reviews billed and unbilled rent receivables and takes into consideration the tenant’s payment history and financial condition. If the Company determines that the collectability of a tenant’s lease payments is not probable, the write-off of the entire tenant receivable, including straight-line rent receivable, is presented as a reduction of revenue rather than an operating expense on the consolidated statements of operations. Rental income related to tenants where the collectability of lease payments is not deemed probable will be recorded on a cash basis. Some of the leases provide for additional contingent rental revenue in the form of percentage rents and increases based on the consumer price index, subject to certain maximums and minimums. For the year ended December 31, 2023, the Company determined that collectability of one tenant’s lease payments was not probable and, therefore, the Company recorded a write-off of the entire tenant receivable in the amount of $
Substantially all of the Company’s properties are subject to long-term net leases under which the tenant is typically responsible to pay for its pro rata share of real estate taxes, insurance, and ordinary maintenance and repairs for the property.
Property operating expense recoveries from tenants of common area maintenance, real estate taxes, and other recoverable costs are recognized as revenues in the period that the related expenses are incurred.
Tenant receivables at December 31, 2023 and 2022 were $
Lease Accounting:
As lessor, the Company has made an accounting policy election to account for lease concessions related to the effects of COVID-19 consistent with how those concessions would be accounted for under Topic 842, which is as though the enforceable rights and obligations for those concessions existed regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract. The Company elected to utilize the practical expedient provided by Accounting Standards Update (“ASU”) 2018-11 related to the separation of lease and non-lease components and as a result, revenues related to leases are reported on one line in the presentation within the consolidated statements of operations.
54
The Company elected not to evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, these costs will be accounted for as if they are lessee costs. Consequently, the Company excludes from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of taxes within the scope of the election and provides certain disclosures. The accounting policy election includes sales, use, value added, and some excise taxes but excludes real estate taxes.
The following table presents additional disclosures regarding the Company’s rental income for the twelve months ended December 31, 2023 and 2022 (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Fixed lease revenue |
|
$ |
|
|
$ |
|
||
Variable lease revenue |
|
|
|
|
|
|
||
Total lease revenue |
|
$ |
|
|
$ |
|
||
As lessee, the Company elected to utilize the practical expedient in the implementation of ASU 2016-02 related to not separating non-lease components from the associated lease component. The Company is a party to an office lease, effective October 1, 2021, having a term of
The following table presents the future lease obligations of the Company’s office lease on December 31, 2023, over the next five years and thereafter (in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less imputed interest |
|
|
|
|
Total right-of-use liability – operating lease |
|
$ |
|
The following table presents additional disclosures regarding the Company’s office leases for the years ended December 31, 2023 and 2022 (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Operating lease costs |
|
$ |
|
|
$ |
|
||
Variable lease costs |
|
|
|
|
|
|
||
Total lease costs |
|
$ |
|
|
$ |
|
||
Earnings Per Share Information:
Cash and Cash Equivalents:
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
55
Restricted Cash:
Restricted cash includes reserves used to pay real estate taxes, leasing costs and capital improvements.
Fair Value Measurement:
The Company determines fair value in accordance with ASC 820-10-05 for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities disclosed at fair values are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are defined by ASC 820-10-35, are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. Determining which category an asset or liability falls within the hierarchy requires significant judgment, and the Company evaluates its hierarchy disclosures each quarter. The three-tier fair value hierarchy is as follows:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting management’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
Income Taxes:
The Company also participates in certain activities conducted by entities which elected to be treated as taxable subsidiaries under the Code. As such, the Company is subject to federal, state, and local taxes on the income from these activities.
The Company accounts for income taxes of the taxable subsidiaries under the asset and liability method as required by the provisions of ASC 740-10-30. Under this method, deferred tax assets and liabilities are established based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
ASC 740-10-65 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-65, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10-65 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2023, and 2022, the Company had determined that
56
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, which from time to time exceed the federal depository insurance coverage. All non-interest bearing transaction accounts deposited at an insured depository institution are insured by the Federal Deposit Insurance Corporation up to the standard maximum deposit insurance amount of $
Rental income of $
Rental income of $
Rental income of $
Stock-Based Compensation:
The Company has a stock-based compensation plan, which is described below in Note 6. The Company accounts for stock-based compensation in accordance with ASC 718, which establishes accounting for stock-based awards. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is expensed at the grant date (for the portion that vests immediately) or ratably over the respective vesting periods. The impact of the forfeiture of awards is recognized as forfeitures occur.
Recently Issued Accounting Pronouncements:
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures.” The guidance requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on the income taxes paid. The guidance is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. ASU 2023-09 applies to all entities subject to income taxes. For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures,” which amends disclosure requirements about a public company’s reportable segments and addresses requests from investors for additionally detailed information about a reportable segment’s expenses. A public entity should apply the amendments provided by ASU 2023-07 retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which modifies ASC 848 (ASU 2020-04 discussed below), which was intended to provide relief related to “contracts and transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform.” ASU 2021-01 expands the scope of ASC 848 to include all affected derivatives and give reporting entities the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by the discounting transition. ASU 2021-01 also adds implementation guidance to clarify which optional expedients in ASC 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. The Company does not have any derivative transactions to which this ASU applied. As a result, the implementation of this ASU did not have a material effect on the Company’s consolidated financial statements.
57
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provided optional expedients and exceptions for applying generally accepted accounting principles when accounting for contract modifications, hedging relationships and other transactions impacted by rate reform, subject to meeting certain criteria. ASU 2020-04 was effective as of March 12, 2020. The Company has a credit line facility to which this ASU was applied beginning in 2022. The adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” The guidance required organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The new guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off balance sheet exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 was effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 31, 2019, including interim periods within those periods, and for all other entities for fiscal years beginning after December 31, 2022, including interim periods within those fiscal years. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.
3. REAL ESTATE:
The changes in real estate for the years ended December 31, 2023 and 2022 are as follows (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Balance at beginning of year |
|
$ |
|
|
$ |
|
||
Property acquisitions |
|
|
|
|
— |
|
||
Property disposition |
|
— |
|
|
|
( |
) |
|
Improvements |
|
|
|
|
|
|
||
Balance at end of year |
|
$ |
|
|
$ |
|
||
The changes in accumulated depreciation and amortization related to real estate held for investment, for the years ended December 31, 2023 and 2022 are as follows (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Balance at beginning of year |
|
$ |
|
|
$ |
|
||
Property disposition |
|
— |
|
|
|
( |
) |
|
Depreciation and amortization for year |
|
|
|
|
|
|
||
Balance at end of year |
|
$ |
|
|
$ |
|
||
East New York, New York
On October 26, 2021, the Company (through its Operating Partnership) acquired for cash a vacant
Charlotte, North Carolina
On January 18, 2023, the Company (through its Operating Partnership) acquired for cash a
Purchase Price Allocations:
The purchase price of the above acquisition was allocated to the acquired assets and assumed liabilities based on their estimated relative fair values at the date of acquisition.
58
The following table summarizes the Company’s allocation of the purchase prices of assets acquired and liabilities assumed during 2023 and 2022 (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Land |
|
$ |
|
|
$ |
— |
|
|
Land Improvements |
|
|
|
|
$ |
— |
|
|
Acquired lease intangibles assets |
|
|
|
|
$ |
— |
|
|
Other assets |
|
|
|
|
$ |
— |
|
|
Total Consideration |
|
$ |
|
|
$ |
— |
|
|
Casualty Loss:
The Company incurred a weather-related casualty loss of approximately $
4. MORTGAGE NOTES PAYABLE:
The following table sets forth a summary of the Company’s mortgage notes payable (in thousands):
|
|
|
|
|
Principal |
|
|
Principal |
|
|
|
|||
|
|
|
|
|
Outstanding as of |
|
|
Outstanding as of |
|
|
|
|||
Loan |
|
Interest Rate |
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
Maturity |
|||
People’s United Bank |
|
|
% |
|
|
|
|
|
|
|
||||
Allstate Life Insurance Company |
|
|
% |
|
|
|
|
|
|
|
||||
United States Life Insurance Company |
|
|
% |
|
|
|
|
|
|
|
||||
United States Life Insurance Company |
|
|
% |
|
|
|
|
|
|
|
||||
Transamerica Life Insurance Company |
|
|
% |
|
|
|
|
|
|
|
||||
American International Group 2022 |
|
|
% |
|
|
|
|
|
|
|
||||
Transamerica Life Insurance Company 2023 |
|
|
% |
|
|
|
|
|
|
|
||||
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
|||
|
|
Unamortized loan costs |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Total |
|
|
$ |
|
|
$ |
|
|
|
|||
Amortization of deferred mortgage loan costs was $
People’s United Bank Loan Agreement:
In connection with the acquisition in 2014 of an
American International Group Loan Agreement:
On February 20, 2015, the Operating Partnership refinanced the outstanding debt on certain properties and placed new financing on others by entering into loan agreements (collectively, the “AIG Loan Agreements”) with American General Life Insurance Company, the Variable Annuity Life Insurance Company, the United States Life Insurance Company in the City of New York, American Home Assurance Company and Commerce and Industry Insurance Company.
The AIG Loan Agreements provided a secured loan in the principal amount of $
59
The outstanding indebtedness and fees were repaid on
Allstate Life Insurance Company Loan Agreement:
On March 13, 2015, in connection with the acquisition of
United States Life Insurance Company Loan Agreement:
On December 20, 2017 (the “Closing Date”),
The U.S. Life Loan Agreement provides for a secured loan facility in the principal amount of $
United States Life Insurance Company Loan Agreement:
On March 21, 2018,
Transamerica Life Insurance Company Loan Agreement:
On March 24, 2020,
The term of each note is
60
American International Group 2022 Loan Agreement:
On August 5, 2022, certain subsidiaries of the Operating Partnership (collectively, the “Borrowers”) refinanced the AIG Loan by entering into new loan agreements (collectively the “American International Group 2022 Loan Agreement”) with AIG Asset Management (U.S.), LLC, as administrative agent, and the other lenders, American General Life Insurance Company, the Variable Annuity Life Insurance Company and the United States Life Insurance Company in the City of New York in a transaction that was accounted for as a loan modification. In connection with the modification, the Company incurred loan related costs of approximately $
The American International Group 2022 Loan Agreement provides for secured loans in the aggregate principal amount of $
Transamerica Life Insurance Company 2023 Loan Agreement:
On July 31, 2023,
The term of each note is
In connection with the loan agreements, the Company is required to comply with certain covenants. As of December 31, 2023, the Company was in compliance with all covenants.
Principal Repayments:
Scheduled principal repayments during the next five years and thereafter are as follows (in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
5. SECURED REVOLVING CREDIT FACILITY & TERM LOAN PAYABLE:
Key Bank Loan Agreement:
On December 2, 2015, the Operating Partnership entered into a Credit Agreement (the “Key Bank Credit Agreement”) with Keybank National Association and Keybanc Capital Markets Inc., as lead arranger (collectively, “Key Bank”). The Key Bank
61
Credit Agreement contemplated a $
On October 22, 2021, the Operating Partnership entered into a First Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with Key Bank and the other lenders parties thereto (collectively, the “Lenders”).
So long as no default or event of default has occurred and is continuing, the Operating Partnership shall have the right, from time to time, to request an increase in the size of the Term Loan, request an additional incremental term loan facility, or increase commitments under the Revolver, collectively in an aggregate amount that would not cause the Credit Facility to exceed $
Prior to the First Amendment (defined below), loans drawn down by the Operating Partnership under the Credit Facility were required to specify, at the Operating Partnership’s option, whether they were base rate loans or LIBOR rate loans.
The Operating Partnership agreed to pay to the Lenders an unused fee under the Revolver in the amount calculated as
Due to the revolving nature of the Revolver, amounts prepaid under the Revolver may be borrowed again, provided availability under the Amended and Restated Credit Agreement permits. Amounts repaid under the Term Loan may not be re-borrowed. The Amended and Restated Credit Agreement contemplates (i) mandatory prepayments by the Operating Partnership of any borrowings under the Credit Facility in excess of the total allowable commitment, among other events, and (ii) optional prepayments, at any time without any fees or penalty, in whole or in part, subject to payments of any amounts due associated with the prepayment of LIBOR rate contracts.
The Operating Partnership’s obligations under the Credit Facility are secured by (i) perfected first priority lien and security interest to be held by Key Bank for the benefit of the Lenders in certain of the property, rights and interests of the Operating Partnership, the guarantors and their subsidiaries now existing and as may be acquired, and (ii) any new real estate or any interest therein or to refinance indebtedness secured thereby, financed by the Credit Facility, in whole or in part, which shall be subject to approval by Key Bank in its reasonable discretion, which will serve as additional collateral for the Credit Facility. Any subsidiaries that are not prohibited from being guarantors shall be guarantors. The parties to the Amended and Restated Credit Agreement also entered into several side agreements, including, the Joinder Agreements, the Assignment of Interests, the Acknowledgments, the Mortgages, the Guaranty, and other agreements and instruments to facilitate the transactions contemplated under the Amended and Restated Credit Agreement. Such agreements contain terms and provisions that are customary for instruments of this nature.
62
The Operating Partnership’s continuing ability to borrow under the Credit Facility will be subject to its ongoing compliance with various affirmative and negative covenants, including, among others, with respect to maximum consolidated leverage ratio, minimum consolidated fixed charge coverage ratio, minimum liquidity, minimum consolidated tangible net worth, minimum debt yield, maximum distributions, minimum occupancy, permitted investments and restrictions on indebtedness. The Amended and Restated Credit Agreement contains events of default and remedies customary for loan transactions of this sort including, among others, those related to a default in the payment of principal or interest, an inaccuracy of a representation or warranty, and a default with regard to performance of certain covenants. The Amended and Restated Credit Agreement includes customary representations and warranties of the Operating Partnership, which must continue to be true and correct in all material respects as a condition to future draws. In addition, the Amended and Restated Credit Agreement also includes customary events of default (in certain cases subject to customary cure), in the event of which, amounts outstanding under the Credit Facility may be accelerated.
The contemplated uses of proceeds under the Amended and Restated Credit Agreement include the (i) payment of closing costs in connection with the Amended and Restated Credit Agreement, (ii) repayment of indebtedness, (iii) acquisitions, development and capital improvements, (iv) general corporate and working capital purposes, and (v) purchase contract deposits and, subject to the terms and conditions of the Amended and Restated Credit Agreement, stock repurchases.
On August 5, 2022 (the “Closing Date”), the Operating Partnership entered into a First Amendment (the “First Amendment”) to the First Amended and Restated Credit Agreement with Key Bank, as agent and lender, First Financial Bank, as lender, and the Company and certain direct and indirect subsidiaries of the Company as guarantors. The First Amendment amended the First Amended and Restated Credit Agreement to, among other things, (i) increase the amount available under the Revolver from $
As amended by the First Amendment,
As amended by the First Amendment, loans drawn down by the Operating Partnership under the Credit Facility must specify, at the Operating Partnership’s option, whether they are base rate loans, daily simple SOFR rate loans or term SOFR rate loans.
Outstanding borrowings under the Term Loan were $
Outstanding borrowings under the Revolver with Key Bank were $
Amortization of loan costs with Key Bank were $
63
As of December 31, 2023, the Operating Partnership was in compliance with all covenants required in connection with the Amended and Restated Credit Agreement.
6. STOCKHOLDERS’ EQUITY:
Preferred Stock:
The Company is authorized to issue
Common Stock:
The Company is authorized to issue
On November 9, 2023, the Company purchased
On June 2, 2023, the Company purchased
On December 1, 2022, the Company purchased
On June 3, 2022, the Company purchased
Dividend Distributions:
The following table presents dividends declared by the Company on its common stock during 2023 and 2022:
|
|
Record |
|
Payment |
|
Dividend |
|
|
|
Declaration Date |
|
Date |
|
Date |
|
Per Share |
|
|
|
|
|
|
$ |
|
(1) |
||||
|
|
|
$ |
|
|
||||
|
|
|
$ |
|
|
||||
|
|
|
$ |
|
|
||||
|
|
|
$ |
|
|
||||
|
|
|
$ |
|
(2) |
||||
|
|
|
$ |
|
|
||||
|
|
|
$ |
|
|
||||
|
|
|
$ |
|
|
||||
|
|
|
$ |
|
|
||||
|
In order to qualify as a REIT, the Company must distribute at least
64
certain circumstances, the Company may generate operating cash flow in excess of its distributions or, alternatively, may be required to borrow to make sufficient distribution payments.
Noncontrolling Interest:
On September 19, 2023, the Operating Partnership, pursuant to a certain Order dated September 19, 2023 of the United States Bankruptcy Court for the Eastern District of New York, purchased
On November 16, 2022, the Operating Partnership, pursuant to a certain Order dated October 6, 2022 of the United States Bankruptcy Court for the Eastern District of New York, purchased
Stock-Based Compensation:
On June 11, 2007, the Board of Directors approved the Company’s 2007 Incentive Award Plan (the “2007 Plan”). The 2007 Plan covered directors, officers, key employees and consultants of the Company. The purposes of the 2007 Plan was to further the growth, development, and financial success of the Company and to obtain and retain the services of the individuals considered essential to the long-term success of the Company. The 2007 Plan provided for awards in the form of restricted shares, incentive stock options, non-qualified stock options and stock appreciation rights. The aggregate number of shares of common stock which may have been awarded under the 2007 Plan was
The 2017 Incentive Award Plan (the “2017 Plan”) was adopted by the Board and became effective on
65
The following table presents shares issued by the Company under the 2007 Plan and the 2017 Plan:
Shares Issued Under the 2007 Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Grant |
|
Total |
|
|
Value |
|
|
Approximate |
|
|
|
|
|||
Date |
|
Shares Issued |
|
|
Per Share |
|
|
Value of Shares |
|
|
Vesting Period |
|
|||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(3) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Shares Issued Under the 2017 Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Grant |
|
Total |
|
|
Value |
|
|
Approximate |
|
|
|
|
|||
Date |
|
Shares Issued |
|
|
Per Share |
|
|
Value of Shares |
|
|
Vesting Period |
|
|||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(2) |
|||||
|
|
|
|
$ |
|
|
$ |
|
|
(1) |
|||||
On November 8, 2016,
On July 1, 2022,
All options expire
66
The Board of Directors has determined the value of a share of common stock at December 31, 2023 to be $
For the years ended December 31, 2023 and 2022, the Company’s total stock-based compensation in the statement of equity was approximately $
At December 31, 2023,
The following is a summary of restricted stock activity:
|
|
|
|
Weighted Average |
|
||
|
|
|
|
Grant Date Fair |
|
||
|
Shares |
|
|
Value |
|
||
Non-vested shares outstanding as of December 31, 2022 |
|
|
|
$ |
|
||
New shares issued through December 31, 2023 |
|
|
|
|
|
||
Vested |
|
( |
) |
|
|
|
|
Non-vested shares outstanding as of December 31, 2023 |
|
|
|
$ |
|
||
The following is a vesting schedule of the non-vested shares of restricted stock outstanding as of December 31, 2023:
|
|
Number of Shares |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total Non-vested Shares |
|
|
|
|
7. EARNINGS PER SHARE:
Basic earnings per common share (“Basic EPS”) is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per common share (“Diluted EPS”) is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Diluted EPS reflects the potential dilution that could occur if option contracts were exercised and converted into common stock. There were
The following table sets forth the computation of basic and diluted earnings per share information for the years ended December 31, 2023 and 2022 (in thousands, except share and per share data):
|
|
2023 |
|
|
2022 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net income attributable to common stockholders |
|
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average common shares outstanding – basic |
|
|
|
|
|
|
||
Weighted average common shares outstanding – diluted |
|
|
|
|
|
|
||
Basic and Diluted Per Share Information: |
|
|
|
|
|
|
||
Net income per share – basic |
|
$ |
|
|
$ |
|
||
Net income per share – diluted |
|
$ |
|
|
$ |
|
||
67
8. RELATED PARTY TRANSACTIONS:
Green Holland Management LLC:
Paul Cooper, the Chairman and Chief Executive Officer of the Company, and Louis Sheinker, the President, Secretary and Chief Operating Officer of the Company, each hold interests in a real estate brokerage firm, Green Holland Management LLC ("GHM"). Paul Cooper and Louis Sheinker each own fifty percent (
The Rochlin Organization:
Paul Cooper and Louis Sheinker each hold minority ownership interests in a real estate brokerage firm through their ownership of GHM in which they do not engage in management activities, The Rochlin Organization ("Rochlin").
612 Wortman Avenue:
Rochlin acted as the exclusive broker for one of the Company’s properties. In 2013, Rochlin introduced a new tenant to the property, resulting in the execution of a lease agreement and a subsequent lease modification and Rochlin earning brokerage commissions. In subsequent years, the tenant expanded square footage and exercised renewal options, resulting in Rochlin earning additional brokerage commissions. In July 2020, Rochlin introduced an additional tenant to the property, resulting in the execution of a lease agreement and Rochlin earning a brokerage commission of approximately $
625 Wortman Avenue:
In October 2021, as a result of a prior introduction to a property, the Company purchased the property resulting in approximately $
23-85 87th Street:
In October 2022, Rochlin acted as the exclusive broker for this property. The tenant signed an extension agreement which resulted in approximately $
Lighthouse Sixty, L.P.:
The Company’s former executive and administrative offices, located at 60 Hempstead Avenue, West Hempstead, New York, were being leased from Lighthouse Sixty, L.P., a partnership of which Paul Cooper and Louis Sheinker are managing members of the general partner. The lease agreement expired in
9. COMMITMENTS AND CONTINGENCIES:
Legal Matters:
The Company is involved in lawsuits and other disputes which arise in the ordinary course of business. However, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.
Divestiture:
On February 16, 2012, the Company received a notice from the Joint Industry Board of the Electrical Industry claiming a pension withdrawal liability in the amount of $
68
over a
Environmental Matters:
As of December 31, 2023,
Real Property Used By the Company in Its Business
On December 11, 2020, the Company signed a
10. FAIR VALUE:
Fair Value of Financial Instruments:
The fair value of the Company’s financial instruments is determined based upon applicable accounting guidance. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).
The fair values of cash and cash equivalents, restricted cash, rent and other receivables, dividends payable, accounts payable and accrued expenses approximated their carrying value because of the short-term nature based on Level 1 inputs. The fair values of mortgage notes payable are based on the discounted cash flow method using current treasury rates and commercial loan spreads, which are Level 2 inputs. The fair values of secured revolving credit facility and term loan payable are based on borrowing rates available to the Company, which are Level 2 inputs. The carrying values of term loan payable and mortgage notes payable are stated at their principal balances below.
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rent and other receivables |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends payable |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Secured revolving credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term loan payable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
11. OTHER RETIREMENT BENEFITS:
Other Retirement Benefits:
The Company sponsors retirement benefits under a defined contribution 401(k) plan which covers all employees who have completed
69
In November 2016, the Board of Directors of the Company approved the implementation of a profit-sharing contribution component to its existing 401(k) plan. Contributions to this component of the plan and charged to benefits costs for the years ended December 31, 2023 and 2022 were approximately $
12. INCOME TAXES:
The Company elected to be taxed as a REIT under the Code. A REIT will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income, to the extent that it distributes at least
Income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the value of our common stock.
Reconciliation between GAAP Net Income and Federal Taxable Income:
The following table reconciles GAAP income from continuing operations to taxable income for the years ended December 31, 2023 and 2022 (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Net income |
|
$ |
|
|
$ |
|
||
GAAP net (income) of taxable subsidiaries |
|
|
( |
) |
|
|
( |
) |
GAAP net income from REIT operations |
|
|
|
|
|
|
||
Operating expense book deductions greater than tax |
|
|
|
|
|
|
||
Book depreciation in excess of tax depreciation |
|
|
|
|
|
|
||
GAAP amortization of intangibles in excess of tax |
|
|
|
|
|
|
||
Straight-line rent adjustments |
|
|
( |
) |
|
|
|
|
Mortgage refinance costs tax deductions greater than book |
|
— |
|
|
|
( |
) |
|
Gain on sale of real estate |
|
— |
|
|
|
( |
) |
|
Casualty gain not taxable |
|
— |
|
|
|
( |
) |
|
(Income) allocable to noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
Estimated taxable income |
|
$ |
|
|
$ |
|
||
We have determined for income tax purposes that the 2023 and 2022 regular dividends were considered ordinary dividend distributions. The total distributions paid in both 2023 and 2022 were the result of cash flows from operations.
Taxable REIT Subsidiaries:
The Company is subject to federal, state, and local income taxes on the income from its Taxable REIT subsidiaries (“TRS”) activities, which include all the discontinued operations of Shelter Express, Inc. and subsidiaries. There were
70
13. FUTURE MINIMUM RENT SCHEDULE:
Future minimum contractual lease payments to be received by the Company (without taking into account straight-line rent or amortization of intangibles) as of December 31, 2023, under operating leases for the next five years and thereafter are as follows (in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
The lease agreements generally contain provisions for the reimbursement of real estate taxes and operating expenses, as well as fixed increases in rent.
14. SUBSEQUENT EVENTS:
Distributions
On
Proceeds from Mortgage Notes Payable
On March 15, 2024,
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures:
We maintain a system of disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act). As required by Rule 15d-15(b) under the Exchange Act, management, under the direction of our Company’s Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of December 31, 2023, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 15d-15(f) of the Exchange Act). There are inherent limitations to the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal controls may vary over time.
71
Our management has assessed the effectiveness of our internal control over financial reporting (as defined in Rule 15d -15(f) of the Exchange Act) as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control—Integrated Framework. Management concluded that, as of December 31, 2023, our internal control over financial reporting was effective based on the criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that require the Company to include only management’s report in this Annual Report on Form 10-K.
Internal Control Over Financial Reporting:
There were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
72
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names and ages of our directors and executive officers and the positions they held with us as of March 12, 2024:
Name |
|
Age |
|
|
Position |
|
Paul Cooper |
|
|
63 |
|
|
Chairman of the Board, CEO and Class II Director |
Louis Sheinker |
|
|
62 |
|
|
President, Chief Operating Officer, Secretary and Class II Director |
Stuart Blau |
|
|
68 |
|
|
Chief Financial Officer and Treasurer |
Douglas Cooper |
|
|
77 |
|
|
Class I Director |
Stanley Perla |
|
|
80 |
|
|
Class II Director |
Donald Schaeffer |
|
|
73 |
|
|
Class III Director |
David Jang |
|
|
63 |
|
|
Class I Director |
Brandon Konigsberg |
|
|
53 |
|
|
Class III Director |
James Oswald |
|
|
60 |
|
|
Class III Director |
The principal occupation and business experience of each of the directors and executive officers are as follows:
Paul Cooper has been Chief Executive Officer of the Company since June 2012 and Chairman of the Board of Directors since January 1, 2014. Mr. Cooper has been a director of the Company since June 2006 and previously served as Executive Vice President. Mr. Cooper oversees all aspects of our business activities including the acquisition, leasing, financing, management and disposition of assets. Prior to joining the Company, for more than 12 years, Mr. Cooper was a principal of Lighthouse Real Estate Ventures and its affiliates (collectively “Lighthouse”). Lighthouse owned, managed, and leased its own portfolio of more than 2 million square feet of commercial buildings in the Greater New York metropolitan area. Mr. Cooper brings his extensive experience in the commercial real estate industry to the Board. Mr. Cooper holds a Bachelor of Science degree from the University of Pennsylvania and a Juris Doctor degree from Fordham University. Paul Cooper is the cousin of Douglas Cooper.
Louis Sheinker has been President and Chief Operating Officer and a director of the Company since January 2013. Mr. Sheinker brings over 35 years of real estate experience to the Company. Prior to joining the Company, Mr. Sheinker was a co-founding partner in Lighthouse Real Estate Ventures. He has participated in restructuring and repositioning of over 4 million square feet of office space and industrial properties. Prior to founding Lighthouse, he was the President of Sheinker Wasserstein Realty Services, Inc., which performed management and asset management services on behalf of financial institutions throughout the New York Metropolitan Area. Mr. Sheinker brings his extensive experience in the commercial real estate industry to the Board. He holds a Bachelor of Arts degree from Ithaca College and is currently a licensed Real Estate Broker in New York State. Effective as of January 15, 2015, Mr. Sheinker was appointed Secretary of the Company.
Stuart Blau has been Chief Financial Officer and Treasurer of the Company since November 2017. Prior to joining the Company, Mr. Blau served as Managing Partner at Kimmel Blau & Goldman LLP, a diversified certified public accounting firm, since 1983. He also served as Partner at Berlin & Blau, attorneys at law, from 1985 to 2021. Mr. Blau is a Certified Public Accountant and admitted to practice law in the State of New York. Mr. Blau received a Bachelor of Science degree from the State University of New York at Buffalo and a Juris Doctor degree from St. John’s University School of Law.
Douglas Cooper has been a director since June 2006. Mr. Cooper has been practicing law for over 40 years and is now of counsel to the firm of Ruskin Moscou Faltischek, P.C. Mr. Cooper brings his legal expertise to his long service to the Board. Mr. Cooper graduated from Hamilton College and received his Juris Doctor degree from Fordham Law School. Mr. Cooper also earned a Master’s degree in Corporate Law from NYU Law School. Douglas Cooper is the cousin of Paul Cooper. Mr. Cooper resigned as the Company’s Treasurer and Secretary effective as of January 15, 2015. Mr. Cooper is deemed an independent director.
Stanley Perla has been a director of the Company since January 2013. Mr. Perla was a partner with Ernst & Young LLP, a public accounting firm, from September 1978 to June 2003, and Managing Partner of Cornerstone Accounting Group LLP, from June 2008 to May 2011. He served as Ernst & Young’s National Director of Real Estate Accounting, as well as on Ernst & Young’s National Accounting and Auditing Committee. He is an active member of the National Association of Real Estate Investment Trusts and the National Association of Real Estate Companies. He is currently a director and chair of the audit committee of Global Net Lease, Inc. (“GNL”) and previously served as a director and chair of the audit committee of The Necessity Retail REIT, Inc. (formerly known as American Finance Trust, Inc.) prior to its acquisition by GNL in 2023. He has also served as a director and/or member of the audit committees of Hospitality Investors Trust, Madison Harbor Balanced Strategies, Inc., American Realty Capital Daily Net Asset Value Fund, American Capital Global Trust II, American Real Estate Income Fund American Mortgage Acceptance Company
73
and Lexington Realty Trust, and Vice President/Director of Internal Audit for Vornado Realty Trust (July 2003 to May 2008). Mr. Perla brings his accounting experience within our industry as well as his real estate and financial industry experience to the Board. He graduated from Baruch College, where he obtained his BBA in accounting in 1965, and his MBA in taxation in 1970. He is a licensed Certified Public Accountant in the State of New Jersey and New York. Mr. Perla is deemed an independent director.
Donald Schaeffer has been a director of the Company since June 2006. Mr. Schaeffer has extensive accounting and legal experience in real estate and tax. In 1982, he joined the accounting firm, Kandel Schaeffer, in which he eventually became an officer and owner. Through successor accounting firms, he became co-owner and President of Schaeffer & Sam, P.C., which he has practiced with for the past eighteen years. Mr. Schaeffer brings his legal and accounting experience to the Board. He graduated from the Wharton School, University of Pennsylvania, in 1972 and Columbia University School of Law in 1975. He is a licensed Certified Public Accountant in the State of New York. Mr. Schaeffer is deemed an independent director.
David Jang has been a director of the Company since October 2018. Mr. Jang, a graduate of the Wharton School at the University of Pennsylvania, has served as the Managing Partner/CEO at Deep Blue Investment Advisors, an institutional investment advisory firm, since August 2018. Previously, Mr. Jang served as a Partner of Client Advisory Services & Business Development at Water Walker Investments from August 2015 to August 2018. From August 2012 to August 2015, he served as Senior Vice President of Client Advisory Services at Davidson Fixed Income Management. Between May 2009 and August 2012, he was the Senior Managing Consultant of The PFM Group. Previously, Mr. Jang was the Vice President of Fixed Income Institutional Sales for Multi-Bank Securities, Inc. Mr. Jang also served as a director for the Company from June 2006 to December 2010 and has served various other treasury functions at large, multi-national institutions and is a Certified Treasury Professional. Mr. Jang is deemed an independent director.
Brandon Konigsberg has been a director of the Company since October 2019. From 1996 through 2020, Mr. Konigsberg was an executive of JPMorgan Chase & Co., a global financial services firm, where he held leadership roles in Finance and Treasury, serving as a CFO and COO for the Chief Investment Office, JPMorgan Securities Wealth Management Business, Corporate Treasury and Human Resources. Mr. Konigsberg also led management of the company’s global balance sheet, liquidity and interest rate risks. Prior to joining JP Morgan Chase & Co., Mr. Konigsberg was an auditor at Goldstein, Golub and Kessler, PC. Mr. Konigsberg has served on the board of Chicago Atlantic Real Estate Finance, Inc. since 2021, and he is the founder and managing partner of Kobra Group, LLC, an executive and board level advisory and consulting firm, where he has provided advisory and CFO services since December 2020. Mr. Konigsberg served as an interim CFO for Fynn, a fintech lending platform, from June 2021 to September 2022 and Exos, a lender specializing in SBA 7(a) loans, from June 2023 to September 2023. He previously served on the board of Flora Growth Corp. from September 2022 to June 2023. He brings to the Board his broad experience driving financial and operational strategy, management and discipline. He received a Bachelor of Arts in Accounting from the University of Albany and a Master’s degree in Business Administration from New York University Stern School of Business. Mr. Konigsberg is deemed an independent director.
James Oswald has been a director of the Company since February 2024. Mr. Oswald is an attorney and certified public accountant with an LLM in taxation from New York University School of Law. Mr. Oswald’s 35 plus year career includes time spent as Senior Real Estate Partner at Deloitte, a public accounting firm, from 2018 to 2023. During this time, he served as Deloitte’s NY Real Estate Tax Leader and Real Estate Catalyst Partner. Prior to joining Deloitte, Mr. Oswald was a Senior Partner in real estate tax at PricewaterhouseCoopers, a public accounting firm, from March 2010 to March 2018. Mr. Oswald served as the lead client service partner and/or lead tax partner for some of the largest real estate clients at each firm, focusing predominantly on REITs and real estate funds. He is a member of the Executive Committee of the Board of Advisors at NYU Schack Institute of Real Estate, as well as the Newman Institute and Baruch College’s Zicklin School of Business Department of Real Estate. He previously served as an Adjunct Professor at the graduate school level at NYU Schack Institute of Real Estate. Additionally, Mr. Oswald was elected membership in the Counselors of Real Estate and has been an active member of the National Association of Real Estate Investment Trusts, Urban Land Institute, and Real Estate Board of New York. Mr. Oswald is deemed an independent director.
Except as noted above and elsewhere in this filing, there are no family relationships between any of the Company’s executive officers or directors and there are no arrangements or understandings between a director and any other person pursuant to which such person was elected as director.
No director or officer of the Company has, during the last 10 years, been subject to or involved in any legal proceedings described under Item 401(f) of Regulation S-K, been convicted of any criminal proceeding (excluding traffic violations or minor offenses), or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, United States federal or state securities laws or finding any violations with respect to such laws.
74
Board Membership, Meetings and Attendance
The Board oversees the business affairs of our Company and monitors the performance of management. Each director holds office for the term for which he is elected or until his successor is duly elected and qualified, his resignation, or he is removed in the manner provided by our Bylaws. All of our officers devote their full-time attention to our business.
Our Board currently consists of eight directors: Paul Cooper, Louis Sheinker, Douglas Cooper, Stanley Perla, Donald Schaeffer, David Jang, Brandon Konigsberg and James Oswald. Directors are elected at each annual meeting of stockholders. We have a staggered Board. Class I directors, which are Messrs. D. Cooper and Jang, have a term expiring at the annual stockholders meeting in 2025 or until their successors are elected and qualified. Class II directors, which are Messrs. P. Cooper, Sheinker and Perla, have a term expiring at the annual meeting in 2026 or until their successors are elected and qualified. Class III directors, Messrs. Konigsberg, Schaeffer and Oswald, have a term expiring at the annual stockholders meeting in 2024 or until their successors are elected and qualified. Directors reelected at such time shall be reelected to three-year terms. Officers are appointed by the Board and serve at the pleasure of the Board, subject to any contract rights.
Our Board held eight meetings during 2023. Each director attended at least 75% of the aggregate number of all Board meetings held during the period for which he was a director and committee meetings held during the period for which he was a committee member.
We encourage all members of the Board to attend annual meetings of stockholders, but there is no formal policy as to their attendance. At the 2023 annual meeting of stockholders, all members of the Board as of the date of the annual meeting attended the meeting. Our directors regularly meet in executive session without management present. Generally, the meetings follow each quarterly meeting of the Board.
The membership and responsibilities of our committees are summarized below. Additional information regarding the responsibilities of each committee is found in, and is governed by, our Bylaws, each committee’s charter, specific directions of the Board, and certain mandated regulatory requirements. A copy of the charters of the Audit and Compensation Committees, as well as the Amended and Restated Code of Business Conduct and Ethics are available to any person without charge upon written request to our corporate address to the attention of the Secretary.
Committees of the Board of Directors
Audit Committee
We have an Audit Committee comprised of three members, Messrs. Perla, Schaeffer and Konigsberg, all of whom are independent directors under NASDAQ stock market standards. Mr. Perla is designated as Chairman; he also serves as the “Audit Committee financial expert” as defined by Item 407(d)(5) of Regulation S-K. The purpose of the Audit Committee is to assist the Board in its general oversight of our financial reporting, internal controls and audit functions. The Audit Committee has adopted a charter which details the principal functions of the Audit Committee. In general, the Audit Committee selects and appoints the Company’s independent registered public accounting firm and the Audit Committee’s responsibilities include overseeing:
During the year ended December 31, 2023, the Audit Committee held four meetings.
Compensation Committee
We have a Compensation Committee comprised of three members: Messrs. Konigsberg, Schaeffer and Jang. All members of the committee are deemed independent directors under NASDAQ stock market standards. Mr. Schaeffer is designated as Chairman. The Compensation Committee establishes compensation policies and programs for our directors, executive officers and other senior employees. The Compensation Committee and the Board use data, showing current and historic elements of
75
compensation, when reviewing executive and director compensation. The Committee is empowered to review all components of executive officer and director compensation for consistency with the overall policies and philosophies of the Company relating to compensation issues. The Committee may from time to time delegate, to the extent permitted by applicable law, duties and responsibilities to subcommittees or an executive officer. The Committee may retain and receive advice, in its sole discretion, from compensation consultants. None of the members of our Compensation Committee is one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee. The Compensation Committee has adopted a charter which details the principal functions of the Compensation Committee.
Pursuant to its charter, the Compensation Committee is authorized to retain and terminate, without Board or management approval, the services of an independent compensation consultant to provide advice and assistance. The Compensation Committee has the sole authority to approve the consultant’s fees and other retention terms, and reviews the independence of the consultant and any other services that the consultant or the consultant’s firm may provide to the Company. The Chairman of the Compensation Committee reviews, negotiates and executes an engagement letter with the compensation consultants. The compensation consultant must report directly to the Compensation Committee.
In January 2016, the Compensation Committee, following an independence and conflict of interest review, engaged Gressle & McGinley LLC (“G&M”) as its independent compensation consultant to assist the Committee in its work on negotiating and finalizing new employment agreements for the Company’s executive officers (CEO and President/COO), and to serve as the Committee’s independent advisors on various 2015 related compensation matters, including, among others, annual performance reviews, market pay levels, grants under the Company’s equity compensation plans, etc. Prior to this engagement, G&M was employed as compensation consultants by the Company’s CEO and President/COO with respect to the review of the CEO, President/COO and CFO executive 2014 and 2015 market compensation, with the compensation paid for such services not exceeding $16,000 and $45,000, respectively. The total paid to G&M for each of the years ended December 31, 2023 and December 31, 2022, was approximately $30,000 and $57,000, respectively.
At the annual stockholders meeting held in June 2017, the stockholders approved the 2017 Equity Compensation Plan under which awards to directors and officers would be made going forward, including the equity compensation awarded to the independent directors.
During the year ended December 31, 2022, the Compensation Committee held one meeting. On May 25, 2022, the Compensation Committee held a meeting at which G&M gave an updated report regarding Board and committee compensation. The Compensation Committee decided to keep compensation for the directors unchanged.
During the year ended December 31, 2023, the Compensation Committee held one meeting. On May 26, 2023, the Compensation Committee held a meeting at which G&M gave an updated report regarding Board and committee compensation. Based upon this presentation, the Compensation Committee approved increasing the Board compensation to a cash retainer from $65,000 to $70,000, effective July 1, 2023, and an increase in equity compensation from $45,000 per year to $55,000, effective immediately.
As part of its ongoing services to the Compensation Committee, the compensation consultant will support the Compensation Committee in executing its duties and responsibilities with respect to the Company’s compensation programs by providing information regarding market trends and competitive compensation programs and strategies, including, among other things, preparing market data for executive positions, assessing management recommendations for changes in the compensation structure, working with management to ensure that the Company’s executive compensation programs are designed and administered consistent with the Committee’s requirements, and providing ad hoc support to the Committee, including discussing executive compensation and related corporate governance trends. The Company’s Board, executive management and personnel use the data provided by the consultant to prepare documents for use by the Compensation Committee in preparing their recommendations to the full Board.
Our Board does not have a stand-alone Nominating Committee. Instead, the full Board carries out the duties of a nominating committee. The Board has not adopted written guidelines regarding nominees for director.
Corporate Governance Matters; Risk Oversight and Management
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable the Board to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Board focuses primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above. Our directors possess relevant and industry-specific experience and knowledge relevant to the size and nature of our business, which we believe enhances the Board’s ability to oversee, evaluate and direct our overall corporate strategy. The Board annually reviews and makes recommendations regarding the composition and size of the Board
76
so that the Board consists of members with the proper expertise, skills, attributes, and personal and professional backgrounds needed by the Board, consistent with applicable regulatory requirements.
Our Board believes that all of its members should possess the highest personal and professional ethics, integrity, and values, and be committed to representing the long-term interests of our stockholders. In considering a director nominee, the Board will consider criteria including the nominee’s current or recent experience as a senior executive officer, whether the nominee is independent, as that term is defined under the independence requirements applicable to the Company, the business, scientific or engineering experience currently desired on the Board, geography, the nominee’s industry experience, and the nominee’s general ability to enhance the overall composition of the Board. The Board does not have a formal policy on diversity; however, in recommending directors, the Board considers the specific background and experience of the Board members and other personal attributes in an effort to provide a diverse mix of capabilities, contributions, and viewpoints to facilitate the Board’s discharge of its responsibilities.
The Board has no formal policy with respect to separation of the positions of Chairman and Chief Executive Officer or with respect to whether the Chairman should be a member of management or an independent director, and believes that these are matters that should be discussed and determined by the Board from time to time. Currently, Paul Cooper serves as our Chairman and our Chief Executive Officer. We believe he is well suited to manage the responsibility of implementing our corporate strategy and leading discussions, at the Board level, regarding performance relative to our corporate strategy, which accounts for a significant portion of the time devoted at our Board meetings. We believe this arrangement serves the best interests of the Company and its stockholders.
The Board believes that risk management is an important component of the Company’s corporate strategy. While we assess specific risks at our committee levels, the Board, as a whole, oversees our risk management process and discusses and reviews with management major policies with respect to risk assessment and risk management. The Board is regularly informed through its interactions with management and committee reports about risks we face in the course of our business.
In particular, the Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee also monitors compliance with legal and regulatory requirements and has oversight of the performance of our internal audit function. Our Compensation Committee assesses and monitors the effectiveness of our corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct.
Each committee meets regularly with management to assist it in identifying all of the risks within such committee’s areas of responsibility and in monitoring and, where necessary, taking appropriate action to mitigate the applicable risks. At each Board meeting, the committee chairman provides a report to the full board of directors on issues related to such committee’s risk oversight duties. To the extent that any risks reported to the full Board need to be discussed outside the presence of management, the Board will call an executive session to discuss these issues.
Code of Business Conduct and Ethics
Our Board has adopted an Amended and Restated Code of Business Conduct and Ethics, which applies to all directors, officers, and employees, including our principal executive officer and principal financial officer. A copy of the Amended and Restated Code of Business Conduct and Ethics was filed as Exhibit 14.1 to the Annual Report on Form 10-K for the year ended December 31, 2017.
77
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation of each named executive officer of the Company and/or their subsidiaries for the two years ended December 31, 2023 (“named executive officers”):
Name and Position |
|
Year |
|
Salary |
|
|
Bonus |
|
|
Stock |
|
|
Option |
|
|
All Other |
|
|
|
Total |
|
||||||
Paul Cooper, Chairman |
|
2023 |
|
$ |
750,000 |
|
|
$ |
1,300,000 |
|
|
$ |
499,992 |
|
|
$ |
— |
|
|
$ |
127,005 |
|
(1)(2)(3) |
|
$ |
2,676,997 |
|
|
|
2022 |
|
$ |
750,000 |
|
|
$ |
1,100,000 |
|
|
$ |
649,988 |
|
|
$ |
584,600 |
|
|
$ |
111,897 |
|
(1)(2)(3) |
|
$ |
3,196,485 |
|
Louis Sheinker, President, |
|
2023 |
|
$ |
750,000 |
|
|
$ |
1,300,000 |
|
|
$ |
499,992 |
|
|
$ |
— |
|
|
$ |
149,389 |
|
(1)(2)(3) |
|
$ |
2,699,381 |
|
|
|
2022 |
|
$ |
750,000 |
|
|
$ |
1,100,000 |
|
|
$ |
649,988 |
|
|
$ |
584,600 |
|
|
$ |
124,966 |
|
(1)(2)(3) |
|
$ |
3,209,554 |
|
Stuart Blau, Chief Financial |
|
2023 |
|
$ |
350,000 |
|
|
$ |
300,000 |
|
|
$ |
299,985 |
|
|
$ |
— |
|
|
$ |
57,434 |
|
(1)(2) |
|
$ |
1,007,419 |
|
|
|
2022 |
|
$ |
350,000 |
|
|
$ |
275,000 |
|
|
$ |
249,998 |
|
|
$ |
— |
|
|
$ |
41,527 |
|
(1)(2) |
|
$ |
916,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Grants of Plan-Based Awards and Outstanding Equity Awards at Fiscal Year End:
Options granted to our named executive officers in 2016 were non-qualified stock options. The exercise price per share of each option granted to our named executive officers was determined by our Board on the date of the grant. All of the stock options granted to our named executive officers in 2016 were granted under our 2007 Plan. 200,000 options were granted to the named executive officers in 2016.
Options granted to our named executive officers in 2022 were non-qualified stock options. The exercise price per share of each option granted to our named executive officers was determined by our Board on the date of the grant. All of the stock options granted to our named executive officers in 2022 were granted under our 2017 Plan. 400,000 options were granted to the named executive officers in 2022.
The following table sets forth certain information regarding grants of plan-based awards to our named executive officers for the fiscal year ended December 31, 2023:
Name and Principal Position |
|
Grant Date |
|
All Other Stock |
|
|
Grant Date |
|
||
Paul Cooper, Chairman and Chief Executive Officer |
|
6/8/2023 |
|
|
30,211 |
|
|
$ |
499,992 |
|
Louis Sheinker, Chief Operating Officer, President and Secretary |
|
6/8/2023 |
|
|
30,211 |
|
|
$ |
499,992 |
|
Stuart Blau, Chief Financial Officer and Treasurer |
|
6/8/2023 |
|
|
18,126 |
|
|
$ |
299,985 |
|
78
Outstanding Equity Awards
The following table sets forth certain information with respect to restricted stock awards held by each named executive officer as of December 31, 2023:
Name |
|
Grant Year |
|
|
Number of Shares |
|
|
Market Value of |
|
|
Number of |
|
|
Market or Payout |
|
|||||
Paul Cooper |
|
|
2023 |
|
|
|
16,798 |
|
|
|
278,002 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2022 |
|
|
|
17,247 |
|
|
|
313,026 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2021 |
|
|
|
18,539 |
|
|
|
220,610 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2020 |
|
|
|
7,034 |
|
|
|
89,327 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2019 |
|
|
|
4,361 |
|
|
|
50,588 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2018 |
|
|
|
1,814 |
|
|
|
21,133 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2017 |
|
|
|
731 |
|
|
|
8,484 |
|
|
|
|
|
|
|
||
Louis Sheinker |
|
|
2023 |
|
|
|
16,798 |
|
|
|
278,002 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2022 |
|
|
|
17,247 |
|
|
|
313,026 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2021 |
|
|
|
18,539 |
|
|
|
220,610 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2020 |
|
|
|
7,034 |
|
|
|
89,327 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2019 |
|
|
|
4,361 |
|
|
|
50,588 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2018 |
|
|
|
1,814 |
|
|
|
21,133 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2017 |
|
|
|
731 |
|
|
|
8,484 |
|
|
|
|
|
|
|
||
Stuart Blau |
|
|
2023 |
|
|
|
13,424 |
|
|
|
222,165 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2022 |
|
|
|
7,089 |
|
|
|
128,659 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2021 |
|
|
|
5,296 |
|
|
|
63,022 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2020 |
|
|
|
2,404 |
|
|
|
30,525 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2019 |
|
|
|
684 |
|
|
|
7,932 |
|
|
|
— |
|
|
|
— |
|
|
The following table sets forth certain information with respect to outstanding stock option awards granted to our named executive officers as of December 31, 2023:
Name and Principal Position |
|
Number of |
|
|
Number of |
|
|
Equity Incentive |
|
|
Option |
|
|
Option |
||||
Paul Cooper, Chairman and Chief Executive |
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
10.40 |
|
|
November 2026 |
Louis Sheinker, Chief Operating Officer, |
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
10.40 |
|
|
November 2026 |
Paul Cooper, Chairman and Chief Executive |
|
|
66,667 |
|
|
|
133,333 |
|
|
|
— |
|
|
$ |
18.15 |
|
|
July 2032 |
Louis Sheinker, Chief Operating Officer, |
|
|
66,667 |
|
|
|
133,333 |
|
|
|
— |
|
|
$ |
18.15 |
|
|
July 2032 |
|
79
Option Exercises and Stock Vested:
Options issued in 2008 pursuant to the 2007 Incentive Award Plan and the related Stock Option Agreement were exercised by Paul Cooper and 50,000 shares were purchased on May 31, 2017. No options were exercised by our named executive officers in 2023.
Pension Benefits:
We do not currently maintain qualified or non-qualified defined benefit plans.
Non-qualified Deferred Compensation:
We do not currently maintain non-qualified defined contribution plans or other deferred compensation plans.
Employee Agreements and Potential Payments upon Termination or Change in Control:
Except as set forth below, there are no employment agreements or agreements providing for potential payments upon termination or a change in control at December 31, 2023.
Paul Cooper Employment Agreement
On November 2, 2021, the Board following review and recommendation of the Board’s Compensation Committee, approved the Company’s execution of the second amended and restated employment agreement by and between the Company and Paul Cooper (the “CEO Employment Agreement”), which agreement was executed by the parties on November 3, 2021. The CEO Employment Agreement provides for an initial term of five years, from January 1, 2022 through and including December 31, 2026, and two successive automatic one-year renewal terms, unless either party gives written notice to the other party of its desire to terminate the agreement. It also provides for the payment of an annual base salary to Mr. Cooper at the rate of $750,000, subject to annual increases at the discretion of the Company. Additionally, Mr. Cooper may earn a cash bonus of $750,000 per year (the “Cooper Cash Bonus”) and an equity bonus payable in shares of the Company’s restricted common stock valued at $500,000 per year (the “Cooper Equity Bonus”), upon the achievement of certain benchmarks set forth in an annual budget approved by the Board, which amounts are subject to adjustments in the Board’s review and discretion, as set forth in the agreement; such equity bonus vesting at a rate equal to 10% on the date of grant and 10% on each of the next nine anniversaries of the date of grant while Mr. Cooper is employed by the Company. The Company also agreed to grant Mr. Cooper a stock option under the Company’s 2017 Incentive Award Plan, as amended, or a successor plan (the “Equity Plan”), to acquire 200,000 shares of the Company’s common stock at an exercise price equal to the fair market value of the Company’s common stock as defined in the Equity Plan and which will vest in its entirety on the 3rd anniversary of the grant date in accordance with the terms of a stock option agreement (the “Option Agreement”). The stock option will be granted as soon as practicable after the Company receives its annual valuation in 2022 for the purpose of valuing shares of common stock pursuant to the Equity Plan. Mr. Cooper will also be entitled to receive, for each fiscal year of his employment period with the Company, long term equity incentive awards in the form of restricted stock under the Equity Plan when the Company attains the Adjusted Funds From Operations targets (as described in the Company’s Long-Term Equity Plan (the “LTEP”)) and as further adjusted in accordance with the procedures set forth in Appendix 1 to the LTEP. In addition, the CEO Employment Agreement provides that the Company will provide Mr. Cooper with certain usual and customary benefits commensurate with his position including without limitation, medical insurance, $7 million term life insurance, disability insurance, and participation in the Company’s 401(k) plan. The CEO Employment Agreement also contains the following termination terms and provisions:
• In the event that (i) Mr. Cooper terminates his employment with the Company without good reason or (ii) the Company terminates Mr. Cooper’s employment for cause, the Company’s obligations under the agreement will be reduced to paying his unpaid salary and reimbursable expenses owing to him prior to such termination (the “Accrued Obligations”), and
• In the event that (i) Mr. Cooper terminates his employment with the Company for good reason, or (ii) the Company terminates Mr. Cooper during his employment term without cause, (iii) Mr. Cooper terminates his employment with the Company during the 90-day period following a change of control of the Company, or (iv) the Company elects not to renew the CEO Employment Agreement after the expiration of the initial or renewal term, then in each case, the Company’s termination obligations will include the payment of the Accrued Obligations, severance payments (the amount of which depends on the circumstances of his departure), accelerated vesting of unvested equity bonus and COBRA payments equal to the lesser of the remainder of the term or the maximum period of COBRA continuation coverage applicable to the Chief Executive Officer.
The severance payments referenced above will be calculated as follows: (a) if Mr. Cooper terminates his employment for good reason or if the Company terminates Mr. Cooper during his employment without cause, the Company will pay him (x) three years of his then current salary, plus a lump sum in an amount equal to three (3) times the greatest amount of the Cooper Cash Bonus
80
and Cooper Equity Bonus that Mr. Cooper earned in any one year during the shorter of (y) the three-year period prior to notice of termination or any period during the CEO Employment Agreement.
Further, if Mr. Cooper’s employment was terminated pursuant to clause (iv) above at the end of his initial employment term (the “Cooper Initial Term”) and provided the Company achieves the applicable bonus criteria (the “Bonus Criteria”), on an aggregate basis for each specified criterion during the Cooper Initial Term, as of the end of the 2026 fiscal year, then his severance payment would be equal to 1x his then base salary, plus 1x his Cooper Cash Bonus and Cooper Equity Bonus (assuming achievement of the Bonus Criteria at target), in addition to the Cooper Cash Bonus and Cooper Equity Bonus payments previously described as owed for the 2026 fiscal year; provided further, that if the Company fails to achieve the Bonus Criteria, on an aggregate basis for each specified criteria during the Cooper Initial Term, as of the end of the 2026 fiscal year, then no payments in this paragraph shall be payable to Mr. Cooper.
To the extent his employment was terminated pursuant to clause (iv) above at the end of his renewal employment term, then his severance payment would be equal to his then base salary he would have earned during the renewal term and the Cooper Cash Bonus and Cooper Equity Bonus (assuming achievement of the Bonus Criteria for such renewal term) he could have earned during the remainder of such renewal term, in addition to the Cooper Cash Bonus and Cooper Equity Bonus payments previously described as owed for the fiscal year. The CEO Employment Agreement also contains certain confidentiality, non-solicitation/non-competition and other provisions customary for agreements of this nature.
Louis Sheinker Employment Agreement
On November 2, 2021, the Board also, following review and recommendation of the Compensation Committee, approved the Company’s execution of the amended and restated Employment Agreement by and between the Company and Louis Sheinker (the “President Employment Agreement”), which agreement was executed by the parties on November 3, 2021. The President Employment Agreement provides for an initial term of five years, from January 1, 2022 through and including December 31, 2026, and two successive automatic one year renewal terms, unless either party gives written notice to the other party of its desire to terminate the agreement. It also provides for the payment of an annual base salary to Mr. Sheinker at the rate of $750,000, subject to annual increases at the discretion of the Company. Additionally, Mr. Sheinker may earn a cash bonus of $750,000 per year (the “Sheinker Cash Bonus”) and an equity bonus payable in shares of the Company’s restricted common stock valued at $500,000 per year (the “Sheinker Equity Bonus”), upon the achievement of certain benchmarks set forth in an annual budget approved by the Board, which amounts are subject to adjustments in the Board’s review and discretion, as set forth in the agreement; such equity bonus vesting at a rate equal to 10% on the date of grant and 10% on each of the next nine anniversaries of the date of grant while Mr. Sheinker is employed by the Company. The Company also agreed to grant Mr. Sheinker a stock option under the Company’s Equity Plan, to acquire 200,000 shares of the Company’s common stock at an exercise price equal to the fair market value of the Company’s common stock as defined in the Equity Plan and which will vest in its entirety on the 3rd anniversary of the grant date in accordance with the terms of the Option Agreement. The stock option will be granted as soon as practicable after the Company receives its annual valuation in 2022 for the purpose of valuing shares of common stock pursuant to the Equity Plan. Mr. Sheinker will also be entitled to receive, for each fiscal year of his employment period with the Company, long term equity incentive awards in the form of restricted stock under the Equity Plan when the Company attains the AFFO targets (as described in the LTEP) and as further adjusted in accordance with the procedures set forth in Appendix 1 to the LTEP. In addition, the President Employment Agreement provides that the Company will provide Mr. Sheinker with certain usual and customary benefits commensurate with his position including without limitation, medical insurance, $7 million term life insurance, disability insurance, and participation in the Company’s 401(k) plan. The President Employment Agreement also contains the following termination terms and provisions:
The severance payments referenced above will be calculated as follows: (a) if Mr. Sheinker terminates his employment for good reason or if the Company terminates Mr. Sheinker during his employment without cause, the Company will pay him (x) three years of his then current salary, plus a lump sum in an amount equal to three (3) times the greatest amount of the Sheinker Cash Bonus
81
and Sheinker Equity Bonus that Mr. Sheinker earned in any one year during the shorter of (y) the three-year period prior to notice of termination or any period during the President Employment Agreement.
Further, if Mr. Sheinker’s employment was terminated pursuant to clause (iv) above at the end of his initial employment term (the “Sheinker Initial Term”) and provided the Company achieves the applicable Bonus Criteria, on an aggregate basis for each specified criterion during the Sheinker Initial Term, as of the end of the 2026 fiscal year, then his severance payment would be equal to 1x his then base salary, plus 1x his Sheinker Cash Bonus and Sheinker Equity Bonus (assuming achievement of the Bonus Criteria at target), in addition to the Sheinker Cash Bonus and Sheinker Equity Bonus payments previously described as owed for the 2026 fiscal year; provided further, that if the Company fails to achieve the Bonus Criteria, on an aggregate basis for each specified criteria during the Sheinker Initial Term, as of the end of the 2026 fiscal year, then no payments in this paragraph shall be payable to Mr. Sheinker.
To the extent his employment was terminated pursuant to clause (iv) above at the end of his renewal employment term, then his severance payment would be equal to his then base salary he would have earned during the renewal term and the Sheinker Cash Bonus and Sheinker Equity Bonus (assuming achievement of the Bonus Criteria for such renewal term) he could have earned during the remainder of such renewal term, in addition to the Sheinker Cash Bonus and Sheinker Equity Bonus payments previously described as owed for the fiscal year. The President Employment Agreement also contains certain confidentiality, non-solicitation/non-competition and other provisions customary for agreements of this nature.
2023 Bonuses Paid Under the P. Cooper and L. Sheinker Employment Agreements
On May 26, 2023, the Compensation Committee discussed that the Adjusted Funds From Operations benchmarks for 2022 were met, as set forth in the respective employment agreements of Messrs. P. Cooper and L. Sheinker, entitling each executive to a $750,000 cash bonus and a $500,000 restricted stock bonus under the 2017 Plan. The Compensation Committee consulted with, and reviewed materials provided by, G&M, its independent compensation consultant, regarding market compensation and the Company’s 2022 performance and utilized its discretion to increase the size of Messrs. P. Cooper and L. Sheinker’s cash bonuses since the performance benchmarks were exceeded. The Compensation Committee approved increasing the cash bonus award by $550,000 each, for a total cash bonus of $1,300,000 to each of Messrs. P. Cooper and L. Sheinker.
Long-Term Equity Plan
On November 2, 2021, the Board approved the LTEP, which memorializes the terms and conditions of long-term equity incentive awards that can be earned by the Company’s Chief Executive Officer and President (collectively, the “Executives”) pursuant to the CEO employment Agreement and President Employment Agreement. The LTEP provides that each Executive will be entitled to receive long term equity incentive awards in the form of restricted stock under the Equity Plan equal to $2 million for each fiscal year in which the Company attains AFFO benchmarks of $1.50, $2.00, $2.50, $3.00 and $3.50 per share (provided that each such award is conditioned on the determination by the Compensation Committee in its sole discretion that the attainment of the particular AFFO target is sustainable). Once an AFFO target is met for a fiscal year, attainment of the same target in subsequent fiscal years shall not result in an additional award under the LTEP.
Stuart Blau Employment Letter
On November 14, 2017, Stuart M. Blau was appointed as the Company’s Chief Financial Officer and Treasurer. In connection with Mr. Blau’s appointment, the Company and Mr. Blau entered into an employment letter (the “Employment Letter”) setting forth the terms and conditions of Mr. Blau’s employment with the Company. The Employment Letter provides that Mr. Blau will, among other things, (i) receive a base salary of $300,000 per annum, subject to annual review, (ii) be eligible to receive an annual discretionary performance bonus, and (iii) be entitled to participate in the Company’s benefit programs. In addition, the Employment Letter contains confidentiality and non-disclosure covenants customary for agreements of this nature. On May 25, 2022, the Compensation Committee discussed the performance of Mr. Blau and the Company's profitability, as set forth in the respective employment letter of Mr. Blau, and utilized its discretion to increase Mr. Blau's base salary to $350,000 per annum for the 2022 fiscal year.
2023 Bonuses Paid Under the S. Blau Employment Letter
On May 26, 2023, the Compensation Committee discussed the performance of Mr. Blau and the Company’s profitability, as set forth in the respective employment letter of Mr. Blau, and utilized its discretion to entitle the executive to a $300,000 cash bonus and a $300,000 restricted stock bonus under the 2017 Plan.
82
Director Compensation:
The following table sets forth a summary of the compensation paid to our directors in 2023:
Name |
|
Fees Paid |
|
|
Stock |
|
|
Option |
|
|
Non-Equity |
|
|
Other |
|
|
Total ($) |
|
||||||
John Leahy (1) |
|
|
58,125 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,125 |
|
Stanley Perla |
|
|
81,250 |
|
|
|
54,996 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
136,246 |
|
Donald Schaeffer |
|
|
83,750 |
|
|
|
54,996 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
138,746 |
|
Douglas Cooper |
|
|
66,250 |
|
|
|
54,996 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
121,246 |
|
David Jang |
|
|
71,250 |
|
|
|
54,996 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
126,246 |
|
Brandon Konigsberg |
|
|
75,000 |
|
|
|
54,996 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
129,996 |
|
|
Our non-officer Directors received the following forms of compensation for 2023:
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of December 31, 2023, information regarding the beneficial ownership of the Company’s common stock by (1) each person who is known to the Company to be the owner of more than five (5%) percent of the Company’s common stock, (2) each of the Company’s directors and named executive officers and (3) all directors and executive officers as a group. For purposes of this table, a person or group of persons is deemed to have beneficial ownership of any shares that such person has the right to acquire within 60 days of December 31, 2023.
|
|
Amounts and Nature of |
|
|
Percentage of |
|
||
Name of Beneficial Owner (1) |
|
Beneficial Ownership |
|
|
Class(7) |
|
||
Paul Cooper (2) |
|
|
695,137 |
|
|
|
5.0 |
% |
Louis Sheinker (3) |
|
|
586,887 |
|
|
|
4.2 |
% |
Douglas Cooper (4) |
|
|
217,432 |
|
|
|
1.6 |
% |
Stuart Blau (6) |
|
|
60,757 |
|
|
* |
|
|
Donald Schaeffer (5) |
|
|
34,311 |
|
|
* |
|
|
Stanley Perla (5) |
|
|
30,293 |
|
|
* |
|
|
David Jang (6) |
|
|
18,145 |
|
|
* |
|
|
Brandon Konigsberg (6) |
|
|
12,338 |
|
|
* |
|
|
All Executive Officers and Directors as a Group |
|
|
1,655,300 |
|
|
|
11.9 |
% |
|
* Represents less than 1.0% of the Company’s outstanding common stock.
83
Equity Compensation Plan Information
On June 11, 2007, the Board approved the Company’s 2007 Plan with the effective date of the Plan of June 11, 2007, which was then approved by our stockholders on February 7, 2008. The aggregate number of shares of common stock which may have been awarded under the 2007 Plan was 1,000,000 shares. These shares were registered on the Registration Statement on Form S-8 filed with the SEC on September 23, 2010. The 2007 Plan expired by its terms on June 11, 2017. The 2017 Plan was adopted by the Board and became effective on April 24, 2017, subject to the approval of the Company’s stockholders which was obtained on June 8, 2017. The aggregate number of shares of common stock which may be awarded under the 2017 Plan is 2,000,000 shares. These shares were registered on the Registration Statement on Form S-8 filed with the SEC on June 12, 2017. See Part III, Item 11 and Note 6. “Stockholders’ Equity” of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding the 2007 Plan and the 2017 Plan.
The following information is provided as of December 31, 2023, with respect to compensation plans, including individual compensation arrangements, under which our equity securities are authorized for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Plan category |
|
Number of securities |
|
|
Weighted-average |
|
|
Number of |
|
|
Number of securities |
|
||||
Equity compensation plans approved |
|
|
200,000 |
|
|
$ |
10.40 |
|
|
|
879,618 |
|
|
|
— |
|
Equity compensation plans approved |
|
|
400,000 |
|
|
$ |
18.15 |
|
|
|
969,109 |
|
|
|
1,030,891 |
|
Equity compensation plans not |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
600,000 |
|
|
$ |
15.57 |
|
|
|
1,848,727 |
|
|
|
1,030,891 |
|
Our directors and executive officers and their affiliates and associates have engaged in the following transactions with the Company.
Paul Cooper, the Chairman and Chief Executive Officer of the Company, and Louis Sheinker, the President, Secretary and Chief Operating Officer of the Company, each hold minority ownership interests in a real estate brokerage firm in which they do not engage in management activities, The Rochlin Organization. The firm acted as the exclusive broker for one of the Company’s properties. In 2013, the firm introduced a new tenant to the property, resulting in the execution of a lease agreement and a subsequent lease modification and the firm earning brokerage commissions. In subsequent years, the tenant has expanded square footage and exercised renewal options, resulting in the firm earning additional brokerage commissions. In March 2018, the tenant exercised its option to renew its lease for the premises resulting in approximately $107,000 of brokerage commissions on the aggregate contractual rents of $3,600,000. In November 2018, the tenant concluded negotiations to expand the premises by an additional 30,000 square feet which resulted in approximately $40,000 of brokerage commissions on the aggregate contractual rents of $670,000. In February 2020, the tenant exercised its option to renew its lease for the premises resulting in approximately $135,000 of brokerage commissions on the aggregate contractual rents of approximately $4,500,000. In July 2020, the firm introduced a new tenant to the property, resulting in the execution of a lease agreement and the firm earning a brokerage commission of approximately $406,000 on the aggregate contractual rents of approximately $21,000,000. In October 2022, the firm acted as the exclusive broker for another one of the Company's properties. The tenant signed an extension agreement which resulted in approximately $2,900,000 of brokerage commissions on the aggregate contractual rents of $82,500,000.
84
Paul Cooper and Louis Sheinker each hold interests in a real estate brokerage firm, Green Holland Management LLC ("GHM"). Paul Cooper and Louis Sheinker each own fifty percent (50%) of the interests in GHM. In October 2022, the Company sold a property to a buyer that was introduced to the property by a broker working for GHM. GHM received a brokerage commission of $600,000. In January 2023, the Company purchased a property and was introduced to the property by a broker working for GHM, resulting in $574,000 of brokerage commissions. In November 2023, GHM sold its interest in The Rochlin Organization to Adam Rochlin and The Rochlin Organization.
The Company’s former executive and administrative offices, located at 60 Hempstead Avenue, West Hempstead, New York, were being leased from Lighthouse Sixty, L.P., a partnership of which Paul Cooper and Louis Sheinker are managing members of the general partner. The lease agreement expired in 2020. The Company continued to occupy the premises on a month-to-month basis at a monthly operating lease cost of approximately $27,000 through October 31, 2021. The Company moved its offices to a new location in October 2021 pursuant to a lease with a third party.
Policy Concerning Related Party Transactions:
In January 2018, our Board adopted an amended and restated policy (the “Policy”) concerning the identification, review and approval of Related Party Transactions (as such term is defined in the Policy).
Identification of Potential Related Party Transactions:
Related Party Transactions will be brought to the attention of management and the board of directors in a number of ways. Each director, nominee for director and executive officer is responsible for providing prompt written notice to the Secretary of any potential Related Party Transaction involving him or her or his or her immediate family member, including any additional information about the transaction that the Secretary may reasonably request. The Secretary should receive notice of any potential Related Party Transaction well in advance of consummation of the transaction so that he or she has adequate time to obtain and review information about the proposed transaction. In addition, each such director, nominee for director and executive officer completes a questionnaire on an annual basis designed to elicit information about any potential Related Party Transactions.
Any potential Related Party Transactions that are brought to our attention will be reviewed and analyzed by our outside securities counsel in consultation with management, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a Related Party Transaction requiring approval or ratification by the Board in accordance with the Policy.
Review and Approval of Related Party Transactions:
At each of its meetings, the Board will be provided with the details of each new, existing, or proposed Related Party Transaction, including the terms of the transaction, the business purpose of the transaction, and the effects on the Company and the relevant Related Party. In determining whether to approve a Related Party Transaction, the Board will consider, among other factors, the following factors to the extent relevant to the Related Party Transaction:
Any member of the Board who has an interest in the transaction under discussion will abstain from voting on the approval of the Related Party Transaction, but may, if so requested by the Chairperson of the Board, participate in some or all of the Board’s discussions of the Related Party Transaction. Upon completion of its review of the transaction, the Board may determine whether to permit or to prohibit the Related Party Transaction in its good faith judgment.
85
The Policy provides that the Board has reviewed certain types of Related Party Transactions identified in the Instructions to Item 404(a) of Regulation S-K as transactions that do not require disclosure under Item 404(a), and determined that such types of Related Party Transactions shall be deemed to be pre-approved or ratified, as applicable, by the Board, even if the aggregate amount involved will exceed $120,000, unless specifically determined otherwise by the Board. In connection with each regularly scheduled meeting of the Board, a summary of each new Related Party Transaction deemed pre-approved shall be provided to the Board for its review.
Director Independence
Our Board of Directors currently consists of eight members. As of March 12, 2024, six of the members are deemed independent. The Board elects to apply the NASDAQ stock market corporate governance requirements and standards in its determination of the independence status of each Board and committee member. With respect to Mr. Douglas Cooper’s independence, the Board considered that he previously served as an executive officer of the Company over nine years ago, that a law firm in which he was a partner previously served as counsel to the Company over ten years ago and that his cousin currently serves as the CEO of the Company. The Board determined that Mr. Douglas Cooper qualified as an independent director given the number of years that have passed since he has served as an executive officer and the law firm in which he was a partner served as legal counsel to the Company and the fact that the Board did not believe that cousin relationship with the CEO would interfere with his exercise of independent judgment in carrying out his responsibilities as a director. The members of the Audit Committee are also “independent” as defined under the Exchange Act and applicable rules and regulations of the NASDAQ stock market. The members of the Compensation Committee are “independent” as defined under the applicable rules and regulations of the NASDAQ stock market.
The Board based its independence determinations primarily on a review of the responses of the directors and executive officers to questions regarding employment and transaction history, affiliations and family and other relationships and on discussions with the directors. Except as otherwise disclosed in this Annual Report on Form 10-K, none of our directors engages in any transaction, relationship, or arrangement contemplated under Item 404(a) of Regulation S-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
On March 15, 2022, the Audit Committee appointed BDO USA, LLP as our independent registered public accounting firm and have reported on the financial statements in the 2022 Annual Report on Form 10-K. On March 27, 2023, the Audit Committee approved the dismissal of BDO USA, LLP as our independent registered public accounting firm.
On March 27, 2023, the Audit Committee appointed Baker Tilly US, LLP as our independent registered public accounting firm and have reported on the financial statements in this 2023 Annual Report on Form 10-K.
The following table presents aggregate fees billed for each of the years ended December 31, 2023 and 2022 for professional services rendered by Baker Tilly US, LLP and BDO USA, LLP in the following categories:
|
|
2023 |
|
|
2022 |
|
||
Audit fees |
|
$ |
698,921 |
|
|
$ |
489,250 |
|
Audit related fees |
|
|
25,000 |
|
|
|
— |
|
Tax fees |
|
|
— |
|
|
|
— |
|
Other fees |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
723,921 |
|
|
$ |
489,250 |
|
Audit fees. These are fees for professional services performed for the audit of our annual financial statements and the required review of quarterly financial statements, and other procedures performed by Baker Tilly US, LLP in order for them to be able to form an opinion on our consolidated financial statements. These fees also cover services that are normally provided by independent auditors in connection with statutory and regulatory filings or engagements.
Audit related fees. These are fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance of the audit or review of the financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews, and consultation concerning financial accounting and reporting standards.
Tax fees. These are fees for all professional services performed by professional staff in Baker Tilly US, LLP’s tax division, except those services related to the audit of our financial statements. These include fees for tax planning and tax advice. In
86
2018, the Company engaged Alan Goldman P.C. to provide tax related services including tax planning and tax advice. Fees paid to Alan Goldman P.C. for both of the years ended December 31, 2023 and December 31, 2022 were $57,000.
All other fees. These are fees for any services not included in the above-described categories, including assistance with internal audit plans, risk assessments, and other regulatory filings.
The Audit Committee pre-approves all anticipated annual audit and non-audit services provided by our independent registered public accounting firm prior to the engagement of the independent registered public accounting firm with respect to such permissible services. With respect to audit services and permissible non-audit services not previously approved, the Audit Committee has authorized the Chairman of the Audit Committee to approve such audit services and permissible non-audit services, provided the Chairman informs the Audit Committee of such approval at its next regularly scheduled meeting. All “Audit Fees,” “Audit-Related Fees,” and “Tax Fees” set forth above were pre-approved by the Audit Committee. In accordance with Section 10A(i) of the Exchange Act, before Baker Tilly US, LLP was engaged by us to render audit or non-audit services, the engagement was approved by our Audit Committee.
87
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) List of Documents Filed.
1.The list of the financial statements contained herein is set forth under Part II, Item 8 of this Annual Report on Form 10-K.
2.Schedule III — Consolidated Real Estate and Accumulated Depreciation is set forth immediately following the Exhibit Index below. All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable and therefore have been omitted.
3.The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index below.
(b) See (a) 3 above.
(c) See (a) 2 above.
EXHIBIT INDEX
Exhibit Number |
|
Exhibit |
|
|
|
2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
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|
10.3 |
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10.4 |
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10.5 |
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10.6 |
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|
10.7 |
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|
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10.8 |
|
|
|
|
|
88
Exhibit Number |
|
Exhibit |
10.9 |
|
|
|
|
|
10.10 |
|
|
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|
|
10.11 |
|
|
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|
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10.12 |
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|
|
10.13 |
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|
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10.14 |
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10.15 |
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|
10.16 |
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10.17 |
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10.18 |
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|
10.19 |
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10.20 |
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|
10.21 |
|
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|
|
10.22 |
|
|
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|
|
10.23 |
|
89
Exhibit Number |
|
Exhibit |
|
|
|
10.24 |
|
|
|
|
|
10.25 |
|
|
|
|
|
10.26 |
|
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|
|
10.27 |
|
|
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|
|
10.28 |
|
|
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|
|
10.29 |
|
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|
10.30 |
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|
|
10.31 |
|
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|
|
10.32 |
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|
10.33 |
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|
|
10.34 |
|
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|
|
10.35 |
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10.36 |
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|
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10.37 |
|
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|
10.38 |
|
|
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|
|
10.39 |
|
|
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|
|
10.40 |
|
|
|
|
|
90
Exhibit Number |
|
Exhibit |
10.41 |
|
|
|
|
|
10.42 |
|
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|
|
10.43 |
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10.44 |
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|
10.45 |
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|
|
10.46 |
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10.47 |
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10.48 |
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10.49 |
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|
10.50 |
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|
10.51 |
|
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|
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10.52 |
|
|
10.53 |
|
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|
10.54 |
|
|
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|
|
10.55 |
|
|
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|
|
10.56 |
|
|
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|
|
10.57 |
|
|
|
|
|
10.58 |
|
|
|
|
|
10.59 |
|
91
Exhibit Number |
|
Exhibit |
|
|
|
10.60 |
|
|
|
|
|
10.61 |
|
|
|
|
|
10.62 |
|
|
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|
|
10.63 |
|
|
10.64 |
|
|
|
|
|
10.65 |
|
|
|
|
|
10.66 |
|
|
10.67
|
|
|
|
|
|
10.68
|
|
|
|
|
|
10.69
|
|
|
|
|
|
10.70
|
|
|
|
|
|
10.71
|
|
|
14.1 |
|
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|
|
16.1 |
|
|
|
|
|
21.1 |
|
|
|
|
|
23.1 |
|
Consent of Independent Registered Public Accounting Firm Baker Tilly US, LLP (filed herewith). |
|
|
|
31.1 |
|
|
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|
|
31.2 |
|
|
|
|
|
32.1 |
|
Certification of Chief Executive Officer (furnished herewith). |
|
|
|
32.2 |
|
Certification of Chief Financial Officer (furnished herewith). |
|
|
|
92
Exhibit Number |
|
Exhibit |
99.1 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
GTJ REIT, Inc
Schedule III- Consolidated Real Estate and Accumulated Depreciation (in thousands)
|
|
|
|
Initial Cost to |
|
|
Cost Capitalized Subsequent to Acquisition |
|
|
Gross Amount at |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Property |
|
Encumbrances |
|
Land |
|
|
Buildings & Improvements |
|
|
Improvements |
|
|
Land |
|
|
Buildings & Improvements |
|
|
Total |
|
|
Accumulated Depreciation |
|
|
Date of Construction |
|
|
Date Acquired |
||||||||
New York |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
103 Fairview Park Drive, Elmsford, NY |
|
E |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
412 Fairview Park Drive, Elmsford, NY |
|
B |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
||||||||
401 Fieldcrest Drive, Elmsford, NY |
|
B |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
||||||||
404 Fieldcrest Drive, Elmsford, NY |
|
E |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
36 Midland Ave, Port Chester, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
100-110 Midland Ave, Port Chester, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
199 Ridgewood Drive, Elmsford, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
203 Ridgewood Drive, Elmsford, NY |
|
B |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
8 Slater Street, Port Chester, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
612 Wortman Ave, Brooklyn, NY(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
165-25 147th Ave, Jamaica, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
114-15 Guy Brewer Blvd, Jamaica, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
49-19 Rockaway Beach Blvd, Far Rockaway, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
85-01 24th Ave, East Elmhurst, NY |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
23-85 87th Street, East Elmhurst, NY (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
28-20 Borden Ave, Long Island City, NY |
|
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
606 Cozine Ave, Brooklyn, NY |
|
D |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
201 Neelytown Road, Montgomery, NY |
|
D |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
112 Midland Ave, Port Chester, NY |
|
B |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total NY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
New Jersey |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
100 American Road, Morris Plains, NJ |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
200 American Road, Morris Plains, NJ |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
300 American Road, Morris Plains, NJ |
|
E |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
400 American Road, Morris Plains, NJ |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
500 American Road, Morris Plains, NJ |
|
E |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
20 East Halsey Road, Parsippany, NJ |
|
F |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
1110 Centennial Ave, Piscataway, NJ |
|
C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
11 Constitution Ave, Piscataway, NJ |
|
C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
21 Constitution Ave, Piscataway, NJ |
|
C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
4 Corporate Place, Piscataway, NJ |
|
C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
8 Corporate Place, Piscataway, NJ |
|
C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
1938 Olney Avenue, Cherry Hill, NJ |
|
D |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Office/Data Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
25 Corporate Place, Piscataway, NJ |
|
C |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total NJ: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Connecticut |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
466 Bridgeport Ave, Shelton, CT |
|
F |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
470 Bridgeport Ave, Shelton, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
15 Progress Drive, Shelton, CT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
33 Platt Road, Shelton, CT |
|
B |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
950-974 Bridgeport Ave, Milford, CT |
|
G |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
12 Cascade Blvd, Orange, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
15 Executive Blvd., Orange, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
25 Executive Blvd., Orange, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
22 Marsh Hill Rd, Orange, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
269 Lambert Rd, Orange, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
110 Old County Circle, Windsor Locks, CT |
|
G |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
120 Old County Circle, Windsor Locks, CT |
|
G |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
4 Meadow Street, Norwalk, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
777 Brook Street, Rocky Hill, CT |
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
35 Executive Blvd., Orange, CT (1) |
|
B |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total CT: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Delaware |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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||||||||
300 McIntire Drive, Newark, DE |
|
D |
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total DE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
||||||||
North Carolina |
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|
|
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|
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|
|
|
|
|
|
|
|
|
||||||||
Industrial: |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1000 Exchange Street, Charlotte, NC |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
n/a |
|
|
||||||
Total NC: |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Grand Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
93
|
|
2023 |
|
|
2022 |
|
||
Balance at beginning of year |
|
$ |
|
|
$ |
|
||
Property acquisitions |
|
|
|
|
— |
|
||
Property disposition |
|
— |
|
|
|
( |
) |
|
Improvements |
|
|
|
|
|
|
||
Balance at end of year |
|
$ |
|
|
$ |
|
||
|
|
2023 |
|
|
2022 |
|
||
Balance at beginning of year |
|
$ |
|
|
$ |
|
||
Property disposition |
|
— |
|
|
|
( |
) |
|
Depreciation and amortization for year |
|
|
|
|
|
|
||
Balance at end of year |
|
$ |
|
|
$ |
|
||
Lender |
|
Principal Outstanding |
|
|
A—People’s United Bank |
|
$ |
|
|
B—American International Group 2022 |
|
|
|
|
C—Allstate Corporation |
|
|
|
|
D—United States Life Insurance Company |
|
|
|
|
E—United States Life Insurance Company |
|
|
|
|
F—Transamerica Life Insurance Company |
|
|
|
|
G—Transamerica Life Insurance Company |
|
|
|
|
Total |
|
$ |
|
|
ITEM 16. FORM 10-K SUMMARY
None.
94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
GTJ REIT, INC. |
|
|
|
|
Dated: March 21, 2024 |
|
By: |
/s/ Paul A. Cooper |
|
|
|
Paul A. Cooper Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
By: |
/s/ Stuart Blau |
|
|
|
Stuart Blau Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
||
/s/ Paul A. Cooper Paul A. Cooper |
|
Chairman, Chief Executive Officer and Director (Principal Executive Officer) |
|
March 21, 2024 |
|
|
|
||
/s/ Louis Sheinker Louis Sheinker |
|
President, Chief Operating Officer, Secretary and Director |
|
March 21, 2024 |
|
|
|
||
/s/ Stuart Blau Stuart Blau |
|
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
|
March 21, 2024 |
|
|
|
||
/s/ Douglas A. Cooper Douglas A. Cooper |
|
Director |
|
March 21, 2024 |
|
|
|
||
/s/ David Jang David Jang |
|
Director |
|
March 21, 2024 |
|
|
|
||
/s/ Brandon Konigsberg Brandon Konigsberg |
|
Director |
|
March 21, 2024 |
|
|
|
||
/s/ James A. Oswald James A. Oswald |
|
Director |
|
March 21, 2024 |
|
|
|
||
/s/ Stanley R. Perla Stanley R. Perla |
|
Director |
|
March 21, 2024 |
|
|
|
||
/s/ Donald M. Schaeffer Donald M. Schaeffer |
|
Director |
|
March 21, 2024 |
|
|
|
||
95