Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-278960
This
preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, as amended, but is
not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these
securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED JUNE 13, 2024
PROSPECTUS
SUPPLEMENT
(To
Prospectus dated May 17, 2024)
Presidio
Property Trust, Inc.
Shares
of 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock
We
are offering shares of our 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock, which we refer to as the Series D Preferred
Stock, for an offering price to the public of $ per share.
Dividends
on the Series D Preferred Stock offered hereby are cumulative from the date they are issued and will be payable on the fifteenth day
of each calendar month, when, as and if authorized by our Board of Directors and declared by us. Dividends will be payable out of amounts
legally available therefor at a rate equal to 9.375% per annum per $25.00 of stated liquidation preference per share, or $2.34375 per
share of Series D Preferred Stock per year.
Commencing
on or after June 15, 2026, we may redeem, at our option, the Series D Preferred Stock, in whole or in part, at a cash redemption price
equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date. Prior to June 15, 2026,
upon a Change of Control, as defined in this prospectus supplement, we may redeem, at our option, the Series D Preferred Stock, in whole
or part, at a cash redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but not including the redemption
date. The Series D Preferred Stock has no stated maturity, will not be subject to any sinking fund or other mandatory redemption, and
will not be convertible into or exchangeable for any of our other securities.
Holders
of the Series D Preferred Stock generally will have no voting rights except for certain limited voting rights in circumstances where
dividends payable on the outstanding Series D Preferred Stock are in arrears for eighteen or more consecutive or non-consecutive monthly
dividend periods and in connection with certain amendments to our charter.
We
are restricted in our ability to issue or create any class or series of stock ranking senior to the Series D Preferred Stock with respect
to dividends or other distributions, so long as the Series D Preferred Stock is outstanding, unless holders of at least two-thirds of
the then outstanding Series D Preferred Stock consent to the same. See “Description of the Series D Preferred Stock—Voting
Rights.”
Our Series D Preferred Stock is traded on the Nasdaq Capital Market (“Nasdaq”)
under the symbol “SQFTP.” On June 12, 2024, the last reported sale price of our Series D Preferred Stock on Nasdaq was $17.50
per share. Our Series A Common Stock is also traded on Nasdaq under the symbol “SQFT.”
As of June 12, 2024, the aggregate market value of our outstanding common stock held by non-affiliates was approximately $12.2 million
based on 11,997,380 shares of common stock held by non-affiliates on such date and based on the last reported sale price of our
common stock on the Nasdaq on April 24, 2024 (a date that will be within 60 days of the date of
this prospectus supplement) of $1.02 per share. In no event will we sell securities pursuant to a Registration Statement on Form S-3
in a public primary offering with value exceeding more than one-third of our public float in any 12-month calendar period so long as
our public float remains below $75 million and General Instruction I.B.6 of Registration Statement on Form S-3 continues to apply to
us. As of the date of this prospectus supplement, we have not sold any securities pursuant to General Instruction I.B.6. of
Registration Statement on Form S-3 during the prior 12-month calendar period that ends on, and includes, the date of this prospectus
supplement (but excluding this offering).
Investing
in our Series D Preferred Stock involves a high degree of risk. See “Risk Factors” beginning on page S-5 of
this prospectus supplement to read about factors that you should consider before investing in our Series D Preferred Stock.
Neither
the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement. Any representation to the contrary is a criminal offense.
| |
Per
Share | | |
Total | |
Public offering price | |
$ | | | |
$ | | |
Underwriting discount(1) | |
$ | | | |
$ | | |
Proceeds, before expenses, to us | |
$ | | | |
$ | | |
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(1) |
Does
not include a non-accountable expense allowance equal to 1.0% of the gross proceeds of this offering payable to the Underwriters.
See “Underwriting” beginning on page S-23 for additional information regarding the compensation
being paid to the Underwriters. |
The
Underwriters expects to deliver the shares of Series D Preferred Stock to purchasers on or about ,
2024 through the book-entry facilities of The Depository Trust Company.
Sole
Book Running Manager
The
Benchmark Company, LLC
The
date of this prospectus supplement is , 2024.
TABLE
OF CONTENTS
Prospectus
Supplement
Prospectus
You
should rely only on the information contained in or incorporated by reference into this prospectus supplement, the accompanying prospectus
or any applicable free writing prospectus. We have not, and the underwriters have not, authorized any other person to provide you with
different or additional information. If anyone provides you with different or additional information, you should not rely on it. This
prospectus supplement and the accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to purchase,
any securities in any jurisdiction where it is unlawful to make such offer or solicitation. You should assume that the information appearing
in this prospectus supplement, the accompanying prospectus, any applicable free writing prospectus and the documents incorporated by
reference herein or therein is accurate only as of their respective dates or on the date or dates which are specified in these documents.
Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.
ABOUT
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This
document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering of Series D Preferred
Stock and also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference.
The second part is the accompanying prospectus, which gives more general information, some of which may not apply to the Series D Preferred
Stock we are offering.
To
the extent the information contained in this prospectus supplement differs or varies from the information contained in the accompanying
prospectus or documents incorporated by reference prior to the date of this prospectus supplement, the information in this prospectus
supplement supersedes such information. In addition, to the extent any information incorporated by reference in this prospectus supplement
or the accompanying prospectus from a filing we make with the SEC after the date of this prospectus supplement adds to, updates or changes
information contained in this prospectus supplement, the accompanying prospectus or an earlier filing we made with the SEC that is incorporated
by reference in this prospectus supplement or the accompanying prospectus, the information in such later filing shall be deemed to modify,
update and supersede such information in this prospectus supplement, the accompanying prospectus or the earlier filing with the SEC.
This
prospectus supplement does not contain all of the information that is important to you. You should read the accompanying prospectus as
well as the documents incorporated by reference in this prospectus supplement and the accompanying prospectus. See “Incorporation
by Reference of Information Filed with the SEC” in this prospectus supplement and “Where You Can Find More Information”
in the accompanying prospectus.
No action has been or will be taken in any jurisdiction by us or The Benchmark
Company, LLC that would permit a public offering of the Series D Preferred Stock or the possession or distribution of this prospectus
supplement and the accompanying prospectus in any jurisdiction, other than in the United States. Persons outside the United States who
come into possession of this prospectus supplement and the accompanying prospectus must inform themselves about, and observe any restrictions
relating to, the offering of the Series D Preferred Stock and the distribution of this prospectus supplement and the accompanying prospectus
outside the United States. This prospectus supplement and the accompanying prospectus do not constitute, and may not be used in connection
with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this prospectus supplement and the accompanying
prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.
Unless
otherwise indicated or unless the context requires otherwise, references in this prospectus supplement to “we,” “us,”
“our” and the “Company” refer to Presidio Property Trust, Inc., a Maryland corporation, and its subsidiaries.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
When
used in this prospectus supplement and the accompanying prospectus, including the documents that we have incorporated by reference, in
future filings with the SEC or in press releases or other written or oral communications, statements which are not historical in nature,
including those containing words such as “believe,” “expect,” “anticipate,” “estimate,”
“plan,” “continue,” “intend,” “should,” “may” or the negative of these words
and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to
historical matters, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995 (set forth in 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”)). In particular, statements pertaining to our
trends, liquidity and capital resources, among others, contain forward-looking statements. You can also identify forward-looking statements
by discussions of strategy, plans or intentions.
Forward-looking
statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking
statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do
not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors,
among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking
statements:
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the
factors identified under the heading “Risk Factors” in Part I, Item 1A of Amendment No. 1 to our Annual Report on Form
10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 17, 2024 and other risks and uncertainties discussed
herein and from time to time in our filings with the SEC; |
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inherent
risks associated with real estate investments and with the real estate industry; |
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significant
competition may decrease or prevent increases in our properties’ occupancy and rental rates and may reduce the value of our
properties; |
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a
decrease in demand for commercial space and model homes and/or an increase in operating costs; |
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failure
by any major tenant (or a substantial number of tenants) to make rental payments to us because of a deterioration of its financial
condition, an early termination of its lease, a non-renewal of its lease, or a renewal of its lease on terms less favorable to us; |
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challenging
economic conditions facing us and our tenants may have a material adverse effect on our financial condition and results of operations; |
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our
failure to generate sufficient cash to pay dividends and to service or retire our debt obligations in a timely manner; |
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our
inability to borrow or raise sufficient capital to maintain or expand our real estate investment portfolio; |
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adverse
changes in the real estate financing markets, including potential increases in interest rates and/or borrowing costs; |
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potential
losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance; |
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inability
to complete acquisitions or dispositions and, even if these transactions are completed, failure to successfully operate acquired
properties or sell properties without incurring significant defeasance costs; |
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our
reliance on third-party property managers to manage a substantial number of our properties and brokers and/or agents to lease our
properties; |
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decrease
in supply and/or demand for single family homes, inability to acquire additional model homes, and increased competition to buy such
properties; |
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failure
to continue to qualify as a REIT; |
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adverse
results of any legal proceedings; |
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changes
in laws, rules and regulations affecting our business; |
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the
possibility that we may not comply with the continued listing requirements of Nasdaq which may result in our common stock being delisted,
which could affect our common stock’s market price and liquidity and reduce our ability to raise capital; |
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the
possibility that if any of the banking institutions in which we deposit funds ultimately fails, we may lose any amounts of our deposits
over federally insured levels which could reduce the amount of cash we have available to distribute or invest and could result in
a decline in our value; and |
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the
potential adverse effects of a resurgence of the COVID-19 pandemic or of new epidemics and ensuing economic turmoil on our financial
condition, results of operations, cash flows and performance, particularly our ability to collect rent, on the financial condition,
results of operations, cash flows and performance of our tenants, and on the global economy and financial markets, adverse economic
conditions in the real estate market and overall financial market fluctuations); and |
While
forward-looking statements reflect our good faith beliefs as of the date such statements are made, they are not guarantees of future
performance. We disclaim any obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions
or factors, or new information, data or methods, future events or other changes, except as required by applicable law. You should not
place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making
the forward-looking statements.
PROSPECTUS
SUPPLEMENT SUMMARY
This
summary highlights information contained elsewhere or incorporated by reference in this prospectus supplement and the accompanying prospectus.
This summary is not complete and does not contain all of the information that you should consider before investing in the Series D Preferred
Stock. We urge you to read this entire prospectus supplement, the accompanying prospectus and the documents incorporated by reference
carefully, including the financial statements and notes to those financial statements incorporated by reference herein and therein. Please
read the section of this prospectus supplement entitled “Risk Factors” for more information about important risks that you
should consider before investing in our Series D Preferred Stock.
Our
Company
Presidio
Property Trust, Inc., a Maryland corporation (“we”, “our”, “us” or the “Company”)
is an internally-managed real estate investment trust (“REIT”) that invests primarily in commercial properties, such as
office, industrial and retail properties, as well as in residential model home properties, in regionally dominant markets across the
United States. Through the Company, its subsidiaries and its partnerships, we own 12 commercial properties in fee interest and have
partial interests in two commercial properties through our interests in various affiliates in which we serve as general partner, member
and/or manager. Each of the limited partnerships is referred to as a “DownREIT.” In each DownREIT, we have the right, through
put and call options, to require our co-investors to exchange their interests for shares of our Series A Common Stock, or our common
stock, at a stated price after a defined period (generally five years from the date they first invested in the entity’s real property),
the occurrence of a specified event or a combination thereof. The Company is a limited partner in five partnerships and sole shareholder
in one corporation, which entities purchase and leaseback model homes to and from homebuilders.
The
Company invests in a diverse multi-tenant portfolio of real estate assets. Beginning in 2015, we began to focus our commercial portfolio
primarily on office and industrial properties (“Office/Industrial Properties”) and model homes (“Model Home Properties”),
and have been managing the portfolio to transition out of retail properties. Our commercial properties are currently located in Colorado,
North Dakota, California, Maryland and Texas. Our commercial property tenant base is highly diversified and consists of approximately
155 individual commercial tenants with an average remaining lease term of approximately 3.1 years as of December 31, 2023. As of December
31, 2023, one commercial tenant represented 6.43% of our annualized based rent, while our ten largest tenants represented approximately
34.48% of our annualized base rent. On December 31, 2022, the lease for our former largest tenant at that time, Halliburton Energy Services,
Inc. (“Halliburton”), expired. Halliburton was located in our Shea Center II property in Colorado, and made up approximately
8.57% of our annual base rent as of December 31, 2022. Halliburton did not renew the lease, which expired on December 31, 2022, and we
placed approximately $1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary, none of which
has been utilized as of December 31, 2023. Our management team is working to fill the 45,535 square foot space as quickly as possible,
and has leased approximately 20% of the space to a tenant during 2023 and has reviewed various third party proposals for the remaining
80%. As of March 31, 2024, management is pursuing a third party tenant
who fits into our long-term plans; however, there is no guarantee we will be successful in signing this new tenant. For more information, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operation” in Amendment No.1 to our Annual Report on Form 10-K filed
with the SEC on April 17, 2024.
Our
main objective is to maximize long-term stockholder value through the management, leasing and selective redevelopment of our existing
commercial property portfolio, and selectively acquiring future properties which are anticipated to provide accretive economic returns.
We focus on regionally dominant markets across the United States which we believe have attractive growth dynamics driven in part by important
economic factors such as strong employment growth; net in-migration of a highly educated workforce; a large student population; the stability
provided by major healthcare systems; government or other large institutional employer presence; low rates of unemployment; and lower
cost of living versus gateway markets. We seek to maximize returns through investments in markets with limited supply, high barriers
to entry, and stable and growing employment drivers. Our model home portfolio supports the objective of maximizing stockholder value
by focusing on purchasing new single-family model homes and leasing them back to experienced homebuilders. We operate the model home
portfolio in markets where we can diversify by geography, builder size, and model home purchase price.
Recent
Developments
On
April 22, 2024, the Company entered into a lockup agreement with Conduit Pharmaceuticals, Inc. (“Conduit”) pursuant to
which the Company agreed not to transfer or sell 2,700,000 of its 4,015,250 shares of Conduit common stock for a period of one
year. In consideration, Conduit issued the Company a warrant to purchase 540,000 shares of Conduit common stock at an
exercise price of $3.12 per share, which warrant has a two year term and is exercisable one year after the date of
issue.
On
May 9, 2024, the Company entered into a cooperation agreement with a stockholder group pursuant to which Elena Piliptchak was
appointed to our board of directors, effective immediately, as a Class III director with a term expiring at Presidio’s 2026
Annual Meeting of Stockholders. In connection with this appointment, the size of our board of directors has been increased from six
to seven directors. Pursuant to the agreement, the stockholder group agreed to withdraw the director nominations it had
previously submitted and will support our board’s slate of director nominees at the 2024 Annual Meeting of Stockholders. The
stockholder group has also agreed to certain customary standstill provisions and voting commitments.
Our
Tax Status
We
elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2000. To continue to
be taxed as a REIT, we must satisfy numerous organizational and operational requirements, including a requirement that we distribute
at least 90% of our REIT taxable income to our stockholders, as defined in the Code and calculated on an annual basis. As a REIT, we
are generally not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify for taxation
as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as
a REIT for the four-year period following our failure to qualify. Even though we qualify as a REIT for federal income tax purposes, we
may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed
income. For more information, please see “Risk Factors - Risks Related to our Status as a REIT and Related Federal Income Tax Matters”
in our most recent Annual Report on Form 10-K. We qualified as a REIT for the fiscal year ended December 31, 2023.
Corporate
Information
We
were incorporated in the State of California on September 28, 1999 under the name NetREIT, and in June 2010, we reincorporated as a Maryland
corporation. In October 2017, we changed our name to “Presidio Property Trust, Inc.” Our executive offices are located at
4995 Murphy Canyon Road, Suite 300, San Diego, California 92123. Our telephone number is (760) 471-8536. We maintain an internet website
at www.presidiopt.com. Information on, or accessible through, our website is not a part of, and is not incorporated into, this
prospectus or the registration statement of which it forms a part.
The
Offering
Shares
of Series D Preferred Stock offered by us |
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shares |
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Total
Series D Preferred Stock to be outstanding after this offering |
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shares |
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Offering
Price |
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$
per share of Series D Preferred Stock. |
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Dividends |
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Holders
of the Series D Preferred Stock will be entitled to receive cumulative cash dividends at a rate of 9.375% per annum of the $25.00
per share liquidation preference (equivalent to $2.34375 per annum per share). |
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Dividends
will be payable monthly on the 15th day of each month (each, a “dividend payment date”), provided that if any dividend
payment date is not a business day, then the dividend that would otherwise have been payable on that dividend payment date may be
paid on the next succeeding business day without adjustment in the amount of the dividend. |
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Dividends
will be payable to holders of record as they appear in our stock records for the Series D Preferred Stock at the close of business
on the corresponding record date, which shall be the last day of the calendar month, whether or not a business day, immediately preceding
the month in which the applicable dividend payment date falls (each, a “dividend record date”). As a result, holders
of shares of Series D Preferred Stock will not be entitled to receive dividends on a dividend payment date if such shares were not
issued and outstanding on the applicable dividend record date. |
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Any
dividend payable on the Series D Preferred Stock, including dividends payable for any partial
dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day
months. Dividends will accrue and be cumulative from the date of original issuance, which
is expected to be ,
2024. The dividend payable on July 15, 2024 will be paid to the persons who are the holders
of record of the Series D Preferred Stock at the close of business on the corresponding record
date, which will be June 30, 2024.
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No
Maturity, Sinking Fund or Mandatory Redemption |
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The
Series D Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. Shares of the
Series D Preferred Stock will remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We are not
required to set aside funds to redeem the Series D Preferred Stock. |
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Optional
Redemption |
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The
Series D Preferred Stock is not redeemable by us prior to June 15, 2026, except under circumstances intended to preserve our status
as a REIT for federal or state income tax purposes, as set forth in our charter, and except as described below. On and after such
date, we may, at our option, redeem the Series D Preferred Stock, in whole or in part, at any time or from time to time, for cash
at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption
date. Please see the section of this prospectus supplement entitled “Description of the Series D Preferred Stock —
Redemption — Optional Redemption.” |
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Special
Optional Redemption |
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Prior to June 15, 2026, upon the occurrence of a Change of Control, we may, at our option, upon not less than 10 days’ written notice, redeem the Series D Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including, the redemption date.
A “Change
of Control” is deemed to occur when, after the original date of issuance of the Series D Preferred Stock, the following have
occurred and are continuing: (i) the acquisition by any person, including any syndicate or group deemed to be a “person”
under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition
transactions of stock of the Corporation entitling that person to exercise more than 50% of the total voting power of all stock of the
Corporation entitled to vote generally in the election of directors of the Corporation (except that such person will be deemed to have
beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition); and (ii) following the closing of any transaction referred to in clause (i), neither
the Corporation nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing
such securities) listed on the New York Stock Exchange (the “NYSE”), the NYSE American (the “NYSE American”)
or Nasdaq, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American
or Nasdaq.
Please see the section of this prospectus supplement entitled “Description of the Series D Preferred Stock — Redemption — Special Optional Redemption.” |
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Liquidation
Preference |
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If
we liquidate, dissolve or wind up, holders of the Series D Preferred Stock will have the right to receive $25.00 per share, plus
any accumulated and unpaid dividends to, but not including, the date of payment, before any payment is made to the holders of our
common stock. Please see the section of this prospectus supplement entitled “Description of the Series D Preferred Stock—Liquidation
Preference.” |
Ranking |
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The
Series D Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (a) senior to all classes or series of our common stock and to all other equity securities issued by us
other than equity securities referred to in clauses (b) and (c); (b) on a parity with all equity securities issued by us with terms
specifically providing that those equity securities rank on a parity with the Series D Preferred Stock with respect to rights to
the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; (c) junior to all equity
securities issued by us with terms specifically providing that those equity securities rank senior to the Series D Preferred Stock
with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up;
and (d) effectively junior to all of our existing and future indebtedness (including indebtedness convertible into our common stock
or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in)
our existing subsidiaries and any future subsidiaries. Please see the section of this prospectus supplement entitled “Description
of the Series D Preferred Stock–Ranking.” |
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Limited
Voting Rights |
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Holders
of Series D Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series D Preferred Stock
for eighteen or more monthly dividend periods (whether or not consecutive), the holders of the Series D Preferred Stock (voting separately
as a class with the holders of all other classes or series of our preferred stock we may issue upon which like voting rights have
been conferred and are exercisable and which are entitled to vote as a class with the Series D Preferred Stock in the election referred
to below) will be entitled to vote for the election of two additional directors to serve on our Board of Directors until we pay,
or declare and set apart funds for the payment of, all accrued and unpaid dividends on the Series D Preferred Stock, subject to
certain limitations described in the section of this prospectus supplement entitled “Description of the Series D Preferred
Stock—Voting Rights.” |
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In
addition, the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series D Preferred Stock (voting
together as a class with all other series of parity preferred stock we may issue upon which like voting rights have been conferred
and are exercisable) is required at any time for us to (i) authorize or issue any class or series of our stock ranking senior to
the Series D Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation, dissolution or
winding up or (ii) to amend any provision of our charter so as to materially and adversely affect any rights of the Series D Preferred
Stock or to take certain other actions. Please see the section of this prospectus supplement entitled “Description of the
Series D Preferred Stock—Voting Rights.” |
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Information
Rights |
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During
any period in which we are not subject to Section 13 or 15(d) of the Exchange Act and any shares of Series D Preferred Stock are
outstanding, we will use our best efforts to (i) make available on the Company’s investor webpage copies of the Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act if we were subject thereto (other than any exhibits that would have been required) and (ii) promptly, upon request,
supply copies of such reports to any holders of Series D Preferred Stock. We will use our best efforts to post on our website, mail
or otherwise provide the information to the holders of the Series D Preferred Stock within 15 days after the respective dates by
which a periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such information would have been required to
be filed with the SEC, if we were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the dates on which we
would be required to file such periodic reports if we were a “non-accelerated filer” within the meaning of the Exchange
Act. |
Listing |
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Our Series
D Preferred Stock is listed on Nasdaq under the symbol “SQFTP”. |
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Use
of proceeds |
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We
estimate that the net proceeds of this offering, after deducting underwriting discounts and commissions and estimated expenses, will
be approximately $
million based on a public offering price of $
per share. We intend to use the net proceeds of this offering for general corporate and working capital purposes, including to
potentially acquire additional properties. |
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Risk
factors |
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Investing
in our Series D Preferred Stock involves a high degree of risk. You should carefully read and consider the information set forth
under the heading “Risk Factors” section of this prospectus supplement and other information included in this prospectus
supplement and incorporated by reference herein before investing in our Series D Preferred Stock. |
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A
securities rating reflects only the view of a rating agency and is not a recommendation to buy, sell or hold the Series D Preferred
Stock. Any rating may be subject to revision upward or downward or withdrawal at any time by a rating agency if such rating agency
decides that circumstances warrant that change. Each rating should be evaluated independently of any other rating. No report of any
rating agency is being incorporated herein by reference. |
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Transfer
Agent |
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The
registrar, transfer agent and dividend and redemption price disbursing agent in respect of the Series D Preferred Stock is Direct
Transfer, LLC. |
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Book
Entry and Form |
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The
Series D Preferred Stock will be represented by one or more global certificates in definitive, fully registered form deposited with
a custodian for, and registered in the name of, a nominee of The Depository Trust Company (“DTC”). |
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Nasdaq
Capital Market Symbol |
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SQFTP |
RISK
FACTORS
Investing
in the Series D Preferred Stock involves risks. In addition to other information in this prospectus supplement, you should carefully
consider the risks described in Amendment No. 1 to our most recent Annual Report on Form 10-K/A filed on April 17, 2024 under “Item
1A. Risk Factors,” as well as other information and data set forth in this prospectus supplement, the accompanying prospectus and
the documents incorporated by reference herein and therein before making an investment decision with respect to the Series D Preferred
Stock. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition,
results of operations and our ability to make cash distributions to our stockholders, which could cause you to lose all or a part of
your investment in the Series D Preferred Stock. Some statements in this prospectus supplement, including statements in the following
risk factors, constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Risks
Related to an Investment in our Securities and this Offering
If
we are unable to comply with the continued listing requirements of Nasdaq, our common stock could be delisted, which could affect our
common stock's market price and liquidity and reduce our ability to raise capital.
We
are required to meet certain qualitative and financial tests to maintain the listing of our securities on Nasdaq. On June 7, 2024,
the Company received a written notice from Nasdaq notifying the Company that based upon the closing bid price of the Company’s
common stock for the 30 consecutive business day period between April 25, 2024 through June 6, 2024, it had failed to meet the $1.00
per share minimum bid price requirement for continued inclusion on Nasdaq, pursuant to Nasdaq Listing Rule 5550(a)(2). The Company has
been provided with a compliance period of 180 calendar days (until December 4, 2024), to regain compliance with the Nasdaq Listing Rule
5550(a)(2).
There
can be no assurance that we will be able to maintain compliance with the minimum bid price requirement or will otherwise be in compliance
with other Nasdaq listing criteria. If we are unable to maintain compliance with the continued listing requirements of Nasdaq, our common
stock could be delisted, making it more difficult to buy or sell our securities and to obtain accurate quotations, and the price of our
securities could suffer a material decline. Delisting could also impair our ability to raise capital.
Our
management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield
a significant return.
Our
management will have broad discretion over the use of proceeds from this offering. The net proceeds from this offering will be used primarily
for general corporate and working capital purposes, including to potentially acquire additional properties. Our management will have
considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision,
to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase
our operating results or enhance the value of our Series D Preferred Stock. The failure of our management to use these funds effectively
could have a material adverse effect on our business, cause the market price of our Series D Preferred Stock to decline and potentially
impair the operation and expansion of our business. Pending their use, we may invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing instruments and U.S. government securities. These investments may not yield a favorable return to
our stockholders.
Our
Series D Preferred Stock is subordinate to our existing and future debt, and your interests could be diluted by the issuance of additional
preferred stock and by other transactions.
The
Series D Preferred Stock will rank junior to all of our existing and future debt and to other non-equity claims on us and our assets
available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings. Our future debt may include
restrictions on our ability to pay distributions to preferred stockholders. Our charter currently authorizes the issuance of up to 1,000,000
shares of preferred stock in one or more classes or series. As of immediately prior to consummation of this offering, there will
be 1,000,000 shares of Series D Preferred Stock authorized under our charter, 890,946 shares of which will be outstanding immediately
prior to the completion of this offering. Subject to limitations prescribed by Maryland law and our charter, our Board of Directors
is authorized to issue, from our authorized but unissued shares of stock, preferred stock in such classes or series as our Board of Directors
may determine and to establish from time to time the number of shares of preferred stock to be included in any such class or series.
The issuance of additional shares of Series D Preferred Stock or another series of preferred stock designated as ranking on parity with
the Series D Preferred Stock would dilute the interests of the holders of shares of the Series D Preferred Stock, and the issuance of
shares of any class or series of our stock expressly designated as ranking senior to the Series D Preferred Stock or the incurrence of
additional indebtedness could affect our ability to pay distributions on, redeem or pay the liquidation preference on the Series D Preferred
Stock. The Series D Preferred Stock do not contain any terms relating to or limiting our indebtedness or affording the holders of shares
of the Series D Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease
or conveyance of all or substantially all our assets, that might adversely affect the holders of shares of the Series D Preferred Stock,
so long as the rights, preferences, privileges or voting power of the Series D Preferred Stock or the holders thereof are not materially
and adversely affected.
As
a holder of shares of the Series D Preferred Stock, you have extremely limited voting rights.
Your
voting rights as a holder of shares of the Series D Preferred Stock will be limited. Our shares of common stock are the only class of
our securities carrying full voting rights. Voting rights for holders of shares of the Series D Preferred Stock exist primarily with
respect to adverse changes in the terms of the Series D Preferred Stock, the creation of additional classes or series of preferred
shares that are senior to the Series D Preferred Stock and the election of two directors in the event dividends payable on the outstanding Series D Preferred Stock are
in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods. Other than these limited voting rights described in this prospectus supplement,
holders of shares of the Series D Preferred Stock will not have any voting rights. See “Description of the Series D Preferred Stock—Voting
Rights” in this prospectus supplement.
Our
cash available for distributions may not be sufficient to pay distributions on the Series D Preferred Stock at expected levels, and we
cannot assure you of our ability to pay distributions in the future. We may use borrowed funds or funds from other sources to pay distributions,
which may adversely impact our operations.
We
intend to pay regular monthly distributions to holders of our Series D Preferred Stock. Distributions declared by us will be authorized
by our Board of Directors in its sole discretion out of assets legally available for distribution and will depend upon a number of factors,
including our earnings, our financial condition, restrictions under applicable law, our need to comply with the terms of our existing
financing arrangements, the capital requirements of our company and other factors as our Board of Directors may deem relevant from time
to time. We may be required to fund distributions from working capital, proceeds of this offering or a sale of assets to the extent distributions
exceed earnings or cash flows from operations. Funding distributions from working capital would restrict our operations. If we are required
to sell assets to fund distributions, such asset sales may occur at a time or in a manner that is not consistent with our disposition
strategy. If we borrow to fund distributions, our leverage ratios and future interest costs would increase, thereby reducing our earnings
and cash available for distribution from what they otherwise would have been. We may not be able to pay distributions in the future.
In addition, some of our distributions may be considered a return of capital for income tax purposes. If we decide to make distributions
in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for
federal income tax purposes to the extent of the holder’s adjusted tax basis in its shares. A return of capital is not taxable,
but it has the effect of reducing the holder’s adjusted tax basis in its investment. If distributions exceed the adjusted tax basis
of a holder’s shares, they will be treated as gain from the sale or exchange of such stock.
We
could be prevented from paying cash dividends on the Series D Preferred Stock due to prescribed legal requirements.
Holders
of shares of Series D Preferred Stock will not receive dividends on such shares unless authorized by our Board of Directors and declared
by us. Under Maryland law, cash dividends on stock may only be paid if, after giving effect to the dividends, our total assets exceed
our total liabilities and we are able to pay our indebtedness as it becomes due in the ordinary course of business. Unless we operate
profitably, our ability to pay cash dividends on the Series D Preferred Stock may be negatively impacted. Our business may not generate
sufficient cash flow from operations to enable us to pay dividends on the Series D Preferred Stock when payable. Further, even if we
meet the applicable solvency tests under Maryland law to pay cash dividends on the Series D Preferred Stock described above, we may not
have sufficient cash to pay dividends on the Series D Preferred Stock.
Furthermore,
no dividends on Series D Preferred Stock shall be authorized by our Board of Directors or paid, declared or set aside for payment by
us at any time when the authorization, payment, declaration or setting aside for payment would be unlawful under Maryland law or any
other applicable law. See “Description of the Series D Preferred Stock — Dividends.”
We
may redeem the Series D Preferred Stock and you may not receive dividends that you anticipate if we redeem the Series D Preferred Stock.
On
or after June 15, 2026, we may, at our option, redeem the Series D Preferred Stock, in whole or in part, at any time or from time to
time. Also, upon the occurrence of a Change of Control, we may, at our option, redeem the Series D Preferred Stock, in whole or in part,
within 120 days after the first date on which such Change of Control occurred. We may have an incentive to redeem the Series D Preferred
Stock voluntarily if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend
rate on the Series D Preferred Stock. If we redeem the Series D Preferred Stock, from and after the redemption date, dividends will cease
to accrue on shares of Series D Preferred Stock, the shares of Series D Preferred Stock shall no longer be deemed outstanding and all
rights as a holder of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends,
if any, payable upon redemption.
Holders
of shares of the Series D Preferred Stock should not expect us to redeem the Series D Preferred Stock on or after the date they become
redeemable at our option.
The
Series D Preferred Stock will be a perpetual equity security. This means that it will have no maturity or mandatory redemption date and
will not be redeemable at the option of the holders. The Series D Preferred Stock may be redeemed only by us at our option either in
whole or in part, from time to time, at any time on or after June 15, 2026, or within 120 days following the occurrence of a Change of
Control. Any decision we may make at any time to propose a redemption of the Series D Preferred Stock will depend upon, among other things,
our evaluation of our capital position, the composition of our stockholders’ equity and general market conditions at that time.
The
Series D Preferred Stock is not convertible into shares of our common stock, and investors will not realize a corresponding upside if
the price of the common stock increases.
The
Series D Preferred Stock is not convertible into shares of our common stock and earns dividends at a fixed rate. Accordingly, an increase
in market price of our common stock will not necessarily result in an increase in the market price of our Series D Preferred Stock. The
market value of the Series D Preferred Stock may depend more on dividend and interest rates for other preferred stock, commercial paper
and other investment alternatives and our actual and perceived ability to pay dividends on, and in the event of dissolution satisfy the
liquidation preference with respect to, the Series D Preferred Stock.
The
Change of Control right may make it more difficult for a party to acquire us or discourage a party from acquiring us.
The
Change of Control right (as defined under “Description of the Series D Preferred Stock — Special Optional Redemption”)
may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing
certain of our change of control transactions under circumstances that otherwise could provide the holders of our Series D Preferred
Stock with the opportunity to realize a premium over the then-current market price of such equity securities or that stockholders may
otherwise believe is in their best interests.
Our
bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland,
or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will
be the sole and exclusive forum for certain actions, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with the Company.
Our
bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland,
or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will
be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of
breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (c) any action asserting a
claim against us or any of our directors, officers or other employees arising pursuant to any provision of the Maryland General Corporation
Law (“MGCL”) or our charter or bylaws or (d) any action asserting a claim against us or any of our directors, officers or
other employees that is governed by the internal affairs doctrine. This forum selection provision in our bylaws may limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us or any our directors, officers or other employees.
Listing
on Nasdaq does not guarantee an active market for the Series D Preferred Stock and the market price and trading volume of the Series
D Preferred Stock may fluctuate significantly.
The
Series D Preferred Stock is trading on Nasdaq but there is no guarantee that an active and liquid trading market to sell the Series D
Preferred Stock will be sustained. Because the Series D Preferred Stock has no stated maturity date, investors seeking liquidity may
be limited to selling their shares in the secondary market. If an active trading market is not sustained, the market price and liquidity
of the Series D Preferred Stock may be adversely affected. Even if an active public market continues to exist, we cannot guarantee you
that the market price for the Series D Preferred Stock will equal or exceed the price you pay for your Series D Preferred Stock.
The
market determines the trading price for the Series D Preferred Stock and may be influenced by many factors, including our history of
paying distributions on the Series D Preferred Stock, variations in our financial results, the market for similar securities, investors’
perception of us, our issuance of additional preferred equity or indebtedness and general economic, industry, interest rate and market
conditions. Because the Series D Preferred Stock carries a fixed distribution rate, its value in the secondary market will be influenced
by changes in interest rates and will tend to move inversely to such changes. In particular, an increase in market interest rates may
result in higher yields on other financial instruments and may lead purchasers of Series D Preferred Stock to demand a higher yield on
the price paid for the Series D Preferred Stock, which could adversely affect the market price of the Series D Preferred Stock.
If
the Series D Preferred Stock is delisted, the ability to transfer or sell shares of the Series D Preferred Stock may be limited and the
market value of the Series D Preferred Stock will likely be materially adversely affected.
The
Series D Preferred Stock does not contain provisions that are intended to protect investors if the Series D Preferred Stock is delisted
from Nasdaq. If the Series D Preferred Stock is delisted from Nasdaq, investors’ ability to transfer or sell shares of the Series
D Preferred Stock will be limited and the market value of the Series D Preferred Stock will likely be materially adversely affected.
Moreover, since the Series D Preferred Stock has no stated maturity date, investors may be forced to hold shares of the Series D Preferred
Stock indefinitely while receiving stated dividends thereon when, as and if authorized by our Board of Directors and paid by us with
no assurance as to ever receiving the liquidation value thereof.
Market
interest rates may have an effect on the value of the Series D Preferred Stock.
One
of the factors that will influence the price of the Series D Preferred Stock will be the distribution yield on the Series D Preferred
Stock (as a percentage of the market price of the Series D Preferred Stock) relative to market interest rates. An increase in market
interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of the Series D Preferred
Stock to expect a higher distribution yield (and higher interest rates would likely increase our borrowing costs and potentially decrease
funds available for distribution payments). Thus, higher market interest rates could cause the market price of the Series D Preferred
Stock to decrease and reduce the amount of funds that are available and may be used to make distribution payments.
In
the event of a liquidation, you may not receive the full amount of your liquidation preference.
In
the event of our liquidation, the proceeds will be used first to repay indebtedness and then to pay holders of shares of the Series D
Preferred Stock and any other class or series of our stock ranking senior to or on parity with the Series D Preferred Stock as to liquidation
the amount of each holder’s liquidation preference and accrued and unpaid distributions through the date of payment. In the event
we have insufficient funds to make payments in full to holders of the shares of the Series D Preferred Stock and any other class or series
of our stock ranking senior to or on parity with the Series D Preferred Stock as to liquidation, such funds will be distributed ratably
among such holders and such holders may not realize the full amount of their liquidation preference.
We
are generally restricted from issuing shares of other series of preferred stock that rank senior the Series D Preferred Stock as to dividend
rights or rights to the distribution of assets upon our liquidation, dissolution or winding up, but may do so with the requisite consent
of the holders of the Series D Preferred Stock; and, further, no such consent is required for an increase in the number of shares of
Series D Preferred Stock or the issuance of additional shares of Series D Preferred Stock or series of preferred stock ranking pari passu
with or junior to the Series D Preferred Stock.
We
are allowed to issue shares of other series of preferred stock that rank senior to the Series D Preferred Stock as to dividend payments
and rights upon our liquidation, dissolution or winding up of our affairs, only with the approval of the holders of at least two-thirds
of the outstanding Series D Preferred Stock. However, we are allowed to increase the number of shares of Series D Preferred Stock or
additional series of preferred stock that would rank equally or junior to the Series D Preferred Stock as to dividend payments
and rights upon our liquidation or winding up of our affairs without first obtaining the approval of the holders of our Series D Preferred
Stock. The issuance of additional shares of Series D Preferred Stock or additional series of senior or parity preferred stock could have the
effect of reducing the amounts available to the Series D Preferred Stock upon our liquidation or dissolution or the winding up of our
affairs. It also may reduce dividend payments on the Series D Preferred Stock if we do not have sufficient funds to pay dividends on
all outstanding shares of Series D Preferred Stock and other classes or series of stock with equal or senior priority with respect to
dividends. Future issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales
could occur, may cause prevailing market prices for the Series D Preferred Stock and our common stock to decline and may adversely affect
our ability to raise additional capital in the financial markets at times and prices favorable to us.
The
market price of the Series D Preferred Stock could be substantially affected by various factors.
The
market price of the Series D Preferred Stock could be subject to wide fluctuations in response to numerous factors. The price of the
Series D Preferred Stock that will prevail in the market after this offering may be higher or lower than the offering price depending
on many factors, some of which are beyond our control and may not be directly related to our operating performance.
These
factors include, but are not limited to, the following:
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prevailing
interest rates, increases in which may have an adverse effect on the market price of the Series D Preferred Stock; |
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trading
prices of similar securities; |
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our
history of timely dividend payments; |
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the
annual yield from dividends on the Series D Preferred Stock as compared to yields on other financial instruments; |
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general
economic and financial market conditions; |
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government
action or regulation; |
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the
financial condition, performance and prospects of us and our competitors; |
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changes
in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry; |
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our
issuance of additional preferred equity or debt securities; and |
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actual
or anticipated variations in quarterly operating results of us and our competitors. |
As
a result of these and other factors, investors who purchase the Series D Preferred Stock in this offering may experience a decrease,
which could be substantial and rapid, in the market price of the Series D Preferred Stock, including decreases unrelated to our operating
performance or prospects.
The
market price and trading volume of our Series D Preferred Stock may be volatile following this offering, and you could experience a loss
if you sell your shares.
Even
if an active trading market develops for our Series D Preferred Stock, the market price of our Series D Preferred Stock may be volatile.
In addition, the trading volume in our Series D Preferred Stock may fluctuate and cause significant price variations to occur. If the
market price of our Series D Preferred Stock declines significantly, you may be unable to sell your shares at or above the public offering
price. We cannot assure you that the market price of our Series D Preferred Stock will not fluctuate or decline significantly in the
future.
Some
of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our Series D
Preferred Stock include:
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actual
or anticipated variations in our quarterly results of operations or distributions; |
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changes
in our FFO, earnings estimates or recommendations by securities analysts; |
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publication
of research reports about us or the real estate industry generally; |
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the
extent of investor interest; |
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publication
of research reports about us or the real estate industry; |
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increases
in market interest rates that lead purchasers of our shares to demand a higher yield; |
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changes
in market valuations of similar companies; |
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strategic
decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes
in business strategy; |
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the
reputation of REITs generally and the reputation of REITs with portfolios similar to ours; |
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the
attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other
real estate companies); |
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adverse
market reaction to any additional debt that we incur or acquisitions that we make in the future; |
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additions
or departures of key management personnel; |
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future
issuances by us of our common stock or other equity securities; |
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actions
by institutional or activist stockholders; |
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speculation
in the press or investment community; |
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the
realization of any of the other risk factors presented in this prospectus supplement and the documents incorporated herein by reference;
and |
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general
market and economic conditions. |
If
a substantial number of shares become available for sale and are sold in a short period of time, the market price of our Series D Preferred
Stock could decline.
A
large volume of sales of shares of our Series D Preferred Stock could further decrease the prevailing market price of such shares and
could impair our ability to raise additional capital through the sale of equity securities in the future. Even if sales of a substantial
number of shares of our Series D Preferred Stock are not effectuated, the perception of the possibility of these sales could depress
the market price for such shares and have a negative effect on our ability to raise capital in the future.
Upon
completion of this offering, we will have shares
of Series D Preferred Stock outstanding. If our stockholders sell substantial amounts
of our Series D Preferred Stock in the public market following this offering, the market price of our Series D Preferred Stock could
decrease significantly. The perception in the public market that our stockholders might sell shares of Series D Preferred Stock could
also depress our market price. A decline in the price of shares of our Series D Preferred Stock might impede our ability to raise capital
through the issuance of additional shares of our Series D Preferred Stock or other equity securities and could result in a decline in
the value of the shares of our Series D Preferred Stock purchased in this offering.
The
Series D Preferred Stock has not been rated.
The
Series D Preferred Stock has not been rated by any nationally recognized statistical rating organization, which may negatively affect
its market value and your ability to sell such shares. No assurance can be given, however, that one or more rating agencies might not
independently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series
D Preferred Stock. In addition, we may elect in the future to obtain a rating of the Series D Preferred Stock, which could adversely
impact the market price of the Series D Preferred Stock. Ratings only reflect the views of the rating agency or agencies issuing the
ratings and such ratings could be revised downward, placed on negative outlook or withdrawn entirely at the discretion of the issuing
rating agency if in its judgment circumstances so warrant. Any such downward revision or withdrawal of a rating could have an adverse
effect on the market price of the Series D Preferred Stock.
Broad
market fluctuations could negatively impact the market price of our Series D Preferred Stock.
Stock
market price and volume fluctuations could affect the market price of many companies in industries similar or related to ours and that
have been unrelated to these companies’ operating performance. These fluctuations could reduce the market price of our Series D
Preferred Stock. Furthermore, our results of operations and prospects may be below the expectations of public market analysts and investors
or may be lower than those of companies with comparable market capitalizations. Either of these factors could lead to a material decline
in the market price of our Series D Preferred Stock.
The
market price of our Series D Preferred Stock could be adversely affected by our level of cash distributions.
The
market’s perception of our growth potential and our current and potential future cash distributions, whether from operations, sales
or refinancings, as well as the real estate market value of the underlying assets, may cause our Series D Preferred Stock to trade at
prices that differ from our net asset value per share. If we retain operating cash flow for investment purposes, working capital reserves
or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market
price of our Series D Preferred Stock. Our failure to meet the market’s expectations with regard to future earnings and cash distributions
likely would adversely affect the market price of our Series D Preferred Stock.
Our
historical performance may not be indicative of our future results or an investment in our Series D Preferred Stock.
We
have incorporated by reference in this prospectus supplement certain information relating to our historical financial performance. When
considering this information, you should bear in mind that our historical results are not indicative of the future results that you should
expect from us or any investment in our securities.
Future
offerings of debt, which would be senior to our Series D Preferred Stock upon liquidation, and any preferred equity securities that may
be issued and be senior to our Series D Preferred Stock for purposes of dividend distributions or upon liquidation, may adversely affect
the market price of our Series D Preferred Stock.
In
the future, we may seek additional capital and commence offerings of debt or preferred equity securities, including medium-term notes,
senior or subordinated notes and preferred stock. Upon liquidation, holders of our debt securities and shares of preferred stock and
lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.
Future shares of preferred stock, if issued, could have a preference on liquidating distributions or dividend payments that could limit
our ability to pay a dividend or make another distribution to the holders of our Series D Preferred. Our decision to issue securities
in any future offering will depend on market conditions and other factors beyond our control, and consequently, we cannot predict or
estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing
the market price of our common stock and diluting their stock holdings in us.
A
future issuance of stock could dilute the value of our Series D Preferred Stock.
We
may sell additional shares of Series D Preferred Stock, or securities convertible into or exchangeable for such shares, in
subsequent public or private offerings. Upon completion of this offering, there will be 14,463,802 shares of our Series A
Common Stock and shares
of our Series D Preferred Stock issued and outstanding. Those shares outstanding do not include the potential issuance, as of the
date of this prospectus supplement, of approximately 63,454 shares of our Series A Common Stock that will be available for
future issuance under our 2017 Incentive Award Plan as of the completion of this offering or 16,530,069 shares issuable upon
exercise of outstanding warrants. Future issuance of any new shares could cause further dilution in the value of our outstanding
shares of Series D Preferred Stock. We cannot predict the size of future issuances of our Series D Preferred Stock, or securities
convertible into or exchangeable for such shares, or the effect, if any, that future issuances and sales of shares of our Series A
Common Stock or Series D Preferred Stock will have on the market price of our Series D Preferred Stock. Sales of substantial amounts
of our Series D Preferred Stock, or the perception that such sales could occur, may adversely affect prevailing market prices of our
Series D Preferred Stock.
USE
OF PROCEEDS
We
estimate that the net proceeds we will receive from this offering, after deducting estimated underwriting discounts and commissions and
offering expenses, will be approximately $ million, based on
a public offering price of $ per share.
We
intend to use the net proceeds for general corporate and working capital purposes, including to potentially acquire additional properties.
CAPITALIZATION
The
table below sets forth our cash and cash equivalents and capitalization as of March 31, 2024 on:
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an
actual basis; and |
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on
as adjusted basis to reflect the issuance of shares of Series D Preferred Stock in this offering. |
You
should consider this table in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related notes incorporated by reference into this prospectus
supplement and the other financial information included elsewhere in this prospectus supplement or incorporated by reference in this
prospectus supplement and the accompanying prospectus.
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As of March 31, 2024 | |
| |
Actual | | |
As Adjusted | |
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(in thousands, except share data) | |
Cash and cash equivalents | |
| 7,159,432 | | |
| | |
| |
| | | |
| | |
Debt: | |
| | | |
| | |
Mortgage Notes payable, net | |
| 102,292,697 | | |
| | |
Note payable, net | |
| - | | |
| | |
Total Debt | |
| 102,292,697 | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Preferred Stock, $0.01 par value per share; 1,000,000 shares authorized; 890,946 shares
issued and outstanding actual;
shares issued and outstanding as adjusted (liquidation preference $25.00 per share) | |
| 8,909 | | |
| | |
Series A Common Stock, $0.01 par value per share; 100,000,000 shares authorized;
12,429,139 shares issued and outstanding, actual; 12,429,139 shares issued and outstanding as adjusted | |
| 124,291 | | |
| | |
Additional paid-in capital | |
| 182,533,423 | | |
| | |
Dividends in excess of accumulated losses | |
| (137,272,480 | ) | |
| | |
Total stockholders’ equity before noncontrolling interest | |
| 45,394,143 | | |
| | |
Total stockholders’ equity | |
| 55,662,541 | | |
| | |
Total capitalization | |
| 165,114,670 | | |
| | |
Based
on shares of our common stock outstanding as of March 31, 2024, and excludes as of that date:
●
2,000,000 shares of our common stock that are issuable upon exercise of
outstanding warrants with an exercise price of $5.50 per share;
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80,000 shares of our common stock that are issuable upon exercise of outstanding
warrants with an exercise price of $6.25 per share;
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2,034,663 shares of our common stock that are issuable upon the vesting of restricted stock units which were issued under our equity
incentive plan; and
●
63.454 shares of our common stock which are reserved for equity awards that may be granted under our equity incentive plan.
DESCRIPTION
OF THE SERIES D PREFERRED STOCK
The
description of certain terms of the 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock in this prospectus supplement does
not purport to be complete and is in all respects subject to, and qualified in its entirety by references to the relevant provisions
of our charter, including the Articles Supplementary establishing the terms of our Series D Preferred Stock, our second amended and restated
bylaws and the MGCL. Copies of our charter, including the Articles Supplementary for the Series D Preferred Stock, and bylaws are incorporated
by reference herein.
General
We
are currently authorized to issue up to 1,000,000 shares of preferred stock, par value $0.01 per share (our “preferred stock”),
in one or more classes or series. Each class or series of our preferred stock will have the designations, voting powers, preferences,
conversion or other rights, qualifications, limitations, restrictions, terms and conditions of redemption, and other terms as Maryland
law may permit and our Board may determine by adoption of applicable articles supplementary to our charter. On June 10, 2021, the Company
filed, and the State Department of Assessments and Taxation of Maryland (the “SDAT”) accepted for record, Articles
Supplementary classifying and designating 805,000 shares of Series D Preferred Stock, and on June 14, 2021, the Company filed, and the
SDAT accepted for record, Articles Supplementary classifying an additional 115,000 shares of Series D Preferred Stock.
As of the date of this prospectus supplement, 890,946 shares of our Series D Preferred Stock were issued and outstanding, and
are referred to throughout this prospectus supplement as the Outstanding Series D Preferred Stock. On June 10, 2024, the Board approved classifying an additional 80,000 shares of our Series D Preferred Stock, which
have been authorized for issuance in connection with this offering. Immediately prior to consummation of this offering, we will have 1,000,000
shares of Series D Preferred Stock authorized under our charter.
The
Series D Preferred Stock offered hereby constitutes an additional issuance of shares of Series D Preferred Stock that we first issued
on June 15, 2021. The shares of the Series D Preferred Stock offered hereby will form a single series with the Outstanding Series D Preferred
Stock. The Series D Preferred Stock offered hereby will have identical terms and the same CUSIP number as the Outstanding Series D Preferred
Stock and will trade interchangeably with the Outstanding Series D Preferred Stock on Nasdaq upon settlement.
The
Outstanding Series D Preferred Stock is, and the Series D Preferred Stock offered hereby will be, listed on Nasdaq under the symbol “SQFTP.”
The last reported sale price of the Series D Preferred Stock on Nasdaq on June 12, 2024 was $17.50 per share.
The
Series D Preferred Stock offered hereby, when issued, delivered and paid for in accordance with the terms of our underwriting agreement,
will be fully paid and nonassessable. Our Board of Directors may, without the approval of holders of the Series D Preferred Stock or
our common stock, classify and designate shares of any class or series of preferred stock ranking junior to or on parity with the Series
D Preferred Stock or designate additional shares of the Series D Preferred Stock and authorize the issuance of such shares. Designation
of preferred stock ranking senior to the Series D Preferred Stock will require approval of the holders of Series D Preferred Stock, as
described below in “Voting Rights.”
The
registrar, transfer agent and dividend and redemption price disbursing agent in respect of the Series D Preferred Stock is Direct Transfer,
LLC.
No
Maturity, Sinking Fund or Mandatory Redemption
The
Series D Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption. Shares of the Series
D Preferred Stock remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We are not required to set
aside funds to redeem the Series D Preferred Stock.
Ranking
The
Series D Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up:
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senior
to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred
to in the next two bullet points below; |
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on
a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity
with the Series D Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up; |
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junior
to all equity securities issued by us with terms specifically providing for ranking senior to the Series D Preferred Stock with respect
to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up (please see
the section entitled “Voting Rights” below); and |
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effectively
junior to all our existing and future indebtedness (including indebtedness convertible into our common stock or preferred stock)
and to any indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries. |
Dividends
Holders
of shares of the Series D Preferred Stock are entitled to receive, when, as and if authorized by the Board of Directors and declared
by us, out of funds of the Company legally available for the payment of dividends, cumulative cash dividends at the rate of 9.375%
of the $25.00 per share liquidation preference per annum (equivalent to $2.34375 per annum per share). Dividends on the Series D
Preferred Stock shall be payable monthly on the 15th day of each month; provided that if any dividend payment date is not a business
day, as defined in the Articles Supplementary, then the dividend that would otherwise have been payable on that dividend payment
date may be paid on the next succeeding business day and no interest, additional dividends or other sums will accrue on the amount
so payable for the period from and after that dividend payment date to that next succeeding business day. Any dividend payable on
the Series D Preferred Stock, including dividends payable for any partial dividend period, will be computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in our stock records
for the Series D Preferred Stock at the close of business on the applicable record date, which shall be the last day of the calendar
month, whether or not a business day, immediately preceding the month in which the applicable dividend payment date falls. As a
result, holders of shares of Series D Preferred Stock are not entitled to receive dividends on a dividend payment date if
such shares were not issued and outstanding on the applicable dividend record date.
Dividends
accrue and are cumulative from the date of original issuance. With respect to shares of Series D Preferred Stock issued in this offering,
the original date of issuance is expected to be ,
2024. The dividend payable on July 15, 2024 will be paid to the persons who are the holders of record of the Series D Preferred Stock
at the close of business on the corresponding record date, which will be June 30, 2024.
No
dividends on shares of Series D Preferred Stock shall be authorized by our Board of Directors or paid or set apart for payment by us
at any time when the terms and provisions of any agreement of ours, including any agreement relating to our indebtedness, prohibit the
authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting apart for payment thereof
would constitute a breach of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment
shall be restricted or prohibited by law.
Notwithstanding
the foregoing, dividends on the Series D Preferred Stock will accrue whether or not we have earnings, whether or not there are funds
legally available for the payment of those dividends and whether or not those dividends are authorized by our Board of Directors. No
interest, or sum in lieu of interest, will be payable in respect of any dividend payment or payments on the Series D Preferred Stock
that may be in arrears, and holders of the Series D Preferred Stock are not entitled to any dividends in excess of full cumulative
dividends described above. Any dividend payment made on the Series D Preferred Stock shall first be credited against the earliest accumulated
but unpaid dividend due with respect to those shares.
Future
distributions on our common stock and preferred stock, including the Series D Preferred Stock, will be at the discretion of our
Board of Directors and will depend on, among other things, our results of operations, cash flow from operations, financial condition
and capital requirements, any debt service requirements, applicable law and any other factors our Board of Directors deems relevant.
Accordingly, we cannot guarantee that we will be able to make cash distributions on our preferred stock or what the actual distributions
will be for any future period.
Unless
full cumulative dividends on all shares of Series D Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods, no
dividends (other than in shares of common stock or in shares of any class or series of preferred stock that we may issue ranking junior
to the Series D Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding
up) shall be declared and paid or declared and set apart for payment upon shares of our common stock or preferred stock that we may issue
ranking junior to, or on a parity with, the Series D Preferred Stock as to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up. Nor shall any other distribution be declared and made upon shares of our common stock or preferred
stock that we may issue ranking junior to, or on a parity with, the Series D Preferred Stock as to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up. Also, any shares of our common stock or preferred stock that we may issue ranking
junior to or on a parity with the Series D Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up shall not be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made
available for a sinking fund for the redemption of any such shares) by us (except (x) by conversion into or exchange for our other stock
that we may issue ranking junior to the Series D Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up and (y) for transfers, redemptions or purchases made pursuant to the ownership and transfer restrictions contained
in our charter).
When
dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series D Preferred Stock and
the shares of any other series of preferred stock that we may issue ranking on a parity as to the payment of dividends with the Series
D Preferred Stock, all dividends declared upon the Series D Preferred Stock and any other class or series of preferred stock that we
may issue ranking on a parity as to the payment of dividends with the Series D Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share of Series D Preferred Stock and such other class or series of preferred stock that we may issue
shall in all cases bear to each other the same ratio that accrued dividends per share on the Series D Preferred Stock and such other
series of preferred stock that we may issue (which shall not include any accrual in respect of unpaid dividends for prior dividend periods
if such preferred stock does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series D Preferred Stock that may be in arrears.
Liquidation
Preference
In
the event of our voluntary or involuntary liquidation, dissolution or winding up, the holders of shares of Series D Preferred Stock will
be entitled to be paid out of the assets we have legally available for distribution to our stockholders, subject to the preferential
rights of the holders of any class or series of our stock we may issue ranking senior to the Series D Preferred Stock with respect to
the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference of $25.00 per share, plus an amount
equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to
holders of our common stock or any other class or series of our stock we may issue that ranks junior to the Series D Preferred Stock
as to liquidation rights.
In
the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient
to pay the amount of the liquidating distributions on all outstanding shares of Series D Preferred Stock and the corresponding amounts
payable on all shares of other classes or series of our stock that we may issue ranking on a parity with the Series D Preferred Stock
in the distribution of assets, then the holders of the Series D Preferred Stock and all other such classes or series of stock shall share
ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively
entitled.
We
will use commercially reasonable efforts to provide written notice of any such liquidation, dissolution or winding up no fewer than 10
days prior to the payment date. After payment of the full amount of the liquidating distributions to which they are entitled, the holders
of Series D Preferred Stock will have no right or claim to any of our remaining assets. The consolidation or merger of us with or into
any other corporation, trust or entity or of any other entity with or into us, or the sale, lease, transfer or conveyance of all or substantially
all of our property or business, shall not be deemed a liquidation, dissolution or winding up of us (although such events may give rise
to the special optional redemption to the extent described below).
Redemption
The
Series D Preferred Stock is not redeemable by us prior to June 15, 2026, except under circumstances intended to preserve our status as
a REIT for federal and/or state income tax purposes and except as described below under “—Special Optional Redemption.”
Optional
Redemption.
On
and after June 15, 2026, we may, at our option, upon not less than 10 days’ written notice, redeem the Series D Preferred Stock,
in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated
and unpaid dividends thereon to, but not including, the date fixed for redemption.
Special
Optional Redemption.
Upon
the occurrence of a Change of Control, we may, at our option, upon not less than 10 days’ written notice, redeem the Series D Preferred
Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price
of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including, the redemption date.
A
“Change of Control” is deemed to occur when, after the original issuance date of the Series D Preferred Stock, the following
have occurred and are continuing:
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the
acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange
Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases,
mergers or other acquisition transactions of our stock entitling that person to exercise more than 50% of the total voting power
of all our stock entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial
ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition); and |
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following
the closing of any transaction referred to above, neither we nor the acquiring or surviving entity has a class of common securities
(or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American or Nasdaq, or listed or quoted
on an exchange or quotation system that is a successor to the NYSE, the NYSE American or Nasdaq. |
Redemption
Procedures.
In
the event we elect to redeem Series D Preferred Stock, the notice of redemption will be mailed to each holder of record of Series D Preferred
Stock called for redemption at such holder’s address as it appears on our stock transfer records, not less than 10 days prior to
the redemption date, and will state the following:
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the
redemption date; |
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the
number of shares of Series D Preferred Stock to be redeemed; |
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the
redemption price; |
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the
place or places where certificates (if any) for the Series D Preferred Stock are to be surrendered for payment of the redemption
price; |
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that
dividends on the shares to be redeemed will cease to accumulate on the redemption date; |
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whether
such redemption is being made pursuant to the provisions described above under “—Optional Redemption” or
“—Special Optional Redemption”; and |
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if
applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description of the
transaction or transactions constituting such Change of Control. |
If
less than all of the Series D Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify
the number of shares of Series D Preferred Stock held by such holder to be redeemed. No failure to give such notice or any defect thereto
or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series D Preferred Stock except
as to the holder to whom notice was defective or not given.
Holders
of Series D Preferred Stock to be redeemed shall surrender the Series D Preferred Stock at the place designated in the notice of redemption
and shall be entitled to the redemption price and any accumulated and unpaid dividends payable upon the redemption following the surrender.
If notice of redemption of any shares of Series D Preferred Stock has been given and if we have irrevocably set apart the funds necessary
for redemption in trust for the benefit of the holders of the shares of Series D Preferred Stock so called for redemption, then from
and after the redemption date (unless default shall be made by us in providing for the payment of the redemption price plus accumulated
and unpaid dividends, if any), dividends will cease to accrue on those shares of Series D Preferred Stock, those shares of Series D Preferred
Stock shall no longer be deemed outstanding and all rights of the holders of those shares will terminate, except the right to receive
the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption. If any redemption date is not a business
day, then the redemption price and accumulated and unpaid dividends, if any, payable upon redemption may be paid on the next business
day and no interest, additional dividends or other sums will accrue on the amount payable for the period from and after that redemption
date to that next business day. If less than all of the outstanding Series D Preferred Stock is to be redeemed, the Series D Preferred
Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other
equitable method we determine that will not result in the automatic transfer of any shares of Series D Preferred Stock to a charitable
trust pursuant to the ownership and transfer restrictions contained in our charter.
In
connection with any redemption of Series D Preferred Stock, we shall pay, in cash, any accumulated and unpaid dividends to, but not including,
the redemption date, unless a redemption date falls after a dividend record date and prior to the corresponding dividend payment date,
in which case each holder of Series D Preferred Stock at the close of business on such dividend record date shall be entitled to the
dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such
dividend payment date. Except as provided above, we will make no payment or allowance for unpaid dividends, whether or not in arrears,
on shares of the Series D Preferred Stock to be redeemed.
No
shares of Series D Preferred Stock shall be redeemed unless full cumulative dividends on all shares of Series D Preferred Stock have
been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been or contemporaneously
is set apart for payment for all past dividend periods unless all outstanding shares of Series D Preferred Stock are simultaneously redeemed.
We shall not otherwise purchase or acquire directly or indirectly any shares of Series D Preferred Stock (except by exchanging it for
our stock ranking junior to the Series D Preferred Stock as to the payment of dividends and distribution of assets upon liquidation,
dissolution or winding up); provided, however, that the foregoing shall not prevent the purchase by us of shares transferred to a charitable
trust pursuant to the ownership and transfer restrictions contained in our charter or the purchase or acquisition by us of shares of
Series D Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series
D Preferred Stock.
Subject
to applicable law, we may purchase shares of Series D Preferred Stock in the open market, by tender or by private agreement. Any shares
of Series D Preferred Stock that have been redeemed or otherwise acquired by us, will, after such redemption or acquisition, have the
status of authorized but unissued shares of Series D Preferred Stock, until such shares are reclassified and designated by the Board
of Directors in accordance with the provisions of our charter.
Voting
Rights
Holders
of the Series D Preferred Stock do not have any voting rights, except as set forth below.
On
each matter on which holders of Series D Preferred Stock are entitled to vote, each share of Series D Preferred Stock will entitle the
holder thereof to one vote. In instances described below where holders of Series D Preferred Stock vote with holders of any other class
or series of our preferred stock as a single class on any matter, the Series D Preferred Stock and the shares of each such other class
or series will have one vote for each $25.00 of liquidation preference (excluding accumulated dividends) represented by their respective
shares.
Whenever
dividends on any shares of Series D Preferred Stock are in arrears for eighteen or more monthly dividend periods, whether or not consecutive,
the number of directors constituting our Board of Directors will be automatically increased by two (if not already increased by two by
reason of the election of directors by the holders of any other class or series of our preferred stock we may issue upon which like voting
rights have been conferred and are exercisable and with which the Series D Preferred Stock is entitled to vote as a class with respect
to the election of those two directors) and the holders of Series D Preferred Stock (voting separately as a class with all other classes
or series of preferred stock we may issue upon which like voting rights have been conferred and are exercisable and which are entitled
to vote as a class with the Series D Preferred Stock in the election of those two directors) will be entitled to vote for the election
of those two additional directors (the “preferred stock directors”) at a special meeting called by us at the request of the
holders of record of at least 25% of the outstanding shares of Series D Preferred Stock or by the holders of any other class or series
of preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with
the Series D Preferred Stock in the election of those two preferred stock directors (unless the request is received less than 90 days
before the date fixed for the next annual or special meeting of stockholders, in which case, such vote will be held at the earlier of
the next annual or special meeting of stockholders), and at each subsequent annual meeting until all dividends accumulated on the Series
D Preferred Stock for all past dividend periods and the then current dividend period have been fully paid or declared and a sum sufficient
for the payment thereof set apart for payment. In that case, the right of holders of the Series D Preferred Stock to elect any directors
will cease and, unless there are other classes or series of our preferred stock upon which like voting rights have been conferred and
are exercisable, any preferred stock directors elected by holders of the Series D Preferred Stock shall immediately resign and the number
of directors constituting the Board of Directors shall be reduced accordingly. In no event shall the holders of Series D Preferred Stock
be entitled under these voting rights to elect a preferred stock director that would cause us to fail to satisfy a requirement relating
to director independence of any national securities exchange or quotation system on which any class or series of our stock is listed
or quoted. For the avoidance of doubt, in no event shall the total number of preferred stock directors elected by holders of the Series
D Preferred Stock (voting separately as a class with all other classes or series of preferred stock we may issue upon which like voting
rights have been conferred and are exercisable and which are entitled to vote as a class with the Series D Preferred Stock in the election
of such directors) under these voting rights exceed two.
If
a special meeting is not called by us within 30 days after request from the holders of Series D Preferred Stock as described above, then
the holders of record of at least 25% of the outstanding Series D Preferred Stock may designate a holder to call the meeting at our expense
and such meeting may be called by the holder so designated upon notice similar to that required for annual meetings of stockholders and
shall be held at the place designated by the holder calling such meeting.
If,
at any time when the voting rights conferred upon the Series D Preferred Stock are exercisable, any vacancy in the office of a preferred
stock director shall occur, then such vacancy may be filled only by a written consent of the remaining preferred stock director, or if
none remains in office, by the vote of the holders of record of the outstanding Series D Preferred Stock and any other classes or
series of preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class
with the Series D Preferred Stock in the election of the preferred stock directors. Any preferred stock director elected or appointed
may be removed only by the affirmative vote of holders of the outstanding Series D Preferred Stock and any other classes or series of
preferred stock upon which like voting rights have been conferred and are exercisable and which classes or series of preferred stock
are entitled to vote as a class with the Series D Preferred Stock in the election of the preferred stock directors, such removal to be
effected by the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding Series D Preferred
Stock and any such other classes or series of preferred stock, and may not be removed by the holders of the common stock.
So
long as any shares of Series D Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the holders
of at least two-thirds of the votes entitled to be cast by the holders of the Series D Preferred Stock outstanding at the time, given
in person or by proxy, either in writing or at a meeting (voting together as a class with all other classes or series of parity preferred
stock that we may issue upon which like voting rights have been conferred and are exercisable), (a) authorize or create, or increase
the number of authorized or issued shares of any class or series of stock ranking senior to the Series D Preferred Stock with respect
to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any of our authorized
stock into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase
any such shares; or (b) unless redeeming all Series D Preferred Stock in connection with such action, amend, alter or repeal any provision
of our charter, including by way of a merger, consolidation or otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the Series D Preferred Stock (each, an “Event”); provided, however, with respect to the occurrence
of any Event set forth in clause (b), so long as the Series D Preferred Stock remains outstanding with the terms thereof materially unchanged,
taking into account that, upon an occurrence of an Event, we may not be the surviving entity, the occurrence of any such Event is not
be deemed to materially and adversely affect the rights, preferences, privileges or voting power of the Series D Preferred Stock and,
provided further, that any increase in the number of the authorized shares of preferred stock, including the Series D Preferred Stock,
or the creation or issuance of any additional shares of Series D Preferred Stock or other class or series of the preferred stock that
we may issue, or any increase in the number of authorized shares of such class or series, in each case ranking on a parity with or junior
to the Series D Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding
up, is not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
Notwithstanding
the above, if any Event set forth above materially and adversely affects any right, preference, privilege or voting power of the Series
D Preferred Stock but not all series of parity preferred stock that the Corporation may issue upon which like voting rights have
been conferred and are exercisable, the affirmative vote or consent of the holders of at least two-thirds of the shares of the Series
D Preferred Stock and all such other similarly affected series, outstanding at the time (voting together as a class), given in person
or by proxy, either in writing or at a meeting, shall be required in lieu of the vote or consent that would otherwise be required as
described the above.
The
foregoing voting provisions is not apply if, at or prior to the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series D Preferred Stock shall have been redeemed or called for redemption upon
proper notice and sufficient funds shall have been deposited in trust to effect such redemption.
Except
as expressly stated in the charter, the Series D Preferred Stock do not have any relative, participating, optional or other special voting
rights or powers and the consent of the holders thereof shall not be required for the taking of any corporate action.
Information
Rights
During
any period in which we are not subject to Section 13 or 15(d) of the Exchange Act and any shares of Series D Preferred Stock are outstanding,
we will use our best efforts to (i) make available on our corporate investor webpage, copies of the Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we
were subject thereto (other than any exhibits that would have been required) and (ii) promptly, upon request, supply copies of such reports
to any holders of Series D Preferred Stock. We will use our best efforts to post to our website, mail or otherwise provide the information
to the holders of the Series D Preferred Stock within 15 days after the respective dates by which a periodic report on Form 10-K or Form
10-Q, as the case may be, in respect of such information would have been required to be filed with the SEC, if we were subject to Section
13 or 15(d) of the Exchange Act, in each case, based on the dates on which we would be required to file such periodic reports if we were
a “non-accelerated filer” within the meaning of the Exchange Act.
No
Conversion Rights
The
Series D Preferred Stock is not convertible into our common stock or any other security.
No
Preemptive Rights
No
holders of the Series D Preferred Stock will, as holders of Series D Preferred Stock, have any preemptive rights to purchase or subscribe
for our common stock or any other security.
Ownership
and Transfer Restrictions
The
Series D Preferred Stock is subject to the ownership and transfer restrictions in our charter. See “Description of Capital Stock—Restrictions
on Ownership and Transfer.”
Change
of Control
Provisions
in our charter, including the Articles Supplementary establishing the terms of the Series D Preferred Stock, and bylaws may make it difficult
and expensive for a third party to pursue a tender offer, change in control or takeover attempt, which is opposed by management and the
Board of Directors.
Book-Entry
Procedures
DTC
acts as securities depository for our outstanding Series D Preferred Stock. With respect to the Series D Preferred Stock offered hereunder,
we will issue one or more fully registered global securities certificates in the name of DTC’s nominee, Cede & Co. These certificates
will represent the total aggregate number of shares of Series D Preferred Stock. We will deposit these certificates with DTC or a custodian
appointed by DTC. We is not issue certificates to you for the shares of Series D Preferred Stock that you purchase, unless DTC’s
services are discontinued as described below.
Title
to book-entry interests in the Series D Preferred Stock will pass by book-entry registration of the transfer within the records of DTC
in accordance with its procedures. Book-entry interests in the securities may be transferred within DTC in accordance with procedures
established for these purposes by DTC. Each person owning a beneficial interest in shares of the Series D Preferred Stock must rely on
the procedures of DTC and the participant through which such person owns its interest to exercise its rights as a holder of the Series
D Preferred Stock.
DTC
has advised us that it is a limited-purpose trust company organized under the New York Banking Law, a member of the Federal Reserve System,
a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered
under the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants (“Direct Participants”)
deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges
in deposited securities through electronic computerized book-entry changes in Direct Participants’ accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. Access to the DTC system is also available to others such as securities brokers
and dealers, including the underwriters, banks and trust companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly (“Indirect Participants”). The rules applicable to DTC and its Direct and Indirect
Participants are on file with the SEC.
When
you purchase shares of Series D Preferred Stock within the DTC system, the purchase must be by or through a Direct Participant. The Direct
Participant will receive a credit for the Series D Preferred Stock on DTC’s records. You will be considered to be the “beneficial
owner” of the Series D Preferred Stock. Your beneficial ownership interest will be recorded on the Direct and Indirect Participants’
records, but DTC will have no knowledge of your individual ownership. DTC’s records reflect only the identity of the Direct Participants
to whose accounts shares of Series D Preferred Stock are credited.
You
will not receive written confirmation from DTC of your purchase. The Direct or Indirect Participants through whom you purchased the Series
D Preferred Stock should send you written confirmations providing details of your transactions, as well as periodic statements of your
holdings. The Direct and Indirect Participants are responsible for keeping an accurate account of the holdings of their customers like
you.
Transfers
of ownership interests held through Direct and Indirect Participants will be accomplished by entries on the books of Direct and Indirect
Participants acting on behalf of the beneficial owners.
Conveyance
of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
We
understand that, under DTC’s existing practices, in the event that we request any action of the holders, or an owner of a beneficial
interest in a global security, such as you, desires to take any action that a holder is entitled to take under our charter (including
the Articles Supplementary designating the Series D Preferred Stock), DTC would authorize the Direct Participants holding the relevant
shares to take such action, and those Direct Participants and any Indirect Participants would authorize beneficial owners owning through
those Direct and Indirect Participants to take such action or would otherwise act upon the instructions of beneficial owners owning through
them.
Any
redemption notices with respect to the Series D Preferred Stock will be sent to Cede & Co. If less than all of the outstanding shares
of Series D Preferred Stock are being redeemed, DTC will reduce each Direct Participant’s holdings of shares of Series D Preferred
Stock in accordance with its procedures.
In
those instances where a vote is required, neither DTC nor Cede & Co. itself will consent or vote with respect to the shares of Series
D Preferred Stock. Under its usual procedures, DTC would mail an omnibus proxy to us as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants whose accounts the shares of Series D Preferred
Stock are credited to on the record date, which are identified in a listing attached to the omnibus proxy.
Dividends
on the Series D Preferred Stock are made directly to DTC’s nominee (or its successor, if applicable). DTC’s practice is to
credit participants’ accounts on the relevant payment date in accordance with their respective holdings shown on DTC’s records
unless DTC has reason to believe that it will not receive payment on that payment date.
Payments
by Direct and Indirect Participants to beneficial owners will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or registered in “street name.” These payments will
be the responsibility of the participant and not of DTC, us or any agent of ours.
DTC
may discontinue providing its services as securities depositary with respect to the Series D Preferred Stock at any time by giving reasonable
notice to us. Additionally, we may decide to discontinue the book-entry only system of transfers with respect to the Series D Preferred
Stock. In that event, we will print and deliver certificates in fully registered form for the Series D Preferred Stock. If DTC notifies
us that it is unwilling to continue as securities depositary, or it is unable to continue or ceases to be a clearing agency registered
under the Exchange Act and a successor depositary is not appointed by us within 90 days after receiving such notice or becoming aware
that DTC is no longer so registered, we will issue the Series D Preferred Stock in definitive form, at our expense, upon registration
of transfer of, or in exchange for, such global security.
According
to DTC, the foregoing information with respect to DTC has been provided to the financial community for informational purposes only and
is not intended to serve as a representation, warranty or contract modification of any kind.
Global
Clearance and Settlement Procedures
Initial
settlement for the Series D Preferred Stock will be made in immediately available funds. Secondary market trading among DTC’s participants
occurs in the ordinary way in accordance with DTC’s rules and will be settled in immediately available funds using DTC’s
Same-Day Funds Settlement System.
The
Series D Preferred Stock has not been rated
The
Series D Preferred Stock has not been rated by any nationally recognized statistical rating organization, which may negatively affect
its market value and your ability to sell such shares. No assurance can be given, however, that one or more rating agencies might not
independently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series
D Preferred Stock. In addition, we may elect in the future to obtain a rating of the Series D Preferred Stock, which could adversely
impact the market price of the Series D Preferred Stock. Ratings only reflect the views of the rating agency or agencies issuing the
ratings and such ratings could be revised downward, placed on negative outlook or withdrawn entirely at the discretion of the issuing
rating agency if in its judgment circumstances so warrant. Any such downward revision or withdrawal of a rating could have an adverse
effect on the market price of the Series D Preferred Stock.
UNDERWRITING
The
Benchmark Company, LLC (“Benchmark” or the “representative”) is acting as representative of the Underwriters
named below. Subject to the terms and conditions stated in the underwriting agreement, dated ,
2024, each Underwriter named below has severally, and not jointly, agreed to purchase from us, and we have agreed to sell to that Underwriter,
the number of shares of Series D Preferred Stock set forth opposite that Underwriter’s name in the table below.
Underwriters | |
Number
of Shares | |
The Benchmark Company, LLC | |
| | |
Total | |
| | |
The
underwriting agreement provides that the Underwriters must buy all of the shares of our Series D Preferred Stock offered hereby if they
buy any of them. Our sale of shares of Series D Preferred Stock, however, is offered subject to a number of conditions, including:
|
● |
receipt and acceptance of
our shares by the Underwriters; and |
|
|
|
|
● |
the Underwriters’ right
to reject orders in whole or in part. |
In
connection with this offering, the Underwriters or securities dealers may distribute prospectuses electronically.
We expect that delivery of the shares of Series D Preferred Stock will
be made to investors on or about the delivery date specified on the cover page of this prospectus supplement, which will be the first
business day following the date of this prospectus supplement (such settlement being referred to as “T+1”).
Under Rule 15c6-l of the Exchange Act, trades in the secondary market generally are required to settle in one business
day, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the shares of Series D
Preferred Stock on any day prior to the business day before the delivery of the shares of Series D Preferred Stock hereunder will be required,
by virtue of the fact that the shares of Series D Preferred Stock initially will settle in T+ 1, to specify an alternative settlement
cycle at the time of any such trade to prevent failed settlement. Such purchasers should consult their own advisors in this regard.
Underwriting
Discounts and Commissions
The
representative has advised us that the Underwriters propose initially to offer the shares of Series D Preferred Stock to the public at
the public offering price and to certain dealers at the public offering price minus a concession not in excess of $ per share. Sales
of shares made outside of the United States may be made by affiliates of the Underwriters. If all the shares are not sold at the public
offering price, the representatives may change the offering price and the other selling terms. Upon execution of the underwriting agreement,
the Underwriters became obligated to purchase the shares at the prices and upon the terms stated therein. The following table shows the
public offering price, underwriting discount and proceeds, before expenses, that we will pay to the Underwriters in connection with this
offering.
| |
Per Share |
| |
Total | |
Public offering price | |
$ | |
| |
$ | | |
Underwriting discount (7.0%) | |
$ | |
| |
$ | | |
Proceeds to us, before expenses | |
$ | |
| |
$ | | |
We
have agreed to pay a non-accountable expense allowance to the underwriters equal to 1.0% of the gross proceeds received by us from the
sale of the Series D Preferred Stock.
We
have also agreed to pay all expenses relating to the offering, including (a) all filing fees and expenses relating to the registration
of the shares to be sold in the offering with
the SEC; (b) all fees associated with the review of the offering by FINRA; (c) all fees and expenses relating to the listing of such
shares on Nasdaq; (d) all fees, expenses and disbursements relating to the registration, qualification or exemption
of securities offered under the “blue sky” securities laws designated by the Underwriters; (e) all fees, expenses and disbursements
relating to the registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated
by the Underwriters; (f) costs of mailing and printing the offering documents; (g) transfer and/or stamp taxes, if any, payable upon
the transfer of the shares from us to the Underwriters; (h) fees and expenses of our accountants; and (i) actual accountable expenses
of the Underwriters not to exceed $100,000, which amount includes expenses for the Underwriters’ legal counsel and road show expenses.
In addition, we have agreed to pay for all fees and expenses relating to background checks, which fees and expenses shall not exceed
$7,500. We have paid a $32,5000 advance to Benchmark, which shall be applied against actual out-of-pocket-accountable expenses, which
will be returned to us to the extent such out-of-pocket accountable expenses are not actually incurred in accordance with FINRA Rule
5110(f)(2)(C).
We
estimate that the total expenses of the offering payable by us, excluding the total underwriting discount, will be approximately $ .
Lock-Up Agreements
Pursuant to certain “lock-up”
agreements, the Company, its executive officers and directors immediately upon the closing of this offering, have agreed, subject to
certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention
to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic
risk of ownership of, directly or indirectly, engage in any short selling of any ordinary shares or securities convertible into or exchangeable
or exercisable for any Series D Preferred Stock, whether currently owned or subsequently acquired, without the prior written consent
of the underwriters, for a period of six (6) months from the date of effectiveness of the offering.
In addition, we have agreed,
subject to certain exceptions, that we will not, for a period of twelve (12) months after the date of this prospectus supplement, offer
to sell, sell, contract to sell, grant any option to sell or otherwise dispose of shares of capital stock of our Company or any securities
convertible into or exercisable or exchangeable for shares of capital stock of our Company, directly or indirectly, in any variable rate
transaction, without the prior written consent of the representative.
Indemnification
We
have agreed to indemnify the Underwriters against certain liabilities, including certain liabilities under the Securities Act. If we
are unable to provide this indemnification, we have agreed to contribute to payments the Underwriters may be required to make in respect
of those liabilities.
Price
Stabilization; Short Positions and Penalty Bids
In
order to facilitate the offering of the Series D Preferred Stock, the Underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the Series D Preferred Stock. Specifically, the Underwriters may sell more shares than they are obligated
to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater
than the number of shares available for purchase by the Underwriters under the over-allotment option to purchase additional shares. The
Underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining
the source of shares to close out a covered short sale, the Underwriters will consider, among other things, the open market price of
shares compared to the price available under the option. The Underwriters may also sell shares in excess of the option, creating a naked
short position. The Underwriters must close out any naked short position by purchasing shares in the open market. A naked short position
is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the Series D Preferred
Stock in the open market after pricing that could adversely affect investors who purchase in this offering. The Underwriters may also
impose a penalty bid. This occurs when a particular Underwriter repays to the representative a portion of the underwriting discount received
by it because the representative has repurchased shares sold by or for the account of that Underwriter in stabilizing or short covering
transactions. These stabilizing transactions, short sales, purchases to cover positions created by short sales, the imposition of penalty
bids and syndicate covering transactions may have the effect of raising or maintaining the market price of our Series D Preferred Stock
or preventing or retarding a decline in the price of our Series D Preferred Stock. As a result of these activities, the price thereof
may be higher than otherwise might exist in the open market. Neither we nor the Underwriters make any representation that the Underwriters
will engage in these transactions, or make any representation with respect to the effect of any such transactions. As an additional means
of facilitating this offering, the Underwriters may bid for, and purchase, Series D Preferred Stock in the open market to stabilize the
price of the Series D Preferred Stock. These activities may raise or maintain the market price of the Series D Preferred Stock above
independent market levels or prevent or retard a decline in the market price of the Series D Preferred Stock. The Underwriters are not
required to engage in these activities and may end any of these activities at any time.
Electronic
Distribution
A
prospectus in electronic format may be made available on the Internet sites or through other online services maintained by the Underwriters
participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending
upon the particular Underwriter, prospective investors may be allowed to place orders online. The Underwriters may agree with us to allocate
a specific number of shares of Series D Preferred Stock for sale to online brokerage account holders. Any such allocation for online
distributions will be made by the Underwriters on the same basis as other allocations. Other than the prospectus in electronic format,
the information on any Underwriter’s website and any information contained in any other website maintained by an Underwriter is
not part of the prospectus supplement, accompanying prospectus or the registration statement of which the prospectus forms a part, has
not been approved and/or endorsed by us or any Underwriter in its capacity as underwriter and should not be relied upon by investors.
Other
Relationships
The
Underwriters have informed us that they do not expect to confirm sales of our shares offered by this prospectus supplement and accompanying
prospectus to any accounts over which they exercise discretionary authority. Some of the Underwriters and their affiliates may in the
future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They
may in the future receive customary fees and commissions for these transactions. In addition, in the ordinary course of their business
activities, the Underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities
(or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their
customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The Underwriters
and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such
securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities
and instruments.
Selling
Restrictions
No
action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of Series D
Preferred Stock, or the possession, circulation or distribution of this prospectus supplement, accompanying prospectus or any other material
relating to us or the shares of Series D Preferred Stock in any jurisdiction where action for that purpose is required. Accordingly,
the shares of Series D Preferred Stock may not be offered or sold, directly or indirectly, and neither this prospectus supplement, accompanying
prospectus nor any other material or advertisements in connection with the shares of Series D Preferred Stock may be distributed or published,
in or from any country or jurisdiction except in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.
LEGAL
MATTERS
Certain
legal matters relating to this offering will be passed upon for us by Sichenzia Ross Ference Carmel LLP, New York, New York. Certain matters of Maryland law will be passed upon for us by Venable LLP, Baltimore, Maryland. Certain legal matters relating
to this offering will be passed upon for the Underwriters by Sheppard, Mullin, Richter & Hampton LLP, New York, New York.
EXPERTS
The
consolidated financial statements of Presidio Property Trust, Inc. as of December 31, 2023 and 2022 and for each of the years in the
two-year period ended December 31, 2023 are incorporated in this prospectus supplement by reference from the Presidio Property Trust,
Inc. Annual Report on Form 10-K/A for the year ended December 31, 2023 filed with the SEC on April 17, 2023 and have been audited by
Baker Tilly US, LLP, an independent registered public accounting firm, as stated in their report thereon, incorporated herein by reference,
and have been incorporated by reference in this prospectus supplement, accompanying prospectus and registration statement in reliance
upon such report and upon the authority of such firm as experts in accounting and auditing.
INCORPORATION
BY REFERENCE OF INFORMATION FILED WITH THE SEC
The
SEC allows us to “incorporate by reference” the information we file with the SEC, which means that we can disclose important
information to you by referring to those documents. The information incorporated by reference is an important part of this prospectus
supplement and the accompanying prospectus. Any statement contained in a document which is incorporated by reference into this prospectus
supplement and the accompanying prospectus is automatically updated and superseded if information contained in this prospectus supplement
or the accompanying prospectus, or information that we later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents that we have filed with the SEC:
● |
our
Annual Report on Form
10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 16, 2024, as amended by our Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2023, filed with the SEC on April 17, 2024 as further amended by our Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2023, filed with the SEC on April 26, 2024; |
|
|
● |
our Quarterly Report on Form
10-Q for the quarter ended March 31, 2024, filed with the SEC on May 14, 2024; |
|
|
● |
our
Current Reports on Form 8-K filed with the SEC on January
5, 2024, February
9, 2024, March
22, 2024, April
3, 2024, April
8, 2024, April
11, 2024, May
10, 2024, May
30, 2024 and June 7, 2024; |
|
|
● |
the
description of our Series A Common Stock set forth in the registration statement on Form
8-A registering our Series A Common Stock under Section 12 of the Exchange Act, which was filed with the SEC on October 2, 2020,
including any amendments or reports filed for purposes of updating such description; and |
|
|
● |
the
description of our Series D Preferred Stock contained in our Registration Statement on Form
8-A filed with the SEC on June 9, 2021, including any amendment or report filed for the purpose of updating such description. |
We
are also incorporating by reference additional documents that we file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus supplement and before the termination of the offering of the shares of the Series
D Preferred Stock pursuant to this prospectus supplement. We are not, however, incorporating by reference any documents or portions thereof,
whether specifically listed above or filed in the future, that are not deemed “filed” with the SEC, including any information
furnished pursuant to Items 2.02 or 7.01 of Form 8-K or certain exhibits furnished pursuant to Item 9.01 of Form 8-K.
Documents
incorporated by reference are available from us without charge, excluding all exhibits unless we have specifically incorporated by reference
the exhibit in this prospectus. You may obtain documents incorporated by reference in this prospectus by requesting them in writing or
by telephone from:
Presidio
Property Trust, Inc.
4995
Murphy Canyon Road, Suite 300
San
Diego, CA 92123
Attention:
Secretary
Telephone:
(760) 471-8536
Prospectus
PRESIDIO
PROPERTY TRUST, INC.
PROSPECTUS
$50,000,000
SERIES
A COMMON STOCK
PREFERRED
STOCK
WARRANTS
UNITS
We
may offer and sell from time to time, in one or more series, any one of the following securities of Presidio Property Trust, Inc. (“Presidio”
or the “Company”), for total gross proceeds of up to $50,000,000:
● | Series
A Common Stock; |
● | preferred
stock; |
● | warrants
to purchase our securities; and |
● | units
comprised of the foregoing securities. |
We
may offer and sell these securities separately or together, in one or more series or classes and in amounts, at prices and on terms described
in one or more offerings. We may offer securities through underwriting syndicates managed or co-managed by one or more underwriters or
dealers, through agents or directly to purchasers. The prospectus supplement for each offering of securities will describe in detail
the plan of distribution for that offering. For general information about the distribution of securities offered, please see “Plan
of Distribution” in this prospectus.
Presidio’s
Series A Common Stock, 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”) and
Series A Common Stock Purchase Warrants are traded on the Nasdaq Capital Market under the symbols “SQFT,” “SQFTP,”
and “SQFTW,” respectively. If we decide to seek a listing of any other class or series of common stock, any preferred stock,
warrants or units offered by this prospectus, the related prospectus supplement will disclose the exchange or market on which the securities
will be listed, if any, or where we have made an application for listing, if any.
As
of April 23, 2024, the aggregate market value of our outstanding voting and non-voting common equity held by non-affiliates was approximately
$16.4 million, based on an aggregate of 14,463,802 shares of Series A Common Stock outstanding, of which 12,247,561 shares were held
by non-affiliates, and a per share price of $1.34 for the Series A Common Stock, the closing price of our Series A Common Stock on March
20, 2024, as reported on the Nasdaq Capital Market. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities
in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period so long as our public
float remains below $75.0 million. We have not sold any securities pursuant to General Instruction I.B.6 of Form S-3 during the 12 calendar
months prior to and including the date of this prospectus.
Investing
in our securities involves certain risks. You should carefully read and consider the section entitled “Risk Factors”
on page 11 and the risk factors included in our periodic reports filed with the Securities and Exchange Commission and, if
any, in the relevant prospectus supplement. We urge you to carefully read this prospectus and the applicable prospectus supplement, together
with the documents we incorporate by reference, before making your investment decision.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is May 17, 2024.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, or SEC, utilizing
a “shelf” registration process. Under this shelf registration process, we may offer and sell, either individually or in combination,
in one or more offerings, any of the securities described in this prospectus, for total gross proceeds of up to $50,000,000. This prospectus
provides you with a general description of the securities we may offer. Each time we offer securities under this prospectus, we will
provide a prospectus supplement to this prospectus that will contain more specific information about the terms of that offering. We may
also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these offerings.
The prospectus supplement and any related free writing prospectus that we may authorize to be provided to you may also add, update or
change any of the information contained in this prospectus or in the documents that we have incorporated by reference into this prospectus.
In this prospectus, unless the context indicates otherwise, the terms “Presidio,” “Company,” “we,”
“us,” and “our” refer to Presidio Property Trust, Inc., a Maryland corporation.
We
urge you to read carefully this prospectus, any applicable prospectus supplement and any free writing prospectuses we have authorized
for use in connection with a specific offering, together with the information incorporated herein by reference as described under the
heading “Incorporation of Certain Information by Reference,” before investing in any of the securities being offered. You
should rely only on the information contained in, or incorporated by reference into, this prospectus and any applicable prospectus supplement,
along with the information contained in any free writing prospectuses we have authorized for use in connection with a specific offering.
We have not authorized anyone to provide you with different or additional information. This prospectus is an offer to sell only the securities
offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so.
The
information appearing in this prospectus, any applicable prospectus supplement or any related free writing prospectus is accurate only
as of the date on the front of the document and any information we have incorporated by reference is accurate only as of the date of
the document incorporated by reference, regardless of the time of delivery of this prospectus, any applicable prospectus supplement or
any related free writing prospectus, or any sale of a security.
This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the
actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some
of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration
statement of which this prospectus is a part, and you may obtain copies of those documents as described below under the section entitled
“Where You Can Find More Information.”
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and any accompanying prospectus supplement and the documents incorporated by reference herein include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21B of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained or incorporated
by reference in this prospectus are forward-looking statements. The words “believe,” “may” “will,”
“estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions,
as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements on our current
expectations and projections about future events and financial trends that we believe may affect our financial condition, results of
operations, business strategy, business prospectus, growth strategy and liquidity. These forward-looking statements are subject to a
number of known and unknown risks, uncertainties and assumptions and our actual results could differ materially from those anticipated
in forward-looking statements for many reasons, including the factors described in the sections entitled “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operation” in our most recent Annual Report
on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC.
The
forward-looking statements speak as of the date made and are not guarantees of future performance. Actual results or developments may
differ materially from the expectations expressed or implied in the forward-looking statements, and we undertake no obligation to update
any such statements. You should not place undue reliance on these forward-looking statements.
You
should carefully read the factors described in the “Risk Factors” section of any prospectus supplement or other offering
material, as well as any risks described in the documents incorporated by reference into this prospectus for a description of certain
risks that could, among other things, cause our actual results to differ from these forward-looking statements. You should understand
that it is not possible to predict or identify all such factors and that this list should not be considered a complete statement of all
potential risks and uncertainties. You should also realize that if the assumptions we have made prove inaccurate or if unknown risks
or uncertainties materialize, actual results could vary materially from the views and estimates included or incorporated by reference
in this prospectus.
ABOUT
PRESIDIO PROPERTY TRUST, INC.
Overview
and Corporate Structure
Presidio
Property Trust, Inc. (“we”, “our”, “us” or the “Company”) is an internally-managed real
estate investment trust (“REIT”). We were incorporated in the State of California on September 28, 1999, and in August 2010,
we reincorporated as a Maryland corporation. In October 2017, we changed our name from “NetREIT, Inc.” to “Presidio
Property Trust, Inc.” We are a publicly traded company on Nasdaq, and registered under the Exchange Act. Through the Company, its
subsidiaries and its partnerships, we own 12 commercial properties in fee interest and have partial interests in two commercial properties
through our interests in various affiliates in which we serve as general partner, member and/or manager. Each of the limited partnerships
is referred to as a “DownREIT.” In each DownREIT, we have the right, through put and call options, to require our co-investors
to exchange their interests for shares of our Series A Common Stock, or our common stock, at a stated price after a defined period (generally
five years from the date they first invested in the entity’s real property), the occurrence of a specified event or a combination
thereof. The Company is a limited partner in five partnerships and sole shareholder in one corporation, which entities purchase and leaseback
model homes to and from homebuilders.
Market
and Business Strategy
The
Company invests in a diverse multi-tenant portfolio of real estate assets. Beginning in 2015, we began to focus our commercial portfolio
primarily on office and industrial properties (“Office/Industrial Properties”) and model homes (“Model Home Properties”),
and have been managing the portfolio to transition out of retail properties. Our commercial properties are currently located in Colorado,
North Dakota, California, Maryland and Texas. Our commercial property tenant base is highly diversified and consists of approximately
155 individual commercial tenants with an average remaining lease term of approximately 3.1 years as of December 31, 2023. As of December
31, 2023, one commercial tenant represented 6.43% of our annualized based rent, while our ten largest tenants represented approximately
34.48% of our annualized base rent. On December 31, 2022, the lease for our former largest tenant at that time, Halliburton Energy Services,
Inc. (“Halliburton”), expired. Halliburton was located in our Shea Center II property in Colorado, and made up approximately
8.57% of our annual base rent as of December 31, 2022. Halliburton did not renew the lease, which expired on December 31, 2022, and we
placed approximately $1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary, none of which
has been utilized as of December 31, 2023. Our management team is working to fill the 45,535 square foot space as quickly as possible,
and has leased approximately 20% of the space to a tenant during 2023 and has reviewed various third party proposals for the remaining
80%. As of December 31, 2023, none of the third-party proposals have fit into our long-term plans. We will continue to work on filling
the space during 2024. In addition, our commercial property tenant base has limited exposure to any single industry. For more information,
see “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in our most recent Annual
Report on Form 10-K.
Our
main objective is to maximize long-term stockholder value through the management, leasing and selective redevelopment of our existing
commercial property portfolio, and selectively acquiring future properties which are anticipated to provide accretive economic returns.
We focus on regionally dominant markets across the United States which we believe have attractive growth dynamics driven in part by important
economic factors such as strong employment growth; net in-migration of a highly educated workforce; a large student population; the stability
provided by major healthcare systems; government or other large institutional employer presence; low rates of unemployment; and lower
cost of living versus gateway markets. We seek to maximize returns through investments in markets with limited supply, high barriers
to entry, and stable and growing employment drivers. Our model home portfolio supports the objective of maximizing stockholder value
by focusing on purchasing new single-family model homes and leasing them back to experienced homebuilders. We operate the model home
portfolio in markets where we can diversify by geography, builder size, and model home purchase price.
Recent
Developments
Significant
Transactions in 2023 and 2022
Acquisitions
during the year ended December 31, 2023:
● |
We
acquired 40 Model Home Properties and leased them back to the homebuilders under triple net
leases during the year ended December 31, 2023. The purchase price for these properties was
$21.9 million. The purchase price consisted of cash payments of $6.6 million and mortgage
notes of $15.3 million. |
Acquisitions
during the year ended December 31, 2022:
● |
We
acquired 31 Model Home Properties and leased them back to the homebuilders under triple net
leases during the year ended December 31, 2022. The purchase price for the properties was
$15.6 million. The purchase price consisted of cash payments of $4.8 million and mortgage
notes of $10.8 million.
|
We
review our portfolio of investment properties for value appreciation potential on an ongoing basis, and dispose of any properties that
no longer satisfy our requirements in this regard, taking into account tax and other considerations. The proceeds from any such property
sale, after repayment of any associated mortgage or repayment of secured or unsecured indebtedness, are available for investing in properties
that we believe will have a greater likelihood of future price appreciation.
Dispositions
during the year ended December 31, 2023:
During
year ended December 31, 2023, we disposed of the following properties:
● |
22
model homes for approximately $11.7 million and the Company recognized a gain of approximately
$3.2 million. |
Dispositions
during the year ended December 31, 2022:
During
year ended December 31, 2022, we disposed of the following properties:
● |
World
Plaza, which was sold on March 11, 2022, for approximately $10.0 million and the Company
recognized a loss of approximately $0.3 million. |
● |
31
model homes for approximately $17.5 million and the Company recognized a gain of approximately
$5.4 million. |
Model
Home Properties
Our
Model Home properties are located in five states throughout the United States. As of December 31, 2023, we owned 110 model homes with
a net book value of approximately $50.8 million.
Our
Model Home business was started in March 2010 through the acquisition of certain assets and rights from Dubose Model Homes USA. Our
model home business (“NetREIT Dubose”) is engaged in the business of acquiring model homes from third party
homebuilders in sale-leaseback transactions whereby a homebuilder sells the Model Home to NetREIT Dubose and leases back the Model Home
under a triple net lease (“NNN”) for use in marketing its residential development.
We
currently operate six limited partnerships in connection with NetREIT Dubose: Dubose Model Home Investors #202, LP (“DMHI
#202”), Dubose Model Home Investors #203, LP (“DMHI #203”), Dubose Model Home Investors #204,
LP (“DMHI #204”), Dubose Model Home Investors #205, LP (“DMHI #205”), Dubose Model
Home Investors #206, LP (“DMHI #206”), and Dubose Model Home Investors #207, LP (“DMHI #207”).
The limited partnerships typically raise private equity to invest in Model Home Properties and lease them back to the homebuilders. When
the model homes’ lease ends, these properties are sold to independent third parties as residential homes. As of December 31, 2023,
the Company owned:
● |
10.3%
of DMHI #202, which raised $2.9 million, and was formed to raise up to $5.0 million through
the sale of partnership units. |
● |
2.3%
of DMHI #203, which raised $4.4 million, and was formed to raise up to $5.0 million through
the sale of partnership units. |
|
|
● |
3.6%
of DMHI #204, which raised $2.8 million, and was formed to raise up to $5.0 million through
the sale of partnership units. |
|
|
● |
4.0%
of DMHI #205, which has raised $2.5 million, and was formed in 2019 to raise up to $5.0 million
through the sale of partnership units. |
|
|
● |
8.5%
of DMHI #206, which has raised $1.2 million, and was formed in 2020 to raise up to $5.0 million
through the sale of partnership units. This partnership continues to raise capital through
the sale of additional limited partnership units. |
|
|
● |
3.8%
of DMHI #207, which has raised $2.6 million, and was formed in 2023 to raise up to $5.0 million
through the sale of partnership units. This partnership continues to raise capital through
the sale of additional limited partnership units. |
|
|
● |
100%
of NetREIT Model Homes, Inc. |
We
provide management services to our limited partnerships through our wholly-owned subsidiaries, NetREIT Advisors, LLC (“NetREIT
Advisors”) and Dubose Advisors LLC (“Dubose Advisors”), which we refer to collectively as the Advisors. For their services,
each of the Advisors receives ongoing management fees, acquisition fees and has the right to receive certain other fees when a partnership
sells or otherwise disposes of a model home. NetREIT Advisors manages NetREIT Dubose and NetREIT Model Homes, Inc. and Dubose Advisors
manages DMHI #202, DMHI #203, DMHI #204, DMHI #205, DMHI #206, and DMHI #207.
Share
Repurchase Program
While
we will continue to pursue value-creating investments, the Board of Directors believes there is significant embedded value in our assets
that is yet to be realized by the market. Therefore, returning capital to stockholders through a repurchase program is an attractive
use of capital currently. On September 17, 2021, the Board of Directors authorized a stock repurchase program of up to $10 million of
outstanding shares of our Series A Common Stock, which expired in September 2022. On September 15, 2022, the Board of Directors authorized
a stock repurchase program of up to $6.0 million of outstanding shares of our Series A Common Stock and up to $4.0 million of our Series
D Preferred Stock, which expired in September 2023. During the year ended December 31, 2022, the Company repurchased 196,631 shares of
our Series A Common Stock at an average price of approximately $1.59 per share, including a commission of $0.035 per share, and 6,013
shares of our Series D Preferred Stock at an average price of approximately $20.31 per share, including a commission of $0.035 per share,
for a total cost of $313,578 for the Series A Common Stock and $122,141 for the Series D Preferred Stock. In November 2023, the Board
of Directors authorized a stock repurchase program of up to $6.0 million of outstanding shares of our Series A Common Stock and up to
$4.0 million of our Series D Preferred Stock which shall expire in November 2024. During the year ended December 31, 2023, the Company
repurchased 23,041 shares of our Series D Preferred Stock at an average price of approximately $15.97 per share, including a commission
of $0.035 per share, and no shares of our Series A Common Stock, for a total cost of $0.2 million for the Series D Preferred Stock. The
repurchased shares will be treated as authorized but unissued shares of stock in accordance with Maryland law and shown as a reduction
of stockholders’ equity at cost.
At-the-Market
Offering
On
November 8, 2021, we entered into an At-the-Market Offering Agreement (the “Sales Agreement”) with The Benchmark Company,
LLC (the “Manager”) pursuant to which the Manager will act as the Company’s sales agent with respect to the issuance
and sale of up to $4,399,000 of our Series A Common Stock from time to time in an at-the-market public offering. Sales of our common
stock, if any, through the Manager, will be by any method that is deemed to be an “at-the-market” equity offering as defined
in Rule 415 under the Securities Act, as amended, including sales made directly on or through Nasdaq or any other existing trading market
for the common stock in the U.S. or to or through a market maker. The Manager may also sell the common stock in privately negotiated
transactions, subject to our prior approval. The price per share will be at prevailing market prices. The Company will pay the Manager
a commission equal to 3.5% of the gross proceeds from the sale of the Series A Common Stock pursuant to the Sales Agreement. As of December
31, 2023, there have been no sales under the Sales Agreement.
Sponsorship
of Special Purpose Acquisition Company
The
Company served as the sponsor of Murphy Canyon Acquisition Corp., a former special purpose acquisition company (“Murphy Canyon”
or the “SPAC”), since the SPAC’s creation in October 2021 until its initial business combination in September 2023.
Certain officers and directors of the Company also served as officers and directors of the SPAC during this period. On September 22,
2023, Murphy Canyon completed its business combination with Conduit Pharmaceuticals Limited (“Conduit Pharma”) and changed
its name to Conduit Pharmaceuticals Inc. (“Conduit”). Immediately prior to the business combination, the Company owned approximately
65% of the SPAC’s outstanding shares of common stock. Upon consummation of the business combination, the SPAC’s shares of
Class B common stock were converted into shares of its Class A common stock and the shares of Class A common stock were then reclassified
as a single class of Conduit common stock. As a result of the business combination, the Company was issued (i) 3,306,250 shares of Conduit’s
common stock due to the conversion of the shares of the SPAC’s Class B common stock into shares of the SPAC’s Class A common
stock and then reclassification into shares of Conduit common stock, (ii) 754,000 shares of Conduit common stock, which prior to the
business combination were shares of the SPAC’s Class A common stock and (iii) private warrants to purchase 754,000 shares of Conduit
common stock, which prior to the business combination were warrants to purchase 754,000 shares of the SPAC’s Class A common stock.
Also in the business combination, shareholders and debtholders of Conduit Pharma were issued 65,000,000 shares of Conduit common stock.
Immediately following the consummation of the business combination, the Company transferred 45,000 shares of Conduit common stock and
warrants to purchase 45,000 shares of Conduit common stock to the SPAC’s independent directors as compensation for their services.
As a result, the Company owned approximately 6.5% of Conduit’s common stock immediately following the business combination and
currently owns approximately 6.3% of Conduit’s common stock. In connection with the business combination, the Company’s officers
and directors who also served as officers and directors of the SPAC resigned from the SPAC, with the exception of the Company’s
former Chief Financial Officer who resigned from the Company.
Warrant
Dividend
In
January 2022, we distributed the Series A Warrants to holders of our Series A Common Stock as of the record date of January 14, 2022.
The Series A Warrants and the shares of Series A Common Stock issuable upon the exercise of the Series A Warrants were registered on
a registration statement that was filed with the SEC and was declared effective January 21, 2022. The Series A Warrants commenced trading
on Nasdaq under the symbol “SQFTW” on January 24, 2022 and were distributed on that date to persons who held shares of common
stock and existing outstanding warrants as of the January 14, 2022 record date, or who acquired shares of Series A Common Stock in the
market following the record date, and who continued to hold such shares at the close of trading on January 21, 2022. The Series A Warrants
give the holder the right to purchase one share of Series A Common Stock at $7.00 per share, for a period of five years. Should warrant
holders not exercise the Series A Warrants during that holding period, the Series A Warrants will automatically convert to 1/10 of a
share of Series A Common Stock at expiration, rounded down to the nearest number of whole shares.
Preferred
Stock Series D
On
June 15, 2021, we completed an offering of 800,000 shares of our 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock (“Series
D Preferred Stock”) for cash consideration of $25.00 per share to a syndicate of underwriters led by The Benchmark Company, LLC,
as representative, resulting in approximately $18.1 million in net proceeds, after deducting the underwriting discounts and commissions
and the offering expenses. We granted the underwriters a 45-day option to purchase up to an additional 120,000 shares of Series D Preferred
Stock to cover over-allotments, which they exercised on June 17, 2021, resulting in approximately $2.7 million in net proceeds, after
deducting the underwriting discounts and commissions and the offering expenses. In total, we issued 920,000 shares of Series D Preferred
Stock with net proceeds of approximately $20.5 million, after deducting the underwriting discounts and commissions and the offering expenses.
Holders
of shares of the Series D Preferred Stock are entitled to receive cumulative cash dividends at a rate of 9.375% per annum of the $25.00
per share liquidation preference (equivalent to $2.34375 per annum per share). Dividends are payable monthly on the 15th day of each
month (each, a “dividend payment date”), provided that if any dividend payment date is not a business day, then the dividend
that would otherwise have been payable on that dividend payment date may be paid on the next succeeding business day without adjustment
in the amount of the dividend. Holders of shares of the Series D Preferred Stock will generally have no voting rights. However, if the
Company does not pay dividends on the Series D Preferred Stock for eighteen or more monthly dividend periods (whether or not consecutive),
the holders of the Series D Preferred Stock (voting separately as a class with the holders of all other classes or series of the Company’s
preferred stock it may issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as
a class with the Series D Preferred Stock in the election referred to below) will be entitled to vote for the election of two additional
directors to serve on the Company’s Board of Directors until the Company pays, or declares and sets apart funds for the payment
of, all dividends that it owes on the Series D Preferred Stock, subject to certain limitations. In addition, the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series D Preferred Stock (voting together as a class with all other series
of parity preferred stock the Company may issue upon which like voting rights have been conferred and are exercisable) is required at
any time for the Company to (i) authorize or issue any class or series of its stock ranking senior to the Series D Preferred Stock with
respect to the payment of dividends or the distribution of assets on liquidation, dissolution or winding up or (ii) to amend any provision
of the Company charter so as to materially and adversely affect any rights of the Series D Preferred Stock or to take certain other actions.
In
the event of our voluntary or involuntary liquidation, dissolution or winding up, the holders of shares of Series D Preferred Stock will
be entitled to be paid out of the assets we have legally available for distribution to our stockholders, subject to the preferential
rights of the holders of any class or series of stock we may issue ranking senior to the Series D Preferred Stock with respect to the
distribution of assets upon liquidation, dissolution or winding up, a liquidation preference of $25.00 per share, plus any accumulated
and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of our common stock
or any other class or series of our stock we may issue that ranks junior to the Series D Preferred Stock as to liquidation rights. Commencing
on or after June 15, 2026, we may redeem, at our option, the Series D Preferred Stock, in whole or in part, at a cash redemption price
equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including the redemption date. Prior to June 15, 2026,
upon a Change of Control (as defined in the Articles Supplementary classifying and designating the Series D Preferred Stock), we may
redeem, at our option, the Series D Preferred Stock, in whole or part, at a cash redemption price of $25.00 per share, plus any accumulated
and unpaid dividends to, but not including the redemption date. The Series D Preferred Stock has no stated maturity, will not be subject
to any sinking fund or other mandatory redemption, and will not be convertible into or exchangeable for any of our other securities.
Use
of Leverage
We
use mortgage loans secured by our individual properties in order to maximize the return for our stockholders. Typically, these loans
are for terms ranging from five to ten years. Currently, the majority of our mortgage loans are structured as non-recourse to us with
limited exceptions that would cause a recourse event only upon occurrence of certain fraud, misconduct, environmental, or bankruptcy
events. Non-recourse financing limits our exposure to the amount of equity invested in each property pledged as collateral thereby protecting
the equity in our other assets. We can provide no assurance that the non-recourse financing will be available to us in the future on
terms that are acceptable to us, or at all and there may be circumstances where lenders have recourse to our other assets. To a lesser
extent, we use recourse financing. At December 31, 2023, $11.2 million of our total debt contained recourse to the Company, of which
$5.9 million was related to the model homes properties.
We
have used both fixed and variable interest rate debt to finance our properties. Wherever possible, we prefer to obtain fixed rate mortgage
financing as it provides better cost predictability. As of December 31, 2023, none of our mortgage loans included variable interest rate
provisions. On August 5, 2023, the lender for our West Fargo Industries property increased the interest rate to 6.70%. The loan agreement
states that the lender may, upon not less than sixty (60) days prior, give written notice to the Company to increase the interest rates
effective on August 5, 2023, and August 5, 2026, to the rate then being quoted by the lender for new three-year commercial mortgage loans
of similar size and quality with like terms and security (provided that in no event shall the new rate be less than the initial rate).
In
2024, we have $13.1 million of principal payments on mortgage notes payable related to the model home properties, including $12.5 million
payments related to mortgage notes payable that mature in 2024. We plan to refinance a significant portion of the mortgage notes payable
or sell the model home properties to repay the mortgage notes payable. We have $10.4 million of principal payments on mortgage notes
payable relating to commercial properties in 2024, one of which is maturing in 2024. The loan on Dakota Center matures in July 2024 and
management has reached out to the lender seeking an extension and additional provision to change the terms of the loan and maturity date.
We have also inquired with other lenders to refinance the property. If we are unsuccessful in refinancing the property or changing the
terms of the original loan, management would consider selling the property and paying the loan in full or surrendering the property to
the current lender.
Our
short-term liquidity needs include satisfying the debt service requirements of our existing mortgages. Overall the commercial properties
and Model Homes adequately covered their debt servicing needs during the year ended December 31, 2023, and management expect this to
continue during the next twelve months. If our cash flow from operating activities is not sufficient to fund our short-term liquidity
needs, we will fund a portion of these needs from additional borrowings of secured or unsecured indebtedness, from real estate sales,
from sales of equity or debt securities, or we will reduce the rate of distribution to the stockholders.
Property
Management
The
Company, through its wholly owned subsidiary, NTR Property Management, Inc., is the primary property manager for all of its properties.
The Company subcontracts with third party property management companies in California and North Dakota to render on-site management services,
and internally manages our properties in Colorado, Maryland, and Texas.
Competition
We
compete with a number of other real estate investors, many of whom own similar properties in the same geographical markets. Competitors
include other REITs, pension funds, insurance companies, investment funds and companies, partnerships and developers. Many of these competitors
have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including
risks with respect to the creditworthiness of a tenant or the geographic location of its investments. In addition, many of these competitors
have capital structures that allow them to make investments at higher prices than what we can prudently offer while still generating
a return to their investors that is commensurate with the returns we are seeking to provide our investors. 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 or to offer more substantial rent abatements, tenant
improvements, early termination rights or below-market renewal options in order to retain tenants when our leases expire. The concentration
of our commercial properties in Colorado and North Dakota makes us susceptible to local market conditions in these areas.
To
be successful, we must be able to continue to respond quickly and effectively to changes in local and regional economic conditions by
adjusting rental rates of our properties as appropriate. If we are unable to respond quickly and effectively, our financial condition,
results of operations, cash flow, and ability to satisfy our debt service obligations and pay dividends may be adversely affected.
Regulation
Our
management continually reviews our investment activity and monitors the proportion of our portfolio that is placed in various investments
in order to prevent us from coming within the application of the Investment Company Act of 1940, as amended (the “Investment Company
Act”). If at any time the character of our investments could cause us to be deemed an investment company for purposes of the Investment
Company Act, we would be required to comply with the operating restrictions of the Investment Company Act, which are generally inconsistent
with our normal operations. As such, we work to ensure that we are not deemed to be an “investment company.”
Various
environmental laws govern certain aspects of the ongoing operation of our properties. Such environmental laws include those regulating
the existence of asbestos-containing materials in buildings, management of surfaces with lead-based paint (and notices to tenants about
the lead-based paint) and waste-management activities. Our failure to comply with such requirements could subject us to government enforcement
action and/or claims for damages by a private party.
To
date, we have not experienced a noticeable effect on our capital expenditures, earnings, or competitive position as a result of a lack
of compliance with federal, state and local environmental protection regulations. All of our proposed acquisitions are inspected prior
to such acquisition. These inspections are conducted by qualified environmental consultants, and we review in detail their reports prior
to our acquisition of any property. Nevertheless, it is possible that our environmental assessments will not reveal all environmental
liabilities, or that some material environmental liabilities exist of which we are unaware. In some cases, we may be required to abandon
otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials are considered to be prohibitive
or we are unwilling to accept the potential risks involved. We do not believe we will be required to engage in any large-scale abatement
at any of our current properties. We believe that through professional environmental inspections and testing for asbestos, lead paint
and other hazardous materials, coupled with a relatively conservative posture toward accepting known environmental risk, we minimize
our exposure to potential liability associated with environmental hazards.
We
are unaware of any environmental hazards at any of our current properties that, individually or in the aggregate, may have a material
adverse impact on our operations or financial position. We have not been notified by any governmental authority, and we are not otherwise
aware of any material non-compliance, liability, or claim relating to environmental liabilities in connection with any of our properties.
We do not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse
effect on us, our financial condition or our results of operations. Future environmental laws, regulations, or ordinances, however, may
require additional remediation of existing conditions that are not currently actionable. Also, if more stringent requirements are imposed
on us in the future, the costs of compliance could have a material adverse effect on us and our financial condition.
Our
Management
We
refer to our executive officers and any directors who are affiliated with them as our “Management”. Our Management
is currently comprised of:
● |
Jack
K. Heilbron, Chairman of the Board of Directors, Chief Executive Officer and President of
the Company, President and Director of NetREIT Dubose, and President of NetREIT Advisors; |
● |
Ed
Bentzen, Chief Financial Officer of the Company; |
● |
Gary
M. Katz, Chief Investment Officer of the Company; and |
● |
Steve
Hightower, President of NetREIT Dubose and member of the Board of Directors. |
Mr.
Heilbron has overall responsibility for the day-to-day activities of the Company. Mr. Benten oversees financial matters, including financial
reporting, budgeting, forecasting, funding activities, tax and insurance. Mr. Hightower is responsible for managing the day-to-day activities
of Dubose Advisors, NetREIT Advisors and the Model Homes division. Mr. Heilbron and Mr. Katz are responsible for recommending all Company
property acquisitions and dispositions.
Our
Board of Directors
Our
Management is subject to the direction and supervision of our Board of Directors. Among other things, our Board of Directors must approve
each real property acquisition our Management proposes. As of December 31, 2023, there were six directors comprising our Board of Directors,
four of whom are independent directors (“Independent Directors”). Two of our directors, Mr. Heilbron and Mr. Hightower, are
not independent.
Our
REIT Status
We
elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2000. To continue to
be taxed as a REIT, we must satisfy numerous organizational and operational requirements, including a requirement that we distribute
at least 90% of our REIT taxable income to our stockholders, as defined in the Code and calculated on an annual basis. As a REIT, we
are generally not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify for taxation
as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as
a REIT for the four-year period following our failure to qualify. Even though we qualify as a REIT for federal income tax purposes, we
may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed
income. For more information, please see “Risk Factors - Risks Related to our Status as a REIT and Related Federal Income Tax Matters”
in our most recent Annual Report on Form 10-K. We qualified as a REIT for the fiscal year ended December 31, 2023.
Human
Capital Resources
Due
to the nature of our business, our performance depends on identifying, attracting, developing, motivating, and retaining a highly skilled
workforce in multiple areas, including property management, asset management and strategy, accounting, business development and management.
Our human capital management strategy, which we refer to as our people strategy, is tightly aligned with our business needs. During 2023,
our human capital efforts were focused on retaining top talent and continuing to increase our agility to meet the quickly changing needs
of the business. We use a variety of human capital measures in managing our business, including: workforce demographics; diversity metrics
with respect to representation, attrition, hiring, promotions and leadership; and talent management metrics including retention rates
of top talent and hiring metrics.
Office
and Employees
Our
office is approximately 9,224 square feet and is located in San Diego, California.
As
of December 31, 2023, we had a total of 15 full-time employees.
RISK
FACTORS
Investing
in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider
the risk factors we describe in any prospectus supplement and in any related free writing prospectus for a specific offering of securities,
as well as those incorporated by reference into this prospectus or such prospectus supplement. You should also carefully consider other
information contained and incorporated by reference in this prospectus and any applicable prospectus supplement, including our financial
statements and the related notes thereto incorporated by reference in this prospectus, especially the information in the section titled
“Risk Factors” from our most recent Annual Report on Form 10-K, which was filed with the SEC on April 16, 2024. The risks
and uncertainties described in the applicable prospectus supplement and our other filings with the SEC incorporated by reference herein
are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial
may also adversely affect us. If any of the described risks occur, our business, financial condition or results of operations could be
materially harmed. In such case, the value of our securities could decline and you may lose all or part of your investment.
USE
OF PROCEEDS
Unless
otherwise indicated in a prospectus supplement, we expect the net proceeds from the sale of the securities will be used for the working
capital and for other general corporate purposes, potentially including the pay down of corporate debt. We may also use a portion of
the net proceeds to acquire or invest in real estate assets, businesses, products and technologies that are complementary to our business,
but we currently have no commitments or agreements relating to any of these types of transactions.
PLAN
OF DISTRIBUTION
We
may sell the securities from time to time to or through underwriters or dealers, through agents, or directly to one or more purchasers.
A distribution of the securities offered by this prospectus may also be effected through the issuance of derivative securities, including
without limitation, preferred stock, warrants or units. In addition, the manner in which we may sell some or all of the securities covered
by this prospectus includes, without limitation, through:
● |
a
block trade in which a broker-dealer will attempt to sell as agent, but may position or resell a portion of the block, as principal,
in order to facilitate the transaction; |
● |
purchases
by a broker-dealer, as principal, and resale by the broker-dealer for its account; or |
● |
ordinary
brokerage transactions and transactions in which a broker solicits purchasers. |
A
prospectus supplement or supplements with respect to each series of securities will describe the terms of the offering, including, to
the extent applicable:
● |
the
terms of the offering; |
● |
the
name or names of the underwriters or agents and the amounts of securities underwritten or purchased by each of them, if any; |
● |
the
public offering price or purchase price of the securities or other consideration therefor, and the proceeds to be received by us
from the sale; |
● |
any
delayed delivery requirements; |
● |
any
over-allotment options under which underwriters may purchase additional securities from us; |
● |
any
underwriting discounts or agency fees and other items constituting underwriters’ or agents’ compensation; |
● |
any
discounts or concessions allowed or re-allowed or paid to dealers; and |
● |
any
securities exchange or market on which the securities may be listed. |
The
offer and sale of the securities described in this prospectus by us, the underwriters or the third parties described above may be effected
from time to time in one or more transactions, including privately negotiated transactions, either:
● |
at
a fixed price or prices, which may be changed; |
● |
in
an “at the market” offering within the meaning of Rule 415(a)(4) of the Securities Act; |
● |
at
prices related to such prevailing market prices; or |
● |
at
negotiated prices. |
Only
underwriters named in the prospectus supplement will be underwriters of the securities offered by the prospectus supplement.
Underwriters
and Agents; Direct Sales
If
underwriters are used in a sale, they will acquire the offered securities for their own account and may resell the offered securities
from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. We may offer the securities to the public through underwriting syndicates represented by managing underwriters
or by underwriters without a syndicate.
Unless
the prospectus supplement states otherwise, the obligations of the underwriters to purchase the securities will be subject to the conditions
set forth in the applicable underwriting agreement. Subject to certain conditions, the underwriters will be obligated to purchase all
of the securities offered by the prospectus supplement, other than securities covered by any over-allotment option. Any public offering
price and any discounts or concessions allowed or re-allowed or paid to dealers may change from time to time. We may use underwriters
with whom we have a material relationship. We will describe in the prospectus supplement, naming the underwriter, the nature of any such
relationship.
We
may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale
of securities, and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus supplement
states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
We
may authorize agents or underwriters to solicit offers by certain types of institutional investors to purchase securities from us at
the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery
on a specified date in the future. We will describe the conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
Dealers
We
may sell the offered securities to dealers as principals. The dealer may then resell such securities to the public either at varying
prices to be determined by the dealer or at a fixed offering price agreed to with us at the time of resale.
Institutional
Purchasers
We
may authorize agents, dealers or underwriters to solicit certain institutional investors to purchase offered securities on a delayed
delivery basis pursuant to delayed delivery contracts providing for payment and delivery on a specified future date. The applicable prospectus
supplement or other offering materials, as the case may be, will provide the details of any such arrangement, including the offering
price and commissions payable on the solicitations.
We
will enter into such delayed contracts only with institutional purchasers that we approve. These institutions may include commercial
and savings banks, insurance companies, pension funds, investment companies and educational and charitable institutions.
Indemnification;
Other Relationships
We
may provide agents, underwriters, dealers and remarketing firms with indemnification against certain civil liabilities, including liabilities
under the Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to these liabilities.
Agents, underwriters, dealers and remarketing firms, and their affiliates, may engage in transactions with, or perform services for,
us in the ordinary course of business. This includes commercial banking and investment banking transactions.
Market-Making;
Stabilization and Other Transactions
There
is currently no market for any of the offered securities, other than the Series A Common Stock, which is listed on the Nasdaq
Capital Market. If the offered securities are traded after their initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar securities and other factors. While it is possible that an underwriter
could inform us that it intends to make a market in the offered securities, such underwriter would not be obligated to do so, and any
such market-making could be discontinued at any time without notice. Therefore, no assurance can be given as to whether an active trading
market will develop for the offered securities. We have no current plans for listing of the preferred stock, warrants or units on any
securities exchange or quotation system; any such listing with respect to any particular securities will be described in the applicable
prospectus supplement or other offering materials, as the case may be.
Any
underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering
or other short-covering transactions involve purchases of the securities, either through exercise of the over-allotment option or in
the open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling
concession from a dealer when the securities originally sold by the dealer are purchased in a stabilizing or covering transaction to
cover short positions. Those activities may cause the price of the securities to be higher than it would otherwise be. If commenced,
the underwriters may discontinue any of the activities at any time.
Any
underwriters or agents that are qualified market makers on the Nasdaq Capital Market may engage in passive market making transactions
in our Series A Common Stock on the Nasdaq Capital Market in accordance with Regulation M under the Exchange Act, during the business
day prior to the pricing of the offering, before the commencement of offers or sales of our Series A Common Stock. Passive market makers
must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market
maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered
below the passive market maker’s bid, however, the passive market maker’s bid must then be lowered when certain purchase
limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise
prevail in the open market and, if commenced, may be discontinued at any time.
Fees
and Commissions
We
will disclose the fees to be paid to any underwriter, dealer or agent in the prospectus supplement for any takedown. If any conflict
of interest exists between the issuer and an underwriter, dealer or agent participating in an offering of securities under this prospectus,
the offering will be conducted in compliance with FINRA Rule 5121.
DESCRIPTION
OF SECURITIES WE MAY OFFER
General
This
prospectus describes the general terms of our stock and other securities we may offer. The following description is not complete and
may not contain all the information you should consider before investing in our stock or other securities. For a more detailed description
of these securities, you should read the applicable provisions of the Maryland General Corporation Law (the “MGCL”), our
charter and our bylaws. Copies of our charter and bylaws have been filed with the SEC and are incorporated by reference as exhibits to
the registration statement of which this prospectus is a part. See “Where You Can Find More Information” and “Incorporation
of Certain Information by Reference.” When we offer to sell a particular series of these securities, we will describe the specific
terms of the series in a supplement to this prospectus. Accordingly, for a description of the terms of any series of securities, you
must refer to both the prospectus supplement relating to that series and the description of the securities described in this prospectus.
To the extent the information contained in the prospectus supplement differs from this summary description, you should rely on the information
in the prospectus supplement.
Our
charter authorizes us to issue up to 110,001,000 shares of stock, consisting of (i) 109,001,000 shares of common stock, $0.01 par value
per share, of which 100,000,000 are classified as shares of Series A Common Stock, 1,000 are classified as shares of Series B Common
Stock and 9,000,000 are classified as shares of Series C Common Stock, and (ii) 1,000,000 shares of preferred stock, $0.01 par value
per share, of which 920,000 are classified and designated as Series D Preferred Stock. As of April 19, 2024, there were approximately
14,463,802 shares of Series A Common Stock and 890,946 shares of Series D Preferred Stock issued and outstanding and no shares of any
other class or series of stock issued and outstanding.
Common
Stock
The
shares of Series B Common Stock and Series C Common Stock have identical preferences, rights, voting powers, restrictions, limitations
as to dividends and other distributions, qualifications and terms and conditions of redemption to the shares of Series A Common Stock,
except that the holders of Series B Common Stock are not entitled to receive any portion of Company assets in the event of the
Company’s liquidation. As of April 19, 2024, no shares of Series B Common Stock or Series C Common Stock were issued and outstanding.
All
shares of our Series A Common Stock offered hereby will be duly authorized, validly issued, fully paid and nonassessable. Subject to
the restrictions on ownership and transfer of our stock discussed below under the caption “-Restrictions on Ownership and Transfer”
and the voting rights of holders of outstanding shares of any other class or series of our stock, holders of our common stock are entitled
to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election
or removal of directors, and, except as provided with respect to any other class or series of our stock, the holders of shares of our
common stock possess exclusive voting power. Directors are elected by a plurality of the votes cast at the meeting in which directors
are being elected. Under our charter, voting for the election of directors will be cumulative if, prior to commencement of the voting,
a stockholder gives us notice of his, her or its intention to cumulate votes. If any stockholder gives such a notice, then every stockholder
will be entitled to such rights, in which case, each stockholder may cumulate his, her or its total votes and cast all of his, her or
its votes for any one or a combination of director nominees. In cumulative voting, the total votes entitled to be cast by a stockholder
equals the number of director nominees multiplied by the number of shares of common stock that such stockholder is entitled to vote.
Holders
of our common stock are entitled to receive dividends or other distributions as and when authorized by our Board of Directors and declared
by us out of assets legally available for the payment of dividends. Upon our liquidation, dissolution or winding up and after payment
in full of all amounts required to be paid to creditors and to the holders of outstanding shares of any other class or series of our
stock having liquidation preferences senior to our common stock, if any, the holders of our common stock will be entitled to share ratably
in our remaining assets legally available for distribution. Holders of our common stock do not have preemptive, subscription, redemption
or conversion rights. There are no sinking fund provisions applicable to the common stock. Holders of our Series A Common Stock generally
have no appraisal rights under the MGCL as long as the shares are listed on a national securities exchange. All shares of our common
stock have equal dividend and liquidation rights, except that the holders of Series B Common Stock are not entitled to receive
any portion of Company assets in the event of the Company’s liquidation. The rights, powers, preferences and privileges of holders
of our common stock are subject to those of the holders of any shares of our preferred stock or any other class or series of stock that
we may authorize and issue in the future and to the restrictions on ownership and transfer of our stock described below under the caption
“-Restrictions on Ownership and Transfer.”
Under
the MGCL, a Maryland corporation generally cannot amend its charter, consolidate, merge, convert, sell all or substantially all of its
assets, engage in a share exchange or dissolve unless the action is advised by its Board of Directors and approved by the affirmative
vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but
not less than a majority of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. As permitted
by Maryland law, our charter provides that a merger, consolidation, share exchange, dissolution or sale of substantially all of our assets
may be approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
In addition, because many of our operating assets are held by our subsidiaries, these subsidiaries may be able to merge or sell all or
substantially all of their assets without the approval of our stockholders.
Preferred
Stock
Our
charter authorizes our Board of Directors to classify and reclassify any unissued shares of preferred stock into one or more classes
or series of preferred stock. Prior to the issuance of shares of each class or series, our Board of Directors is required by the MGCL
and our charter to determine the number of shares of such class or series and to set, subject to the provisions of our charter regarding
the restrictions on ownership and transfer of stock, the terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each such class or series.
Thus, the board of directors could authorize the issuance of shares of preferred stock with dividend rights, rights to distributions
in the event of our liquidation, dissolution or winding up, voting rights or other rights that could adversely affect the rights of holders
of our common stock, our Series D Preferred Stock or any other class or series of our preferred stock or which could have the effect
of delaying or preventing a tender offer or a change of control of our Company that might involve a premium price for holders of our
stock or otherwise be in their best interests, any of which could adversely affect the market price of our common stock, our Series D
Preferred Stock or any other class or series of our preferred stock. For additional information, see “Certain Provisions of Maryland
Law and of our Charter and Bylaws — Effect of Certain Provisions of Maryland Law and our Charter and Bylaws.”
You
should refer to the prospectus supplement or other offering materials relating to any class or series of our preferred stock offered
thereby for specific terms of and other information concerning such class or series of preferred stock, including:
● | the
title of such class or series of preferred stock; |
● | the
number of shares of such class or series of preferred stock offered, the liquidation preference
per share and the offering price of such class or series of preferred stock; |
● | the
dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation thereof,
applicable to such class or series of preferred stock; |
● | whether
the dividends will be cumulative or not and, if cumulative, the date from which dividends
on such class or series of preferred stock shall accumulate; |
● | the
procedures for any auction and remarketing, if any, for such class or series of preferred
stock; |
● | the
provision for a sinking fund, if any, for such class or series of preferred stock; |
● | any
voting rights of such class or series of preferred stock, which may include, among other
things, the right to elect one or more directors; |
● | the
provision for redemption, if applicable, of such class or series of preferred stock; |
● | any
listing of such class or series of preferred stock on any securities exchange; |
● | the
terms and conditions, if applicable, upon which such class or series of preferred stock will
be convertible into common stock or other securities, including the conversion price or rate
(or manner of calculation thereof); |
● | a
discussion of federal income tax considerations applicable to such class or series of preferred
stock; |
● | any
limitations on actual, beneficial or constructive ownership of, and restrictions on transfer
of, such class or series of preferred stock, in each case as may be appropriate to preserve
our REIT status; |
● | the
relative ranking and preferences of such class or series of preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our affairs; |
● | whether
liquidation preferences on such class or series of preferred stock will be counted as liabilities
of ours in determining whether distributions to stockholders can be made under the MGCL; |
● | any
limitations on issuance of any class or series of preferred stock ranking senior to or on
a parity with such class or series of preferred stock as to dividend rights or rights upon
liquidation, dissolution or winding up of our affairs; and |
● | any
other specific terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or conditions
of redemption of such class or series of preferred stock. |
Rank
Unless
otherwise specified in the applicable prospectus supplement or other offering materials, the preferred stock of any class or series offered
by this prospectus and the applicable prospectus supplement will rank, with respect to the payment of dividends and the distribution
of assets in the event of our liquidation, dissolution or winding up:
● | senior
to all classes or series of our common stock and to all other equity securities issued by
us other than equity securities referred to in the two immediately following bullet points; |
● | on
a parity with our outstanding Series D Preferred stock and all other equity securities issued
by us the terms of which specifically provide that such equity securities rank on a parity
with the preferred stock of such class or series with respect to rights to the payment of
dividends and the distribution of assets in the event of our liquidation, dissolution or
winding up; and |
● | junior
to all equity securities issued by us the terms of which specifically provide that such equity
securities rank senior to the preferred stock of such class or series with respect to rights
to the payment of dividends and the distribution of assets in the event of our liquidation,
dissolution or winding up. |
For
these purposes, the term “equity securities” does not include convertible debt securities.
Power
to Reclassify and Issue Stock
Our
charter authorizes our Board of Directors to classify and reclassify any unissued shares of our preferred stock into other classes or
series of stock, including one or more classes or series of stock that have priority over our common stock with respect to dividends
or upon liquidation, or have voting rights and other rights that differ from the rights of the common stock, and authorizes us to issue
the newly classified shares. Before authorizing the issuance of shares of any new class or series, our Board of Directors must set, subject
to the provisions in our charter relating to the restrictions on ownership and transfer of our stock, the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions
of redemption for each class or series of stock. These actions may be taken without the approval of holders of our common stock unless
such approval is required by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or
automated quotation system on which any of our stock is listed or traded.
We
believe that the power of our Board of Directors to authorize us to issue additional authorized but unissued shares of common stock or
preferred stock and to classify or reclassify unissued shares of preferred stock and thereafter to authorize us to issue such classified
or reclassified shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions
and in meeting other needs that might arise.
Restrictions
on Ownership and Transfer
In
order for us to qualify as a REIT for U.S. federal income tax purposes, our stock must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during
a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code of 1986, as amended (the “Code”),
to include certain entities such as private foundations) during the last half of a taxable year (other than the first year for which
an election to be a REIT has been made).
Our
charter contains restrictions on the ownership and transfer of our stock that are intended to, among other purposes, assist us in complying
with these requirements and qualifying as a REIT. Subject to the exceptions described below, no person or entity may beneficially own,
or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or by number
of shares, whichever is more restrictive) of our aggregate outstanding shares of common stock, which we refer to as the “common
stock ownership limit,” or 9.8% in value of our aggregate outstanding shares of stock, which we refer to as the “aggregate
stock ownership limit.” We refer to the common stock ownership limit and the aggregate stock ownership limit, collectively, as
the “ownership limit.”
The
constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals
and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our aggregate
outstanding shares of common stock or 9.8% of our aggregate outstanding shares of stock, or the acquisition of an interest in an entity
that owns our stock, could, nevertheless, cause the acquirer or another individual or entity to own our stock in excess of the ownership
limit.
Our
Board of Directors may, upon receipt of such representations and undertakings reasonably necessary to make such a determination, and
in its sole discretion, prospectively or retroactively, establish a different limit on ownership, or an excepted holder limit, for a
particular stockholder if the stockholder’s ownership in excess of the ownership limit would not result in our being “closely
held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable
year) or otherwise failing to qualify as a REIT. As a condition of granting a waiver of the ownership limit or creating an excepted holder
limit, our Board of Directors may, but is not required to, require an opinion of counsel or a ruling from the IRS, in either case in
form and substance satisfactory to our Board of Directors in its sole discretion, as it may deem necessary or advisable to determine
or ensure our status as a REIT and may impose such other conditions or restrictions as it deems appropriate.
Our
Board of Directors may increase the ownership limit from time to time.
Our
charter also prohibits:
● | any
person from beneficially or constructively owning shares of our stock that would result in
our being “closely held” under Section 856(h) of the Code (without regard to
whether the ownership interest is held during the last half of a taxable year) or otherwise
cause us to fail to qualify as a REIT; and |
● | subject
to certain exceptions relating to transactions through the facilities of the NYSE or any
other national securities exchange or automated inter-dealer quotation system, any person
from transferring shares of our stock if the transfer would result in shares of our stock
being beneficially owned by fewer than 100 persons. |
Any
person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or may violate
the ownership limit or any of the other restrictions on ownership and transfer of our stock, and any person who is the intended transferee
of shares of our stock that are transferred to a trust for the benefit of one or more charitable beneficiaries described below, must
give immediate written notice of such an event or, in the case of a proposed or attempted transfer, give at least 15 days’ prior
written notice to us and provide us with such other information as we may request in order to determine the effect of the transfer on
our status as a REIT. The provisions of our charter relating to the restrictions on ownership and transfer of our stock will not apply
if the Board of Directors determines that it is no longer in our best interests to continue to qualify as a REIT and, upon receipt of
a recommendation to that effect from the Board of Directors, the holders of shares of common stock, by a vote of a majority of the votes
entitled to be cast on the matter, determine that we shall revoke or otherwise terminate our REIT election. The holders of shares of
common stock, upon receipt of a recommendation from the Board of Directors, may also determine that compliance with any of the restrictions
set forth above is no longer required in order for us to qualify as a REIT and cause us to amend the charter to remove any such restriction
or limitation.
Any
attempted transfer of our stock that, if effective, would result in our stock being beneficially owned by fewer than 100 persons will
be null and void. Any attempted transfer of our stock that, if effective, would result in a violation of the ownership limit (or other
limit established by our charter or our Board of Directors), our being “closely held” under Section 856(h) of the Code (without
regard to whether the ownership interest is held during the last half of a taxable year) or our otherwise failing to qualify as a REIT
will cause the number of shares causing the violation (rounded to the nearest whole share) to be transferred automatically to a trust
for the benefit of a charitable beneficiary, and the proposed transferee will not acquire any rights in the shares. The automatic transfer
will be effective as of the close of business on the business day before the date of the attempted transfer or other event that resulted
in a transfer to the trust. If the transfer to the trust as described above would not be effective, for any reason, to prevent a violation
of the applicable restrictions on ownership and transfer of our stock, then the attempted transfer that, if effective, would have resulted
in a violation of the ownership limit (or other limit established by our charter or our Board of Directors), our being “closely
held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable
year) or our otherwise failing to qualify as a REIT will be null and void.
Shares
of our stock held in the trust will be issued and outstanding shares. The proposed transferee will not benefit economically from ownership
of any shares of our stock held in the trust and will have no rights to dividends or other distributions and no rights to vote or other
rights attributable to the shares of our stock held in the trust. The trustee of the trust will exercise all voting rights and receive
all dividends and other distributions with respect to shares held in the trust for the exclusive benefit of the charitable beneficiary
of the trust. Any dividend or other distribution paid before we discover that the shares have been transferred to a trustee as described
above must be repaid by the recipient to the trustee upon demand and any dividend or other distribution authorized but unpaid must be
paid when due to the trustee. Subject to Maryland law, effective as of the date that the shares have been transferred to the trustee,
the trustee will have the authority, at the trustee’s sole discretion, (i) to rescind as void any vote cast by a proposed transferee
before our discovery that the shares have been transferred to the trustee and (ii) to recast the vote in accordance with the desires
of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action,
then the trustee may not rescind or recast the vote.
Within
20 days of receiving notice from us of a transfer of shares to the trust, the trustee must sell the shares to a person, designated by
the trustee who would be permitted to own the shares without violating the ownership limit or the other restrictions on ownership and
transfer of our stock in our charter. Upon such sale of the shares, the interest of the charitable beneficiary in the shares transferred
to the trust will terminate and the trustee must distribute to the proposed transferee an amount equal to the lesser of:
● | the
price paid by the proposed transferee for the shares (or, if the proposed transferee did
not give value in connection with the transfer or other event that resulted in the transfer
to the trust (e.g., a gift, devise or other such transaction), the market price (as such
term is defined in the charter) of the shares on the day of the event that resulted in the
transfer of such shares to the trust); and |
● | the
price per share received by the trustee from the sale or other disposition of the shares
held in the trust. |
Any
net proceeds in excess of the amount payable to the proposed transferee must be immediately paid to the charitable beneficiary. If the
shares are sold by the proposed transferee before we discover that they have been transferred to the trust, the shares will be deemed
to have been sold on behalf of the trust and the proposed transferee must pay to the trustee, upon demand, the amount, if any, that the
proposed transferee received in excess of the amount that the proposed transferee would have received had the shares been sold by the
trustee.
Shares
of our stock held in the trust will be deemed to be offered for sale to us, or our designee, at a price per share equal to the lesser
of:
● | the
price per share in the transaction that resulted in the transfer to the trust (or, in the
case of a devise or gift, the market price at the time of such devise or gift); and |
● | the
market price on the date we accept, or our designee accepts, such offer. |
We
may accept the offer until the trustee has otherwise sold the shares of our stock held in the trust. Upon a sale to us, the interest
of the charitable beneficiary in the shares sold will terminate and the trustee must distribute the net proceeds of the sale to the proposed
transferee and distribute any dividends or other distributions held by the trustee with respect to the shares to the charitable beneficiary.
Every
person who beneficially owns more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder)
of our stock, within 30 days after the end of each taxable year, must give us written notice stating the person’s name and address,
the number of shares of each class and series of our stock that the person beneficially owns and a description of the manner in which
the shares are held. Each such owner also must provide us with any additional information that we request in order to determine the effect,
if any, of the person’s beneficial ownership on our status as a REIT and to ensure compliance with the aggregate stock ownership
limit. In addition, any person or entity that is a beneficial owner or constructive owner of shares of our stock and any person or entity
(including the stockholder of record) who is holding shares of our stock for a beneficial owner or constructive owner must disclose to
us in writing such information as we may request, in good faith, in order to determine our status as a REIT or to comply, or determine
our compliance, with the requirements of any governmental or taxing authority and to ensure compliance with the aggregate stock ownership
limit.
If
our Board of Directors authorizes any of our shares to be represented by certificates, the certificates will bear a legend referring
to the restrictions described above.
These
restrictions on ownership and transfer of our stock could delay, defer or prevent a transaction or a change of control of us that might
involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
Transfer
Agent and Registrar; Warrant Agent
The
transfer agent and registrar for our common and preferred stock and warrant agent for our Series A Warrants is Direct Transfer, LLC.
Warrants
We
may issue additional warrants to purchase our securities or other rights, including rights to receive payment in cash or securities based
on the value, rate or price of one or more specified commodities, currencies, securities or indices, or any combination of the foregoing.
Warrants may be issued independently or together with any other securities and may be attached to, or separate from, such securities.
To the extent warrants that we issue are to be publicly-traded, each series of such warrants will be issued under a separate warrant
agreement to be entered into between us and a warrant agent.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current
report on Form 8-K that we file with the SEC, forms of the warrant and warrant agreement, if any. The prospectus supplement relating
to any warrants that we may offer will contain the specific terms of the warrants and a description of the material provisions of the
applicable warrant agreement, if any. These terms may include the following:
● |
the
title of the warrants; |
● |
the
price or prices at which the warrants will be issued; |
● |
the
designation, amount and terms of the securities or other rights for which the warrants are exercisable; |
● |
the
designation and terms of the other securities, if any, with which the warrants are to be issued and the number of warrants issued
with each other security; |
● |
the
aggregate number of warrants; |
● |
any
provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of
the warrants; |
● |
the
price or prices at which the securities or other rights purchasable upon exercise of the warrants may be purchased; |
● |
if
applicable, the date on and after which the warrants and the securities or other rights purchasable upon exercise of the warrants
will be separately transferable; |
● |
a
discussion of any material U.S. federal income tax considerations applicable to the exercise of the warrants; |
● |
the
date on which the right to exercise the warrants will commence, and the date on which the right will expire; |
● |
the
maximum or minimum number of warrants that may be exercised at any time; |
● |
information
with respect to book-entry procedures, if any; and |
● |
any
other terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants. |
Exercise
of Warrants.
Each
warrant will entitle the holder of warrants to purchase the amount of securities or other rights, at the exercise price stated or determinable
in the prospectus supplement for the warrants. Warrants may be exercised at any time up to the close of business on the expiration date
shown in the applicable prospectus supplement, unless otherwise specified in such prospectus supplement. After the close of business
on the expiration date, if applicable, unexercised warrants will become void. Warrants may be exercised in the manner described in the
applicable prospectus supplement. When the warrant holder makes the payment and properly completes and signs the warrant certificate
at the corporate trust office of the warrant agent, if any, or any other office indicated in the prospectus supplement, we will, as soon
as possible, forward the securities or other rights that the warrant holder has purchased. If the warrant holder exercises less than
all of the warrants represented by the warrant certificate, we will issue a new warrant certificate for the remaining warrants.
Units
We
may issue units consisting of any combination of the other types of securities offered under this prospectus in one or more series. We
may evidence each series of units by unit certificates that we may issue under a separate agreement. We may enter into unit agreements
with a unit agent. Each unit agent, if any, may be a bank or trust company that we select. We will indicate the name and address of the
unit agent, if any, in the applicable prospectus supplement relating to a particular series of units. Specific unit agreements, if any,
will contain additional important terms and provisions. We will file as an exhibit to the registration statement of which this prospectus
is a part, or will incorporate by reference from a current report that we file with the SEC, the form of unit and the form of each unit
agreement, if any, relating to units offered under this prospectus.
If
we offer any units, certain terms of that series of units will be described in the applicable prospectus supplement, including, without
limitation, the following, as applicable:
● |
the
title of the series of units; |
● |
identification
and description of the separate constituent securities comprising the units; |
● |
the
price or prices at which the units will be issued; |
● |
the
date, if any, on and after which the constituent securities comprising the units will be separately transferable; |
● |
a
discussion of certain United States federal income tax considerations applicable to the units; and |
● |
any
other material terms of the units and their constituent securities. |
CERTAIN
PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS
The
following summary of certain provisions of the MGCL and of our charter and bylaws does not purport to be complete and is subject to,
and qualified in its entirety by reference to, our charter and bylaws, copies of which are incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and to the MGCL. See “Where You Can Find More Information.”
Election
and Removal of Directors
Our
charter and bylaws provide that the number of our directors may be established by a majority of our entire Board of Directors but may
not be fewer than six nor more than eleven, unless approved by stockholders entitled to cast a majority of all the votes entitled to
be cast on the matter. Directors are elected by a plurality of all the votes cast in the election of directors. Under our charter, voting
for the election of directors will be cumulative if, prior to commencement of the voting, a stockholder gives us notice of his, her or
its intention to cumulate votes. If any stockholder gives such a notice, then every stockholder will be entitled to such rights, in which
case, each stockholder may cumulate his, her or its total votes and cast all of his, her or its votes for any one or a combination of
director nominees. In cumulative voting, the total votes entitled to be cast by a stockholder equals the number of director nominees
multiplied by the number of shares of common stock that such stockholder is entitled to vote.
Our
charter provides that any vacancy on our Board of Directors may be filled by the affirmative vote of a majority of the Board of Directors,
even if the remaining directors do not constitute a quorum of the Board of Directors, and any vacancy created by the removal of a director
may be filled only by the vote of the holders of a majority of our shares of common stock. Any director elected by the Board of Directors
to fill a vacancy will serve until the next annual meeting of the stockholders and until his or her successor is elected and qualifies.
A director elected by the stockholders to fill a vacancy which results from the removal of a director serves for the balance of the term
of the removed director.
Our
charter provides that any director or the entire Board of Directors may be removed at any time, with or without cause, by the affirmative
vote of the holders of a majority of our shares of common stock, except that, no director may be removed when the votes cast against
the removal would be sufficient to elect the director if voted cumulatively in accordance with the provisions of our bylaws.
Amendment
to Charter and Bylaws
Except
as described herein and as provided in the MGCL, amendments to our charter must be advised by our Board of Directors and approved by
the affirmative vote of our stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
Our
bylaws may be amended by our Board of Directors or by the affirmative vote of our stockholders entitled to cast a majority of all of
the votes entitled to be cast on the matter by stockholders entitled to vote generally in the election of directors. Our Board of Directors
may not amend provisions of bylaws that would change any rights with respect to any outstanding class of common stock by reducing the
amount payable thereon upon our liquidation, or diminishing or eliminating any voting rights pertaining thereto, unless such amendment
was also approved by two-thirds of the outstanding shares of such class. In addition, our Board of Directors may adopt a bylaw or an
amendment to a bylaw changing the authorized number of directors only for the purpose of fixing our exact number of directors. Any change
to the bylaws made by the stockholders may not be altered by the directors prior to the next annual meeting of stockholders.
Business
Combinations
Under
the MGCL, certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of
an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested
stockholder. These business combinations include a merger, consolidation, share exchange, and, in circumstances specified in the statute,
an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
● |
any
person who beneficially owns 10% or more of the voting power of the corporation’s outstanding voting stock; or |
● |
an
affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question,
was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation. |
A
person is not an interested stockholder under the MGCL if the corporation’s Board of Directors approved in advance the transaction
by which the person otherwise would have become an interested stockholder. In approving the transaction, the Board of Directors may provide
that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board of
Directors.
After
the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be
recommended by the corporation’s Board of Directors and approved by the affirmative vote of at least:
● |
80%
of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
● |
two-thirds
of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation other than shares held by the
interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate
of the interested stockholder. |
These
super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under
the MGCL, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder
for its shares.
The
MGCL permits various exemptions from its provisions, including business combinations that are exempted by the Board of Directors before
the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our Board of Directors has by resolution
exempted business combinations between us and any other person, provided that the business combination is first approved by our Board
of Directors (including a majority of our directors who are not affiliates or associates of such person). Consequently, the five-year
prohibition and the supermajority vote requirements will not apply to a business combination between us and any other person if the Board
of Directors has first approved the combination. As a result, any person described in the preceding sentence may be able to enter into
business combinations with us that may not be in the best interests of our stockholders, without compliance with the supermajority vote
requirements and other provisions of the statute. We cannot assure you that our Board of Directors will not amend or repeal this resolution
in the future.
Control
Share Acquisitions
The
MGCL provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights
with respect to the control shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter.
Shares owned by the acquirer, by officers or by employees who are directors of the corporation are excluded from shares entitled to vote
on the matter. Control shares are voting shares of stock that, if aggregated with all other shares of stock owned by the acquirer or
in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:
● |
one-tenth
or more but less than one-third; |
● |
one-third
or more but less than a majority; or |
● |
a
majority or more of all voting power. |
Control
shares do not include shares the acquirer is then entitled to vote as a result of having previously obtained stockholder approval. A
control share acquisition means the acquisition of control shares, subject to certain exceptions.
A
person who has made or proposes to make a control share acquisition may compel the Board of Directors of the corporation to call a special
meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling
of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting.
If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If
voting rights are not approved at the meeting or if the acquirer does not deliver an acquiring person statement as required by the statute,
then the corporation may, subject to certain limitations and conditions, redeem for fair value any or all of the control shares, except
those for which voting rights have previously been approved. Fair value is determined, without regard to the absence of voting rights
for the control shares, as of the date of the last control share acquisition by the acquirer or, if a meeting of stockholders is held
at which the voting rights of the shares are considered and not approved, as of the date of the meeting. If voting rights for control
shares are approved at a stockholders meeting and the acquirer becomes entitled to exercise or direct the exercise of a majority of the
voting power, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal
rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The
control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation
is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our
bylaws contain a provision exempting from the control share acquisition statute any acquisition by any person of shares of our stock.
Subtitle
8
Subtitle
8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least
three independent directors to elect, by provision in its charter or bylaws or a resolution of its Board of Directors and notwithstanding
any contrary provision in the charter or bylaws, to be subject to any or all of five provisions, including:
● | a
classified Board of Directors; |
● | a
two-thirds vote requirement for removing a director; |
● | a
requirement that the number of directors be fixed only by vote of the Board of Directors; |
● | a
requirement that a vacancy on the Board of Directors be filled only by a vote of the remaining
directors in office and for the remainder of the full term of the class of directors in which
the vacancy occurred and until a successor is elected and qualifies; and |
● | a
majority requirement for the calling of a stockholder-requested special meeting of stockholders. |
In
accordance with Maryland law, the Company filed Articles Supplementary effecting the Company’s election to be subject to the classified
board provisions of Section 3-803 of the MGCL with the State Department of Assessments and Taxation of Maryland on March 18, 2024. Through
provisions in our charter and bylaws unrelated to Subtitle 8, we (1) vest in our Board of Directors the exclusive power to fix the number
of directors and (2) require, unless called by our Chairman, our Chief Executive Officer, our President or our Board of Directors, the
request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at the meeting to call a special
meeting of stockholders.
Special
Meetings of Stockholders
Pursuant
to our bylaws, our Chairman, our Chief Executive Officer, our President or our Board of Directors may call a special meeting of our stockholders.
Subject to the provisions of our bylaws, a special meeting of our stockholders to act on any matter that may properly be considered by
our stockholders will also be called by our secretary upon the written request of stockholders entitled to cast a majority of all the
votes entitled to be cast at the meeting on such matter, accompanied by the information required by our bylaws. Our secretary will inform
the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials),
and the requesting stockholder must pay such estimated cost before our secretary may prepare and deliver the notice of the special meeting.
Stockholder
Action by Written Consent
The
MGCL generally provides that, unless the charter of the corporation authorizes stockholder action by less than unanimous consent, stockholder
action may be taken by consent in lieu of a meeting only if it is given by all stockholders entitled to vote on the matter. Our charter
and our bylaws provide that stockholder action may be taken without a meeting if a consent, setting forth the action so taken, is given
by stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at
a stockholders meeting.
Advance
Notice of Director Nomination and New Business
Our
bylaws provide that nominations of individuals for election as directors and proposals of business to be considered by stockholders at
any annual meeting may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our Board of Directors or
(3) by any stockholder who was a stockholder of record at the record date set by the Board of Directors for determining stockholders
entitled to vote at the meeting, at the time of giving the notice required by our bylaws and at the time of the meeting, who is entitled
to vote at the meeting in the election of each individual so nominated or on such other proposed business and who has complied with the
advance notice procedures of our bylaws. Stockholders generally must provide notice to our secretary not earlier than the 150th
day or later than the close of business on the 120th day before the first anniversary of the date the proxy statement
for the preceding year’s annual meeting.
Only
the business specified in the notice of the meeting may be brought before a special meeting of our stockholders. Nominations of individuals
for election as directors at a special meeting of stockholders may be made only (1) by or at the direction of our Board of Directors,
(2) by a stockholder that has requested that a special meeting be called for the purpose of electing directors in compliance with our
bylaws or (3) if the special meeting has been called in accordance with our bylaws for the purpose of electing directors, by a stockholder
who is a stockholder of record at the record date set by the Board of Directors for determining stockholders entitled to vote at the
meeting, at the time of giving the notice required by our bylaws and at the time of the special meeting, who is entitled to vote at the
meeting in the election of each individual so nominated and who has complied with the advance notice procedures of our bylaws. Stockholders
generally must provide notice to our secretary not earlier than the 120th day before such special meeting and not later than the later
of the close of business on the 90th day before the special meeting or the tenth day after the first public announcement of the date
of the special meeting and the nominees of our Board of Directors to be elected at the meeting.
A
stockholder’s notice must contain certain information specified by our bylaws.
Effect
of Certain Provisions of Maryland Law and our Charter and Bylaws
The
restrictions on ownership and transfer of our stock discussed under the caption “Description of Securities We May Offer - Restrictions
on Ownership and Transfer” prevent any person from acquiring more than 9.8% (in value or by number of shares, whichever is more
restrictive) of our outstanding shares of common stock or 9.8% in value of our outstanding shares of stock without the approval of our
Board of Directors. These provisions as well as the business combination provisions of the MGCL may delay, defer or prevent a change
in control of us.
Further,
our Board of Directors has the power to classify and reclassify any unissued shares of our preferred stock into other classes or series
of stock, and to authorize us to issue the newly classified shares, as discussed under the captions “Description of Securities
We May Offer - Preferred Stock” and “-Power to Reclassify and Issue Stock,” and could authorize the issuance of shares
of a class or series of stock, including a class or series of preferred stock, that could have the effect of delaying, deferring or preventing
a change in control of us. These actions may be taken without the approval of holders of our common stock unless such approval is required
by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation system
on which any of our stock is listed or traded. We believe that the power of our Board of Directors to classify or reclassify unissued
shares of our preferred stock and thereafter to cause us to issue such shares of stock will provide us with increased flexibility in
structuring possible future financings and acquisitions and in meeting other needs which might arise.
Our
charter and bylaws also provide that the number of directors may be established only by a majority of our entire Board of Directors,
which prevents our stockholders from increasing the number of our directors and filling any vacancies created by such increase with their
own nominees. The provisions of our bylaws discussed above under the captions “-Special Meetings of Stockholders” and “-Advance
Notice of Director Nomination and New Business” require stockholders seeking to call a special meeting, nominate an individual
for election as a director or propose other business at an annual or special meeting to comply with certain notice and information requirements.
We believe that these provisions will help to assure the continuity and stability of our business strategies and policies as determined
by our Board of Directors and promote good corporate governance by providing us with clear procedures for calling special meetings, information
about a stockholder proponent’s interest in us and adequate time to consider stockholder nominees and other business proposals.
However, these provisions, alone or in combination, could make it more difficult for our stockholders to remove incumbent directors or
fill vacancies on our Board of Directors with their own nominees and could delay, defer or prevent a change in control, including a proxy
contest or tender offer that might involve a premium price for our common stockholders or otherwise be in the best interest of our stockholders.
Exclusive
Forum
Our
bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland,
or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will
be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of
breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (c) any action asserting a
claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our charter or
bylaws or (d) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal
affairs doctrine.
Limitation
of Liability and Indemnification of Directors and Officers
Maryland
law permits us to include a provision in our charter limiting the liability of our directors and officers to us and our stockholders
for money damages, except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services
or (b) active and deliberate dishonesty that is established by a final judgment and which is material to the cause of action. Our charter
contains a provision that eliminates our directors’ and officers’ liability to the maximum extent permitted by Maryland law.
The
MGCL requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service
in that capacity. The MGCL permits us to indemnify our present and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened
to be made a party by reason of their service in those or certain other capacities unless it is established that:
● |
the
act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in bad
faith or (b) was the result of active and deliberate dishonesty; |
● |
the
director or officer actually received an improper personal benefit in money, property or services; or |
● |
in
the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
Under
the MGCL, we may not indemnify a director or officer in a suit by us or in our right in which the director or officer was adjudged liable
to us or in a suit in which the director or officer was adjudged liable on the basis that personal benefit was improperly received. A
court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even
though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit
was improperly received. However, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability
on the basis that personal benefit was improperly received, is limited to expenses.
In
addition, the MGCL permits us to advance reasonable expenses to a director or officer upon our receipt of (a) a written affirmation by
the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification
and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed if it is ultimately determined
that the standard of conduct was not met.
Our
charter authorizes us to obligate ourselves, and our bylaws obligate us, to the maximum extent permitted by Maryland law in effect from
time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to:
● |
any
present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his
or her service in that capacity; or |
● |
any
individual who, while a director or officer of our Company and at our request, serves or has served as a director, officer, partner,
trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture,
trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding
by reason of his or her service in that capacity. |
Our
charter and bylaws also permit us to indemnify and advance expenses to any individual who served any of our predecessors in any of the
capacities described above and any employee or agent of us or any of our predecessors.
We
have entered into an indemnification agreement with each of our directors and executive officers that provides for indemnification to
the maximum extent permitted by Maryland law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy
and is therefore unenforceable.
U.S.
FEDERAL INCOME TAX CONSIDERATIONS
The
following is a general summary of certain material U.S. federal income tax considerations regarding our election to be taxed as a
real estate investment trust (“REIT”) and this offering of our Series A Common Stock, which we refer to in this
discussion as our “capital stock”. For purposes of this discussion, references to “we,”
“our” and “us” mean only Presidio Property Trust, Inc. and do not include any of its subsidiaries, except as
otherwise indicated. This summary is for general information only and is not intended to nor should it be construed as tax
advice. It may not address all of the U.S. federal income tax consequences that may be relevant to a prospective
investor’s specific circumstances. Accordingly, this section is not a substitute for careful tax analysis and prospective
investors are urged to consult with their tax advisors. The information in this summary is based on:
● |
the Internal Revenue Code of 1986, as amended from time-to-time
(the “Code”); |
● |
current,
temporary and proposed Treasury regulations promulgated under the Code (the “Treasury Regulations”); |
● |
the
legislative history of the Code; |
● |
administrative
interpretations and practices of the U.S. Internal Revenue Services (the “IRS”); and |
● |
court
decisions; |
in
each case, as of the date of this prospectus. In addition, the administrative interpretations and practices of the IRS include its practices
and policies as expressed in private letter rulings that are not binding on the IRS except with respect to the particular taxpayers who
requested and received those rulings. The sections of the Code and the corresponding Treasury Regulations that relate to qualification
and taxation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the sections
of the Code that govern the U.S. federal income tax treatment of a REIT and its stockholders. This summary is qualified in its entirety
by the applicable Code provisions, Treasury Regulations promulgated under the Code, and administrative and judicial interpretations thereof.
Future legislation, Treasury Regulations, administrative interpretations and practices and/or court decisions may adversely affect the
tax considerations contained in this discussion. Any such change could apply retroactively to transactions preceding the date of the
change. We have not requested, and do not plan to request, any rulings from the IRS that we qualify as a REIT, and the statements in
this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations contained in this
discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS. This summary does not discuss
any state, local or non-U.S. tax consequences, or any tax consequences arising under any U.S. federal tax laws other than U.S. federal
income tax laws, associated with the purchase, ownership or disposition of our capital stock, or our election to be taxed as a
REIT.
You
are urged to consult your tax advisor regarding the tax consequences to you of:
● |
the
purchase, ownership or disposition of our capital stock, including the U.S. federal, state, local, non-U.S. and other tax
consequences; |
● |
our
election to be taxed as a REIT for U.S. federal income tax purposes; |
● |
potential
changes in applicable tax laws; and |
● |
sunsetting
of certain existing provisions of the Code, including certain tax rates which are to revert to prior rates under the Code. |
Taxation
of Our Company
General.
We
elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended December 31, 2001. We
believe that we have been organized and have operated in a manner that has allowed us to qualify for taxation as a REIT under the Code
commencing with such taxable year, and we intend to continue to be organized and operate in this manner. However, qualification and taxation
as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including through actual operating
results, asset composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that we have
been organized and have operated, or will continue to be organized and operate, in a manner so as to qualify or remain qualified as a
REIT. See “— Failure to Qualify” for potential tax consequences if we fail to qualify as a REIT.
Whiteford, Taylor & Preston L.L.P. (“Whiteford”)
has acted as our special tax counsel in connection with this registration statement. Whiteford will render an opinion to us to the effect
that, for the years we have elected to be taxed as a REIT for federal income tax purposes, commencing with our taxable year ended December
31, 2001, we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT under
the Code, and our proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a
REIT under the Code. It must be emphasized that this opinion will be based on various assumptions and representations as to factual matters,
including representations made by us in a factual certificate provided by one or more of our officers. In addition, this opinion will
be based upon our factual representations set forth in this prospectus. Moreover, our qualification and taxation as a REIT depend upon
our ability to meet the various qualification tests imposed under the Code, which are discussed below, including through actual operating
results, asset composition, distribution levels and diversity of stock ownership, the results of which have not been and will not be reviewed
by Whiteford. Accordingly, no assurance can be given that our actual results of operation for any particular taxable year have satisfied
or will satisfy those requirements. Further, the anticipated U.S. federal income tax treatment described herein may be changed, perhaps
retroactively, by legislative, administrative or judicial action at any time. Whiteford has no obligation to update its opinion subsequent
to the date of such opinion.
Provided
we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income
that is currently distributed to our stockholders. This treatment substantially eliminates the “double taxation” that ordinarily
results from investment in a C corporation. A C corporation is a corporation that generally is required to pay tax at the corporate level.
Double taxation means taxation once at the corporate level when taxable income is earned and once again at the stockholder level when
the income is distributed. We will, however, be required to pay U.S. federal income tax as follows:
● |
First,
we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable income, including undistributed
net capital gains. |
● |
Second,
if we have (1) net income from the sale or other disposition of “foreclosure property” held primarily for sale to customers
in the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required to pay tax at
the highest corporate rate on this income. To the extent that income from foreclosure property is otherwise qualifying income for
purposes of the 75% gross income test, this tax is not applicable. Subject to certain other requirements, foreclosure property generally
is defined as property we acquired through foreclosure or after a default on a loan secured by the property or a lease of the property. |
● |
Third,
we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales
or other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers
in the ordinary course of business. |
● |
Fourth,
if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our
qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater of
(A) the amount by which we fail to satisfy the 75% gross income test and (B) the amount by which we fail to satisfy the 95% gross
income test, multiplied by (2) a fraction intended to reflect our profitability. |
● |
Fifth,
if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset tests), as described below,
due to reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified cure
provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest U.S. federal corporate income
tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test. |
● |
Sixth,
if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of
the gross income tests or certain violations of the asset tests, as described below) and the violation is due to reasonable cause
and not due to willful neglect, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each
such failure. |
● |
Seventh,
we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of (1)
85% of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed taxable income
from prior periods. |
● |
Eighth,
if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset
is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently
recognize gain on the disposition of the asset during a period that is generally five years beginning on the date on which we acquired
the asset, then we generally will be required to pay tax at the highest regular corporate tax rate on this gain to the extent of
the excess of (1) the fair market value of the asset over (2) our adjusted tax basis in the asset, in each case determined as of
the date on which we acquired the asset. The results described in this paragraph with respect to the recognition of gain assume that
the C corporation will refrain from making an election to receive different treatment under applicable Treasury Regulations on its
tax return for the year in which we acquire the asset from the C corporation. Under applicable Treasury Regulations, any gain from
the sale of property we acquired in an exchange under Section 1031 (a like-kind exchange) or Section 1033 (an involuntary conversion)
of the Code generally is excluded from the application of this built-in gains tax. |
● |
Ninth,
we will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess
interest” or “redetermined TRS service income,” as described below under “— Penalty Tax.” In
general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants
by a taxable REIT subsidiary of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by
a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on
arm’s length negotiations. Redetermined TRS service income generally represents income of a taxable REIT subsidiary that is
understated as a result of services provided to us or on our behalf. |
● |
Tenth,
we may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include its proportionate share
of our undistributed net capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income,
would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for its proportionate share of the
tax deemed to have been paid, and an adjustment would be made to increase the tax basis of the stockholder in our capital stock. |
● |
Eleventh,
if we fail to comply with the requirement to send annual letters to our stockholders requesting information regarding the actual
ownership of our stock, and the failure is not due to reasonable cause or due to willful neglect, we will be subject to a $25,000
penalty, or if the failure is intentional, a $50,000 penalty. |
We
and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state and local
income, property and other taxes on our assets and operations.
Requirements
for Qualification as a REIT.
The
Code defines a REIT as a corporation, trust or association:
(1) |
that
is managed by one or more trustees or directors; |
(2) |
that
issues transferable shares or transferable certificates to evidence its beneficial ownership; |
(3) |
that
would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code; |
(4) |
that
is not a financial institution or an insurance company within the meaning of certain provisions of the Code; |
(5) |
that
is beneficially owned by 100 or more persons; |
(6) |
not
more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including
certain specified entities, during the last half of each taxable year; and |
(7) |
that
meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions. |
The
Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. For purposes
of condition (6), the term “individual” includes a supplemental unemployment compensation benefit plan, a private foundation
or a portion of a trust permanently set aside or used exclusively for charitable purposes, but generally does not include a qualified
pension plan or profit-sharing trust.
We
believe that we have been organized and have operated in a manner that has allowed us, and will continue to allow us, and we believe
we will issue sufficient shares of our capital stock with sufficient diversity of ownership pursuant to this offering of our capital
stock to allow us, to satisfy conditions (1) through (7), inclusive, during the relevant time periods. In addition, our charter provides
for restrictions regarding ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share ownership
requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions relating to our
capital stock is contained in the discussion in this prospectus under the heading “Description of Securities We May Offer
— Restrictions on Ownership and Transfer.” These restrictions, however, do not ensure that we have previously satisfied,
and may not ensure that we will, in all cases, be able to continue to satisfy, the share ownership requirements described in conditions
(5) and (6) above. If we fail to satisfy these share ownership requirements, except as provided in the next sentence, our status as a
REIT will terminate. If, however, we comply with the rules contained in applicable Treasury Regulations that require us to ascertain
the actual ownership of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition (6) above, we will be treated as having met this requirement. See “—
Failure to Qualify.”
In
addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a
calendar taxable year.
Ownership
of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries.
In
the case of a REIT that is a partner in a partnership or a member in a limited liability company (unless otherwise stated, as used throughout
this discussion of U.S. Federal Income Tax Consequences, “limited liability company” shall mean “a limited liability
company treated as a partnership for U.S. federal income tax purposes), Treasury Regulations provide that the REIT will be deemed to
own its proportionate share of the assets of the partnership or limited liability company, as the case may be, based on its interest
in partnership capital, subject to special rules relating to the 10% asset test described below. Also, the REIT will be deemed to be
entitled to its proportionate share of the income of that entity. The assets and gross income of the partnership or limited liability
company retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income
tests and the asset tests. Thus, our pro rata share of the assets and items of income of any partnership or limited liability company
treated as a partnership for U.S. federal income tax purposes, including such partnership’s or limited liability company’s
share of these items of any partnership or limited liability company treated as a partnership or disregarded entity for U.S. federal
income tax purposes in which it owns an interest, would be treated as our assets and items of income for purposes of applying the requirements
described in this discussion, including the gross income and asset tests described below. For purposes of the REIT qualification tests,
the treatment of our ownership of partnerships or limited liability companies treated as disregarded entities for U.S. federal income
tax purposes is generally the same as described below with respect to qualified REIT subsidiaries. A brief summary of the rules governing
the U.S. federal income taxation of partnerships and limited liability companies is set forth below in “—Tax Aspects of the
Subsidiary Partnerships and Limited Liability Companies.”
We
have control of certain subsidiary partnerships and limited liability companies and intend to operate them in a manner consistent with
the requirements for our qualification as a REIT. If we are or become a limited partner or non-managing member in any partnership or
limited liability company and such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to
pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability
company could take an action which could cause us to fail a gross income or asset test, and that we would not become aware of such action
in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis.
In that case, we could fail to qualify as a REIT unless we were entitled to relief, as described below.
We
may from time to time own and operate certain properties through wholly-owned subsidiaries that we intend to be treated as “qualified
REIT subsidiaries” under the Code. A corporation (including an entity treated as a corporation for U.S. federal income tax purposes)
will qualify as our qualified REIT subsidiary if we own 100% of the corporation’s outstanding stock and do not elect with the
subsidiary to treat it as a “taxable REIT subsidiary,” as described below. A qualified REIT subsidiary is not treated as
a separate corporation, and all assets, liabilities and items of income, gain, loss, deduction and credit of a qualified REIT subsidiary
are treated as assets, liabilities and items of income, gain, loss, deduction and credit of the parent REIT for all purposes under the
Code, including all REIT qualification tests. Thus, in applying the U.S. federal income tax requirements described in this discussion,
any qualified REIT subsidiaries we own are ignored, and all assets, liabilities and items of income, gain, loss, deduction and credit
of such corporations are treated as our assets, liabilities and items of income, gain, loss, deduction and credit. A qualified REIT subsidiary
is not subject to U.S. federal income tax, and our ownership of the stock of a qualified REIT subsidiary will not violate the restrictions
on ownership of securities, as described below under “— Asset Tests.”
Ownership
of Interests in Taxable REIT Subsidiaries.
We
own an interest in an entity that has elected, together with us, to be treated as our taxable REIT subsidiary, and we may acquire securities
in additional taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation (or other entity treated as a corporation
for U.S. federal income tax purposes) other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint
election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting
power or value of the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary.
Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business,
including the provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject to
U.S. federal income tax as a regular C corporation. A REIT’s ownership of securities of a taxable REIT subsidiary is not subject
to the 5% or 10% asset test described below. See “— Asset Tests.”
Income
Tests.
We
must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each taxable year we must derive
directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions
and certain foreign currency gains) from investments relating to real property or mortgages on real property, including “rents
from real property,” dividends from other REITs and, in certain circumstances, interest, or certain types of temporary investments.
Second, in each taxable year we must derive at least 95% of our gross income (excluding gross income from prohibited transactions, certain
hedging transactions and certain foreign currency gains) from the real property investments described above or dividends, interest and
gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For these purposes, the term “interest”
generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount
depends in any way on the income or profits of any person. However, an amount received or accrued generally will not be excluded from
the term “interest” solely by reason of being based on a fixed percentage or percentages of receipts or sales.
Rents
we receive from a tenant will qualify as “rents from real property” for the purpose of satisfying the gross income requirements
for a REIT described above only if all of the following conditions are met:
● |
The
amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we receive or accrue generally
will not be excluded from the term “rents from real property” solely because it is based on a fixed percentage or percentages
of receipts or sales or, if it is based on the net income of a tenant that derives substantially all of its income with respect
to such property from subleasing of substantially all of such property, to the extent that the rents paid by the subtenants would
qualify as rents from real property if we earned such amounts directly; |
● |
Neither
we nor an actual or constructive owner of 10% or more of our capital stock actually or constructively owns 10% or more of the interests
in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting
power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock of the tenant. Rents we
receive from such a tenant that is a taxable REIT subsidiary of ours, however, will not be excluded from the definition of “rents
from real property” as a result of this condition if at least 90% of the space at the property to which the rents relate is
leased to third parties, and the rents paid by the taxable REIT subsidiary are substantially comparable to rents paid by our other
tenants for comparable space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other
tenants is determined at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification
increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a “controlled taxable REIT
subsidiary” is modified and such modification results in an increase in the rents payable by such taxable REIT subsidiary,
any such increase will not qualify as “rents from real property.” For purposes of this rule, a “controlled taxable
REIT subsidiary” is a taxable REIT subsidiary in which the parent REIT owns stock possessing more than 50% of the voting power
or more than 50% of the total value of the outstanding stock of such taxable REIT subsidiary; |
● |
Rent
attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent
received under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify
as “rents from real property.” To the extent that rent attributable to personal property, leased in connection with a
lease of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property
to a taxable REIT subsidiary; and |
● |
We
generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception
and except as provided below. We may, however, perform services that are “usually or customarily rendered” in connection
with the rental of space for occupancy only and are not otherwise considered “rendered to the occupant” of the property.
Examples of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common
areas. In addition, we may employ an independent contractor from whom we derive no revenue to provide customary services to our tenants,
or a taxable REIT subsidiary (which may be wholly or partially owned by us) to provide both customary and non-customary services
to our tenants without causing the rent we receive from those tenants to fail to qualify as “rents from real property.” |
We
generally do not intend to take actions we believe will cause us to fail to satisfy the rental conditions described above. However, we
may intentionally fail to satisfy some of these conditions to the extent we determine, based on the advice of our tax counsel, that the
failure will not jeopardize our tax status as a REIT. In addition, with respect to the limitation on the rental of personal property,
we generally have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no
assurance that the IRS will not disagree with our determinations of value.
Income
we receive that is attributable to the rental of parking spaces at the properties generally will constitute rents from real property
for purposes of the gross income tests if certain services provided with respect to the parking spaces are performed by independent contractors
from whom we derive no revenue, either directly or indirectly, or by a taxable REIT subsidiary, and certain other conditions are met.
We believe that the income we receive that is attributable to parking spaces will meet these tests and, accordingly, will constitute
rents from real property for purposes of the gross income tests.
From
time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities
may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts.
Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is clearly identified as a
hedging transaction as specified in the Code will not constitute gross income under, and thus will be exempt from, the 75% and 95% gross
income tests. The term “hedging transaction,” as used above, generally means (A) any transaction we enter into in the normal
course of our business primarily to manage risk of (1) interest rate changes or fluctuations with respect to borrowings made or to be
made by us to acquire or carry real estate assets, or (2) currency fluctuations with respect to an item of qualifying income under the
75% or 95% gross income test or any property which generates such income and (B) new transactions entered into to hedge the income or
loss from prior hedging transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished
or disposed of. To the extent that we do not properly identify such transactions as hedges or we hedge with other types of financial
instruments, the income from those transactions will not be treated as qualifying income for purposes of the gross income tests. We intend
to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.
To
the extent our taxable REIT subsidiaries pay dividends or interest, our allocable share of such dividend or interest income will qualify
under the 95%, but not the 75%, gross income test (except to the extent the interest is paid on a loan that is adequately secured by
real property).
We
will monitor the amount of the dividend and other income from our taxable REIT subsidiaries and will take actions intended to keep this
income, and any other nonqualifying income, within the limitations of the gross income tests. Although we expect these actions will be
sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in all cases prevent such a violation.
If
we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the
year if we are entitled to relief under certain provisions of the Code. We generally may make use of the relief provisions if:
● |
following
our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the IRS
setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance
with Treasury Regulations to be issued; and |
● |
our
failure to meet these tests was due to reasonable cause and not due to willful neglect. |
It
is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example,
if we fail to satisfy the gross income tests because nonqualifying income that we intentionally accrue or receive exceeds the limits
on nonqualifying income, the IRS could conclude that our failure to satisfy the tests was not due to reasonable cause. If these relief
provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. See “— Failure to Qualify”
for potential tax consequences if we fail to qualify as a REIT. As discussed above in “— Taxation of Our Company —
General,” even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our
nonqualifying income. We may not always be able to comply with the gross income tests for REIT qualification despite periodic monitoring
of our income. Further, the IRS may challenge positions we take in computing our REIT taxable income, which, if successful, could
result in our disqualification as a REIT unless we were permitted to pay a deficiency dividend.
Prohibited
Transaction Income.
Any
gain that we realize on the sale of property (other than any foreclosure property) held as inventory or otherwise held primarily
for sale to customers in the ordinary course of business, either directly or through any qualified REIT subsidiaries, subsidiary partnerships
or limited liability companies, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax, unless
certain safe harbor exceptions apply. This prohibited transaction income may also adversely affect our ability to satisfy the gross income
tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular
transaction. We do not intend, and we do not intend to permit our qualified REIT subsidiaries or subsidiary partnerships or limited liability
companies, to enter into any sales that are prohibited transactions. However, the IRS may successfully contend that some or all of the
sales made by us, our qualified REIT subsidiaries or our subsidiary partnerships or limited liability companies are prohibited transactions.
We would be required to pay the 100% penalty tax on our allocable share of the gains resulting from any such sales. The 100% penalty
tax will not apply to gains from the sale of assets that are held through a taxable REIT subsidiary, but such income will be subject
to regular U.S. federal corporate income tax.
Penalty
Tax.
Any
redetermined rents, redetermined deductions, excess interest or redetermined TRS service income we generate will be subject to a 100%
penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services furnished to
any of our tenants by a taxable REIT subsidiary of ours, redetermined deductions and excess interest represent any amounts that are deducted
by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on
arm’s length negotiations, and redetermined TRS service income is income of a taxable REIT subsidiary that is understated as a
result of services provided to us or on our behalf. Rents we receive will not constitute redetermined rents if they qualify for certain
safe harbor provisions contained in the Code.
We
do not believe we have been, and do not expect to be, subject to this penalty tax, although any rental or service arrangements we enter
into from time to time may not satisfy the safe-harbor provisions described above. These determinations are inherently factual, and the
IRS has broad discretion to assert that amounts paid between related parties should be reallocated to clearly reflect their respective
incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on any overstated rents paid
to us, or any excess deductions or understated income of our taxable REIT subsidiaries.
Asset
Tests.
At
the close of each calendar quarter of our taxable year, we must also satisfy certain tests relating to the nature and diversification
of our assets. First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and U.S.
government securities. For purposes of this test, the term “real estate assets” generally means real property (including
interests in real property and interests in mortgages on real property and, to a limited extent, personal property), shares (or transferable
certificates of beneficial interest) in other REITs, any stock or debt instrument attributable to the investment of the proceeds of a
stock offering or a public offering of debt with a term of at least five years (but only for the one-year period beginning on the date
the REIT receives such proceeds), debt instruments of publicly offered REITs, and personal property leased in connection with a lease
of real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease.
Second,
not more than 25% of the value of our total assets may be represented by securities (including securities of taxable REIT subsidiaries),
other than those securities includable in the 75% asset test.
Third,
of the investments included in the 25% asset class, and except for certain investments in other REITs, our qualified REIT subsidiaries
and taxable REIT subsidiaries, the value of any one issuer’s securities may not exceed 5% of the value of our total assets, and
we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer except, in the case of the 10%
value test, securities satisfying the “straight debt” safe-harbor or securities issued by a partnership that itself would
satisfy the 75% income test if it were a REIT. Certain types of securities we may own are disregarded as securities solely for purposes
of the 10% value test, including, but not limited to, any loan to an individual or an estate, any obligation to pay rents from real property
and any security issued by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets
of a partnership or limited liability company in which we own an interest will be based on our proportionate interest in any securities
issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Code. From time
to time we may own securities (including debt securities) of issuers that do not qualify as a REIT, a qualified REIT subsidiary or a
taxable REIT subsidiary. We intend that our ownership of any such securities will be structured in a manner that allows us to comply
with the asset tests described above.
Fourth,
not more than 20% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries. We
own an interest in an entity that has elected, together with us, to be treated as our taxable REIT subsidiary, and we may acquire securities
in additional taxable REIT subsidiaries in the future. So long as each of these companies qualifies as a taxable REIT subsidiary of ours,
we will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership
of the securities of such companies. We believe that the aggregate value of our taxable REIT subsidiaries has not exceeded, and in the
future will not exceed, 20% of the aggregate value of our gross assets. We generally do not obtain independent appraisals to support
these conclusions. In addition, there can be no assurance that the IRS will not disagree with our determinations of value.
Fifth,
not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs to the extent those
debt instruments would not be real estate assets but for the inclusion of debt instruments of publicly offered REITs in the meaning of
real estate assets, as described above (e.g., a debt instrument issued by a publicly offered REIT that is not secured by a mortgage on
real property).
The
asset tests must be satisfied at the close of each calendar quarter of our taxable year in which we (directly or through any qualified
REIT subsidiary, partnership or limited liability company) acquire securities in the applicable issuer, and also at the close of each
calendar quarter in which we increase our ownership of securities of such issuer (including as a result of an increase in our interest
in any partnership or limited liability company that owns such securities). For example, our indirect ownership of securities of each
issuer may increase as a result of our capital contributions to, or the redemption of other partners’ or members’ interests
in, a partnership or limited liability company in which we have an ownership interest. Also, after initially meeting the asset tests
at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter
solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during
a quarter (including as a result of an increase in our interest in any partnership or limited liability company), we may cure this failure
by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. We believe that we have maintained, and
we intend to maintain, adequate records of the value of our assets to ensure compliance with the asset tests. If we fail to cure any
noncompliance with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are eligible for certain
relief provisions discussed below.
Certain
relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period.
Under these provisions, we will be deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not
exceed the lesser of (a) 1% of the total value of our assets at the end of the applicable quarter or (b) $10,000,000, and (ii) we dispose
of the nonqualifying assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in which the
failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations
of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests,
in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the 30-day cure period by
taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet
the asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered
or (b) the period of time prescribed by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b)
the highest U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets,
and (iii) disclosing certain information to the IRS.
Although
we believe we have satisfied the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter
with respect to which retesting is to occur, there can be no assurance that we will always be successful, or will not require a reduction
in our overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to cure any noncompliance with the asset tests
in a timely manner, and the relief provisions described above are not available, we would cease to qualify as a REIT.
Annual
Distribution Requirements.
To
maintain our qualification as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders
in an amount at least equal to the sum of:
● |
90%
of our REIT taxable income; and |
● |
90%
of our after-tax net income, if any, from foreclosure property; minus |
● |
the
excess of the sum of certain items of non-cash income over 5% of our REIT taxable income. |
For
these purposes, our REIT taxable income is computed without regard to the dividends paid deduction and our net capital gain. In addition,
for purposes of this test, non-cash income generally means income attributable to leveled stepped rents, original issue discount, cancellation
of indebtedness, or a like-kind exchange that is later determined to be taxable.
In
addition, our REIT taxable income will be reduced by any taxes we are required to pay on any gain we recognize from the disposition of
any asset we acquired from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is
less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, within a period
that is generally five years following our acquisition of such asset, as described above under “—General.”
Under
the 2017 Tax Legislation, for taxable years beginning after December 31, 2017, our deduction for net business interest expense will generally
be limited to 30% of our taxable income, as adjusted for certain items of income, gain, deduction or loss. Any business interest deduction
that is disallowed due to this limitation may be carried forward to future taxable years. If we are subject to this interest expense
limitation, our REIT taxable income for a taxable year may be increased. Taxpayers that conduct certain real estate businesses may elect
not to have this interest expense limitation apply to them, provided that they use an alternative depreciation system to depreciate certain
property. We believe that we will be eligible to make this election. If we make this election, although we would not be subject to the
interest expense limitation described above, our depreciation deductions may be reduced and, as a result, our REIT taxable income for
a taxable year may be increased.
We
generally must pay, or be treated as paying, the distributions described above in the taxable year to which they relate. At our election,
a distribution will be treated as paid in a taxable year if it is declared before we timely file our tax return for such year and paid
on or before the first regular dividend payment after such declaration, provided such payment is made during the 12-month period following
the close of such year. These distributions are treated as received by our stockholders in the year in which they are paid. This is so
even though these distributions relate to the prior year for purposes of the 90% distribution requirement. In order to be taken into
account for purposes of our distribution requirement, except as provided below, the amount distributed must not be preferential—i.e.,
every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class,
and no class of stock may be treated other than according to its dividend rights as a class. This preferential limitation will not apply
to distributions made by us, provided we qualify as a “publicly offered REIT.” We believe that we are, and expect we will
continue to be, a publicly offered REIT. To the extent that we do not distribute all of our net capital gain, or distribute at least
90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay tax on the undistributed amount at regular
corporate tax rates.
We
believe that we have made, and we intend to continue to make, timely distributions sufficient to satisfy these annual distribution requirements
and to minimize our federal corporate income tax obligations. However, from time to time, we may not have sufficient cash or other liquid
assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible
expenses, and the inclusion of income and deduction of expenses in determining our taxable income. In addition, we may decide to retain
our cash, rather than distribute it, in order to repay debt or for other reasons. If these timing differences occur, we may borrow funds
to pay dividends or pay dividends in the form of taxable stock distributions in order to meet the distribution requirements, while preserving
our cash.
Under
some circumstances, we may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying “deficiency
dividends” to our stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year.
In that case, we may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described
below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends.
While the payment of a deficiency dividend will apply to a prior year for purposes of our REIT distribution requirements, it will be
treated as an additional distribution to our stockholders in the year such dividend is paid. In addition, if a dividend we have paid
is treated as a preferential dividend, in lieu of treating the dividend as not counting toward satisfying the 90% distribution requirement,
the IRS may provide a remedy to cure such failure if the IRS determines that such failure is (or is of a type that is) inadvertent or
due to reasonable cause and not due to willful neglect.
Furthermore,
we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our
ordinary income for such year, 95% of our capital gain net income for the year and any undistributed taxable income from prior periods.
Any ordinary income and net capital gain on which corporate income tax is imposed for any year is treated as an amount distributed during
that year for purposes of calculating this excise tax.
For
purposes of the 90% distribution requirement and excise tax described above, dividends declared during the last three months of the taxable
year, payable to stockholders of record on a specified date during such period and paid during January of the following year, will be
treated as paid by us and received by our stockholders on December 31 of the year in which they are declared.
Like-Kind
Exchanges.
We
may dispose of real property that is not held primarily for sale in transactions intended to qualify as like-kind exchanges under the
Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any
such transaction to qualify as a like-kind exchange could require us to pay U.S. federal income tax, possibly including the 100% prohibited
transaction tax, depending on the facts and circumstances surrounding the particular transaction.
Tax
Liabilities and Attributes Inherited in Connection with Acquisitions.
From
time to time, we may acquire other corporations or entities and, in connection with such acquisitions, we may succeed to the historical
tax attributes and liabilities of such corporations or entities. For example, if we acquire a C corporation and subsequently dispose
of its assets within five years of the acquisition, we could be required to pay the built-in gain tax described above under “—
General.” In addition, in order to qualify as a REIT, at the end of any taxable year, we must not have any earnings and profits
accumulated in a non-REIT year. As a result, if we acquire a C corporation, we must distribute the corporation’s earnings and profits
accumulated prior to the acquisition before the end of the taxable year in which we acquire the corporation. We also could be required
to pay the acquired entity’s unpaid taxes even though such liabilities arose prior to the time we acquired the entity.
Moreover,
we may from time to time acquire other REITs through a merger or acquisition. If any such REIT failed to qualify as a REIT for any of
its taxable years, such REIT would be liable for (and we, as the surviving corporation in the merger or acquisition, would be obligated
to pay) U.S. federal income tax on its taxable income at regular rates, and if the merger or acquisition is a transaction in which our
tax basis in the assets of such REIT is less than the fair market value of the assets determined at the time of the merger or acquisition,
we would be subject to tax on the built-in gain on each asset of such REIT as described above if we were to dispose of the asset in a
taxable transaction during the five-year period following the merger or acquisition. Moreover, even if such REIT qualified as a REIT
at all relevant times, we would similarly be liable for other unpaid taxes (if any) of such REIT (such as the 100% tax on gains from
any sales treated as “prohibited transactions” as described above under “— Prohibited Transaction Income”).
Furthermore,
after our acquisition of another corporation or entity, the asset and income tests will apply to all of our assets, including the assets
we acquire from such corporation or entity, and to all of our income, including the income derived from the assets we acquire from such
corporation or entity. As a result, the nature of the assets that we acquire from such corporation or entity and the income we derive
from those assets may have an effect on our tax status as a REIT.
Foreclosure
Property.
The
foreclosure property rules permit us (by our election) to foreclose or repossess properties without being disqualified as a REIT as a
result of receiving income that does not qualify under the gross income tests. However, in such a case, we would be subject to the U.S.
federal corporate income tax on the net non-qualifying income from “foreclosure property,” and the after-tax amount would
increase the dividends we would be required to distribute to stockholders. See “— Annual Distribution Requirements.”
This corporate tax would not apply to income that qualifies under the REIT 75% income test.
Failure
to Qualify.
If
we discover a violation of a provision of the Code that would result in our failure to qualify as a REIT, certain specified cure provisions
may be available to us. Except with respect to violations of the gross income tests and asset tests (for which the cure provisions are
described above), and provided the violation is due to reasonable cause and not due to willful neglect, these cure provisions generally
impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to satisfy the requirements for taxation as
a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay tax on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us. As a result, we
anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our stockholders. In addition,
if we fail to qualify as a REIT, we will not be required to distribute any amounts to our stockholders, and all distributions to stockholders
will be taxable as regular corporate dividends to the extent of our current and accumulated earnings and profits. In such event, corporate
distributees may be eligible for the dividends-received deduction. In addition, non-corporate stockholders, including individuals, may
be eligible for the preferential tax rates on qualified dividend income. Under the 2017 Tax Legislation, non-corporate stockholders,
including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends
treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. If we fail to qualify
as a REIT, such stockholders may not claim this deduction with respect to dividends paid by us. Unless entitled to relief under specific
statutory provisions, we would also be ineligible to elect to be treated as a REIT for the four taxable years following the year for
which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.
Tax
Aspects of the Subsidiary Partnerships and Limited Liability Companies
General.
We
hold investments indirectly through subsidiary partnerships and limited liability companies that we believe are and will continue to
be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are treated as partnerships
or disregarded entities for U.S. federal income tax purposes are “pass-through” entities which are not required to pay U.S.
federal income tax. Rather, partners or members of such entities are allocated their shares of (or, in the case of a sole
member of a limited liability company that is a disregarded entity for U.S. federal income tax purposes, all of) the items of income,
gain, loss, deduction and credit of the partnership or limited liability company, and are potentially required to pay tax on this income,
without regard to whether they receive a distribution from the partnership or limited liability company. We will include in our income
our share of these partnership and limited liability company items for purposes of the various gross income tests, the computation of
our REIT taxable income, and the REIT distribution requirements. Moreover, for purposes of the asset tests, we will include our pro rata
share of assets held by our subsidiary partnerships and limited liability companies based on our capital interests in each such entity.
See “— Taxation of Our Company.”
Entity
Classification.
Our
interests in our subsidiary partnerships and limited liability companies involve special tax considerations, including the possibility
that the IRS might challenge the status of these entities as partnerships or disregarded entities. For example, an entity that would
otherwise be treated as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a “publicly
traded partnership” and certain other requirements are met. A partnership or limited liability company would be treated as a publicly
traded partnership if its interests are traded on an established securities market or are readily tradable on a secondary market or a
substantial equivalent thereof, within the meaning of applicable Treasury Regulations. We do not anticipate that any subsidiary partnership
or limited liability company will be treated as a publicly traded partnership that is taxable as a corporation. However, if any such
entity were treated as a corporation, it would be required to pay an entity-level tax on its income. In this situation, the character
of our assets and items of gross income would change and could prevent us from satisfying the REIT asset tests and possibly the REIT
income tests. See “— Taxation of Our Company — Asset Tests” and “— Income Tests.” This, in
turn, could prevent us from qualifying as a REIT. See “— Failure to Qualify” for a discussion of the effect of our
failure to meet these tests. In addition, a change in the tax status of a subsidiary partnership or limited liability company to a corporation
might be treated as a taxable event. If so, we might incur a tax liability without any related cash payment. We believe each of the subsidiary
partnerships and limited liability companies are and will continue to be treated as partnerships or disregarded entities for U.S. federal
income tax purposes.
Allocations
of Income, Gain, Loss and Deduction.
A
partnership agreement (or, in the case of a limited liability company treated as a partnership for U.S. federal income tax purposes,
the limited liability company agreement) generally will determine the allocation of income and loss among partners. These allocations,
however, will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Code and the Treasury
Regulations thereunder. Generally, Section 704(b) of the Code and the Treasury Regulations thereunder require that partnership allocations
respect the economic arrangement of the partners. If an allocation of partnership income or loss does not comply with the requirements
of Section 704 (b) of the Code and the Treasury Regulations thereunder, the item subject to the allocation will be reallocated in accordance
with the partners’ interests in the partnership. This reallocation will be determined by taking into account all of the facts and
circumstances relating to the economic arrangement of the partners with respect to such item. The allocations of taxable income and loss
of our subsidiaries that are treated as partnerships for U.S. federal income tax purposes are intended to comply with the requirements
of Section 704(b) of the Code and the Treasury Regulations thereunder.
Tax
Allocations with Respect to the Properties.
Under
Section 704(c) of the Code, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed
to a partnership (including a limited liability company treated as a partnership for U.S. federal income tax purposes) in exchange
for an interest in the partnership, must be allocated in a manner so that the contributing partner is charged with the unrealized gain
or benefits from the unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain
or unrealized loss generally is equal to the difference between the fair market value or book value and the adjusted tax basis of the
contributed property at the time of contribution (this difference is referred to as a book-tax difference), as adjusted from time to
time. These allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts or other economic
or legal arrangements among the partners.
If
a subsidiary of ours that is treated as a partnership for U.S. federal income tax purposes acquires interests in property in exchange
for interests in such partnership, the tax basis of these property interests generally will carry over to such partnership, notwithstanding
their different book (i.e., fair market) value. Treasury Regulations issued under Section 704(c) of the Code provide partnerships
(including limited liability companies treated as partnerships for U.S. federal income tax purposes) with a choice of several methods
of accounting for book-tax differences. Depending on the method chosen in connection with any particular contribution, the carryover
basis of each of the contributed interests in the properties in the hands of the partnership (1) could cause us to be allocated lower
amounts of depreciation deductions for tax purposes than would be allocated to us if any of the contributed properties were to have a
tax basis equal to its respective fair market value at the time of the contribution and (2) could cause us to be allocated taxable gain
in the event of a sale of such contributed interests or properties in excess of the economic or book income allocated to us as a result
of such sale, with a corresponding benefit to the other partners in the partnership. An allocation described in clause (2) above might
cause us or the other partners to recognize taxable income in excess of cash proceeds in the event of a sale or other disposition of
property, which might adversely affect our ability to comply with the REIT distribution requirements. See “— Taxation of
Our Company — Requirements for Qualification as a REIT” and “— Annual Distribution Requirements.”
Any
property acquired by the partnership in a taxable transaction will initially have a tax basis equal to its fair market value, and Section
704(c) of the Code generally will not apply.
Partnership
Audit Rules.
The
Bipartisan Budget Act of 2015 changes the rules applicable to U.S. federal income tax audits of partnerships. Under the new rules (which
are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain exceptions,
any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner’s distributive share
thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level.
Although it is uncertain how certain aspects of these rules will be implemented, it is possible that they could result in partnerships
in which we directly or indirectly invest being required to pay additional taxes, interest and penalties as a result of an audit adjustment,
and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest,
and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes as a result of
the related audit adjustment. Final Regulations were issued in December 2022, which largely tracked the Proposed Regulations issued
in December 2017 and provides further guidance on certain partnership-related items that may be excepted from the centralized audit regime.
Investors are urged to consult their tax advisors with respect to these audit procedures and their potential impact on their investment
in our capital stock.
Material
U.S. Federal Income Tax Consequences to Holders of Our Capital Stock
The
following discussion is a summary of the material U.S. federal income tax consequences to you of purchasing, owning and disposing of
our capital stock. This discussion is limited to holders who hold our capital stock as a “capital asset” within
the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal
income tax consequences relevant to a holder’s particular circumstances. In addition, except where specifically noted, it does
not address consequences relevant to holders subject to special rules, including, without limitation:
● |
U.S.
expatriates and former citizens (“covered expatriates under Section 877A”) or long-term residents of the United
States; |
● |
persons
subject to the alternative minimum tax; |
● |
U.S.
holders (as defined below) whose functional currency is not the U.S. dollar; |
● |
persons
holding our capital stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction
or other integrated investment; |
● |
banks,
insurance companies, and other financial institutions; |
● |
REITs
or regulated investment companies; |
● |
brokers,
dealers or traders in securities; |
● |
“controlled
foreign corporations,” “passive foreign investment companies,” and certain corporations that accumulate
earnings to avoid U.S. federal income tax; |
● |
S
corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors
therein); |
● |
tax-exempt
organizations or governmental organizations; |
● |
persons
subject to special tax accounting rules as a result of any item of gross income with respect to our capital stock being taken
into account in an applicable financial statement; |
● |
persons
deemed to sell our capital stock under the constructive sale provisions of the Code; and |
● |
persons
who hold or receive our capital stock pursuant to the exercise of any employee stock option or otherwise as compensation. |
THIS
DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF OUR CAPITAL STOCK ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS),
UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For
purposes of this discussion, a “U.S. holder” is a beneficial owner of our capital stock that, for U.S. federal income
tax purposes, is or is treated as:
● |
an
individual who is a citizen or tax resident of the United States and who owns our capital stock directly or through
an entity that is disregarded for U.S. federal income tax purposes; |
● |
a
corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia that is not
an “S corporation” as defined in Section 1361 of the Code; |
● |
an
estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
● |
a
trust that (1) is subject to the primary supervision of a U.S. court with respect to its administration and under the control
of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election
in effect to be treated as a United States person for U.S. federal income tax purposes. |
For
purposes of this discussion, a “non-U.S. holder” is any beneficial owner of our capital stock that is neither a U.S.
holder, an entity treated as a partnership for U.S. federal income tax purposes, or a corporation created or organized under the laws
of the United States, any state thereof, or the District of Columbia, that is an “S corporation” as defined in Section 1361
of the Code.
If
an entity treated as a partnership or an S corporation for U.S. federal income tax purposes holds our capital stock, the tax treatment
of a partner in the partnership or shareholder in the S corporation will depend on the status of the partner or shareholder, the activities
of the partnership or S corporation and certain determinations made at the partner or shareholder level. Accordingly, partnerships or
S corporations holding our capital stock and the partners in such partnerships or shareholders in such S corporation should consult
their tax advisors regarding the U.S. federal income tax consequences to them.
Taxation
of Taxable U.S. Holders of Our Capital Stock
Distributions
Generally.
Distributions
out of our current or accumulated earnings and profits will be treated as dividends and, other than with respect to capital gain dividends
and certain amounts which have previously been subject to corporate level tax, as discussed below, will be taxable to our taxable U.S.
holders as ordinary income when actually or constructively received. See “— Tax Rates” below. As long as we qualify
as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations or, except to the extent described in “— Tax Rates” below, the preferential
rates on qualified dividend income applicable to non-corporate U.S. holders, including individuals. Under the 2017 Tax Legislation, non-corporate
U.S. holders, including individuals, generally may deduct 20% of dividends from a REIT, other than capital gain dividends and dividends
treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. For purposes of
determining whether distributions to holders of our capital stock are out of our current or accumulated earnings and profits, our earnings
and profits will be allocated first to our outstanding preferred stock, if any, and then to our outstanding common stock.
To
the extent that we make distributions on our capital stock in excess of our current and accumulated earnings and profits allocable
to such stock, these distributions will be treated first as a tax-free return of capital to a U.S. holder. This treatment will reduce
the U.S. holder’s adjusted tax basis in such shares of stock by the amount of the distribution, but not below zero. Distributions
in excess of our current and accumulated earnings and profits and in excess of a U.S. holder’s adjusted tax basis in its shares
will be taxable as capital gain. Such gain will be taxable as long-term capital gain if the shares have been held for more than one year.
Dividends we declare in October, November, or December of any year and which are payable to a holder of record on a specified date in
any of these months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually pay
the dividend on or before January 31 of the following year. U.S. holders may not include in their own income tax returns any of our net
operating losses or capital losses.
U.S.
holders that receive taxable stock distributions, including distributions partially payable in our capital stock and partially
payable in cash, would be required to include the full amount of the distribution (i.e., the cash and the stock portion) as a
dividend (subject to limited exceptions) to the extent of our current and accumulated earnings and profits for U.S. federal income tax
purposes, as described above. The amount of any distribution payable in our capital stock generally is equal to the amount of
cash that could have been received instead of the capital stock. Depending on the circumstances of a U.S. holder, the tax on the
distribution may exceed the amount of the distribution received in cash, in which case such U.S. holder would have to pay the tax using
cash from other sources. If a U.S. holder sells the capital stock it received in connection with a taxable stock distribution
in order to pay this tax and the proceeds of such sale are less than the amount required to be included in income with respect to the
stock portion of the distribution, such U.S. holder could have a capital loss with respect to the stock sale that could not be used to
offset such income. A U.S. holder that receives capital stock pursuant to such distribution generally has a tax basis in such
capital stock equal to the amount of cash that could have been received instead of such capital stock as described above,
and has a holding period in such capital stock that begins on the day immediately following the payment date for the distribution.
Capital
Gain Dividends.
Dividends
that we properly designate as “qualified” capital gain dividends will be taxable to our taxable U.S. holders as a
gain from the sale or disposition of a capital asset held for more than one year, to the extent that such gain does not exceed our actual
net capital gain for the taxable year and may not exceed our dividends paid for the taxable year, including dividends paid the following
year that are treated as paid in the current year. U.S. holders that are corporations (other than S corporations, for which dividends
are passed through to its shareholders) may, however, be required to treat up to 20% of certain capital gain dividends as ordinary
income. If we properly designate any portion of a dividend as a capital gain dividend, then, except as otherwise required by law, we
presently intend to allocate a portion of the total capital gain dividends paid or made available to holders of all classes of our capital
stock for the year to the holders of each class of our capital stock in proportion to the amount that our total dividends, as determined
for U.S. federal income tax purposes, paid or made available to the holders of each such class of our capital stock for the year bears
to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all classes of our capital
stock for the year. In addition, except as otherwise required by law, we will make a similar allocation with respect to any undistributed
long-term capital gains which are to be included in our stockholders’ long-term capital gains, based on the allocation of the capital
gain amount which would have resulted if those undistributed long-term capital gains had been distributed as “capital gain dividends”
by us to our stockholders.
Retention
of Net Capital Gains.
We
may elect to retain, rather than distribute as a capital gain dividend, all or a portion of our net capital gains. If we make this election,
we would pay tax on our retained net capital gains. In addition, to the extent we so elect, our earnings and profits (determined for
U.S. federal income tax purposes) would be adjusted accordingly, and a U.S. holder generally would:
● |
include
its pro rata share of our undistributed net capital gains in computing its long-term capital gains in its return for its taxable
year in which the last day of our taxable year falls, subject to certain limitations as to the amount that is includable; |
● |
be
deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the U.S. holder’s
income as long-term capital gain; |
● |
receive
a credit or refund for the amount of tax deemed paid by it; |
● |
increase
the adjusted tax basis of its capital stock by the difference between the amount of includable gains and the tax deemed to
have been paid by it; and |
● |
in
the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be promulgated by the IRS. |
Passive
Activity Losses and Investment Interest Limitations.
Distributions
we make and gain arising from the sale or exchange by a U.S. holder of our capital stock will not be treated as passive activity
income. As a result, U.S. holders generally will not be able to apply any “passive losses” against this income or gain. A
U.S. holder generally may elect to treat capital gain dividends, capital gains from the disposition of our capital stock and income
designated as qualified dividend income, as described in “— Tax Rates” below, as investment income for purposes of
computing the investment interest limitation, but in such case, the holder will be taxed at ordinary income rates on such amount. Other
distributions made by us, to the extent they do not constitute a return of capital, generally will be treated as investment income for
purposes of computing the investment interest limitation.
Participation
in the Dividend Reinvestment Plan.
U.S.
holders who elect to participate in the Dividend Reinvestment Plan generally will be treated as having received a distribution equal
to the fair market value of the capital stock acquired (without reduction for any withholding taxes). The distribution will be
taxed to such U.S. holder as described above in this discussion. In addition, there is a risk that some or all of the 5% discount from
the price per share paid for the capital stock so acquired will be taxable as income to such U.S. holder. A U.S. holder’s
tax basis in the capital stock so acquired will equal the fair market value of the capital stock on the date of acquisition,
and the holding period for such capital stock will begin on the day following the date of such acquisition. Participants in the
Dividend Reinvestment Plan should consult their tax advisers concerning the particular tax consequences to them of participating in the
Dividend Reinvestment Plan.
Dispositions
of Our Capital Stock.
If
a U.S. holder sells or disposes of shares of our capital stock, it will recognize gain or loss for U.S. federal income tax purposes
in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other
disposition and the holder’s adjusted tax basis in the shares. This gain or loss, except as provided below, will be long-term capital
gain or loss if the holder has held such capital stock for more than one year. However, if a U.S. holder recognizes a loss upon
the sale or other disposition of capital stock that it has held for nine months or less, after applying certain holding period
rules, the loss recognized will be treated as a long-term capital loss to the extent the U.S. holder received distributions from us which
were required to be treated as long-term capital gains.
Redemption
or Repurchase by Us.
A
redemption or repurchase of shares of our capital stock will be treated under Section 302 of the Code as a distribution (and taxable
as a dividend to the extent of our current and accumulated earnings and profits as described above under “— Distributions
Generally”) unless the redemption or repurchase satisfies one of the tests set forth in Section 302(b) of the Code and is therefore
treated as a sale or exchange of the redeemed or repurchased shares. The redemption or repurchase generally will be treated as a sale
or exchange if it: (i) is “substantially disproportionate” with respect to the U.S. holder results in a “complete redemption”
of the U.S. holder’s stock interest in us; or (ii) is “not essentially equivalent to a dividend” with respect to the
U.S. holder, all within the meaning of Section 302(b) of the Code.
In
determining whether any of these tests has been met, shares of our capital stock, considered to be owned by the U.S. holder by reason
of certain constructive ownership rules set forth in the Code, as well as shares of our capital stock actually owned by the U.S. holder,
generally must be taken into account. Because the determination as to whether any of the alternative tests of Section 302(b) of the Code
will be satisfied with respect to the U.S. holder depends upon the facts and circumstances at the time that the determination must be
made, U.S. holders are advised to consult their tax advisors to determine such tax treatment.
If
a redemption or repurchase of shares of our capital stock is treated as a distribution, the amount of the distribution will be measured
by the amount of cash and the fair market value of any property received. See “— Distributions Generally.” Prospective
investors should consult their tax advisors regarding the U.S. federal income tax consequences of a redemption or repurchase of our capital
stock. If a redemption or repurchase of shares of our capital stock is not treated as a distribution, it will be treated as a taxable
sale or exchange in the manner described under “— Dispositions of Our Capital Stock.”
Tax
Rates.
The
maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain “capital gain dividends,”
generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations which we may
make, certain capital gain dividends may be taxed at a 25% rate) and (2) “qualified dividend income” generally is 20%. In
general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that
certain holding period requirements have been met and the REIT’s dividends are attributable to dividends received from taxable
corporations (such as its taxable REIT subsidiaries) or to income that was subject to tax at the corporate/REIT level (for example, if
the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only be
eligible for the rates described above to the extent that they are properly designated by the REIT as “capital gain dividends.”
In addition, U.S. holders that are corporations may be required to treat up to 20% of some capital gain dividends as ordinary income.
In addition, investment income of certain U.S. shareholders that are individuals, estates, and trusts, including REIT dividends,
as well as gains from the sale of our capital stock, are generally subject to the 3.8% net investment income tax in addition to
capital gains tax.
Taxation
of Tax-Exempt Holders of Our Capital Stock
Dividend
income from us and gain arising upon a sale of shares of our capital stock generally should not be unrelated business taxable
income, or UBTI, to a tax-exempt holder, except as described below. This income or gain will be UBTI, however, to the extent a tax-exempt
holder holds its shares as “debt-financed property” within the meaning of the Code. Generally, “debt-financed property”
is property the acquisition or holding of which was financed through a borrowing by the tax-exempt holder.
For
tax-exempt holders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, or qualified
group legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Code,
respectively, income from an investment in our shares will constitute UBTI unless the organization is able to properly claim a deduction
for amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in our shares.
These prospective investors should consult their tax advisors concerning these “set aside” and reserve requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a “pension-held REIT” may be treated as UBTI as to certain trusts
that hold more than 10%, by value, of the interests in the REIT. A REIT will not be a “pension-held REIT” if it is able to
satisfy the “not closely held” requirement without relying on the “look-through” exception with respect to certain
trusts or if such REIT is not “predominantly held” by “qualified trusts.” As a result of restrictions on ownership
and transfer of our stock contained in our charter, we do not expect to be classified as a “pension-held REIT,” and as a
result, the tax treatment described above should be inapplicable to our holders. However, because our capital stock will be publicly
traded upon completion of this offering of our capital stock (and, we anticipate, will continue to be publicly traded), we cannot
guarantee that this will always be the case.
Taxation
of Non-U.S. Holders of Our Capital Stock
The
following discussion addresses the rules governing U.S. federal income taxation of the acquisition, ownership and disposition of our
capital stock by non-U.S. holders. These rules are complex and constantly evolving from a regulatory and IRS guidance perspective,
and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address all
aspects of U.S. federal income taxation and does not address other federal, state, local or non-U.S. tax consequences that may be relevant
to a non-U.S. holder in light of its particular circumstances. We urge non-U.S. holders to consult their tax advisors to determine the
impact of U.S. federal, state, local and non-U.S. income and other tax laws and the applicability of available income tax or
related treaties on the purchase, ownership and disposition of shares of our capital stock, including any information
reporting requirements.
Distributions
Generally.
Distributions
(including any taxable stock distributions) that are neither attributable to gains from sales or exchanges by us of United States real
property interests (“USRPIs”), nor designated by us as capital gain dividends (except as described below) will be
treated as dividends of ordinary income to the extent that they are made out of our current or accumulated earnings and profits. Such
distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty for which an applicable non-U.S. holder qualifies, unless the distributions are treated as
effectively connected income with the conduct by the non-U.S. holder of a trade or business within the United States (or,
if pursuant to an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to
which such dividends are attributable). Under certain treaties, however, lower withholding rates generally applicable to dividends do
not apply to dividends paid from a REIT. Certain certification and disclosure requirements must be satisfied for a non-U.S. holder
to be exempt from withholding under the effectively connected income exemption. Dividends that are treated as effectively connected with
a U.S. trade or business generally will not be subject to withholding but will be subject to U.S. federal income tax on a net basis at
the regular graduated ordinary federal income tax rates, or current 21% federal corporate income tax rate, in the same manner
as dividends paid to U.S. holders are subject to U.S. federal income tax. Any such dividends received by a non-U.S. holder that is a
corporation may also be subject to an additional branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes
paid on such effectively connected income) or such lower rate as may be specified by an applicable income tax treaty for which an
applicable non-U.S. holder qualifies.
Except
as otherwise provided below, we expect to withhold U.S. federal income tax at the rate of 30% on any distributions made to a non-U.S.
holder unless:
(1) |
a
lower treaty withholding tax rate applies and the non-U.S. holder furnishes a timely completed IRS Form W-8BEN or W-8BEN-E
(or other applicable documentation) evidencing eligibility for that reduced treaty rate; or |
|
|
(2) |
the
non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively
connected with the non-U.S. holder’s trade or business; or |
|
|
(3) |
the non-U.S. holder, if acting as an intermediary, furnishes
a completed IRS Form W- 8 IMY (or other applicable documentation), with accompanying timely completed IRS Form W-8BENs or W-8BEN-Es
(or other applicable documentation) for ultimate beneficial owners of such distributions evidencing eligibility for reduced treaty
rates. |
Distributions
in excess of our current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions
do not exceed the adjusted tax basis of the holder’s capital stock, but rather will reduce the adjusted tax basis of such
stock. To the extent that such distributions exceed the non-U.S. holder’s adjusted tax basis in such capital stock, they
generally will give rise to gain from the sale or exchange of such stock, the tax treatment of which is described below. However, under
current U.S. tax law such excess distributions may be treated as dividend income for certain non-U.S. holders. For withholding
purposes, we expect to treat all distributions as made out of our current or accumulated earnings and profits. However, amounts withheld
may be refundable if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings
and profits, provided that certain conditions are met.
Capital
Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests.
Distributions
paid to a non-U.S. holder that we properly designate as capital gain dividends, other than those arising from the disposition
of a USRPI, generally should not be subject to U.S. federal income taxation, unless:
(1) |
the
investment in our capital stock is treated as effectively connected income with the conduct by the non-U.S. holder
of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains
a permanent establishment in the United States to which such dividends are attributable), in which case the non-U.S. holder will
be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may
also be subject to a branch profits tax of up to 30%, as discussed above; or |
(2) |
the
non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year
and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30%
on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset
by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of the United States),
provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. |
Pursuant
to the Foreign Investment in Real Property Tax Act (“FIRPTA”), distributions to a non-U.S. holder that are attributable
to gain from sales, dispositions, or exchanges by us of USRPIs, whether or not designated as capital gain dividends, may
cause the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business. As
a result of FIRPTA, non-U.S. holders generally would either be taxed at (i) the regular graduated federal income
tax rates in the case of individuals or (ii) the flat 21% federal corporate income tax rate applicable to U.S. holders, subject
to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Additionally,
distributions made to non-U.S. holders that are foreign corporations may also be subject to a 30% branch profits tax. In this context,
under current law, we may be required to withhold and to remit to the IRS 21% (or 20% to the extent provided in applicable Treasury
Regulations) of any distribution to non-U.S. holders attributable to any gain from sales, dispositions, or exchanges by
us of USRPIs. The amount withheld would be creditable against the non-U.S. holder’s ultimate U.S. federal income
tax liability. However, any distribution with respect to any class of stock that is “regularly traded,” as defined by applicable
Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA withholding or underlying
taxation, and therefore, not subject to the 21% U.S. withholding tax described above, provided the non-U.S. holder did not
own more than 10% of such class of stock at any time during the one-year period ending on the date of the distribution. Instead, such
distributions generally would be treated as ordinary dividend distributions and subject to withholding in the manner described
above with respect to ordinary dividends. In addition, distributions to certain non-U.S. publicly traded stockholders that meet certain
record-keeping and other requirements (“qualified shareholders”) are exempt from FIRPTA, except to the extent owners of such
qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock.
Furthermore, distributions to “qualified foreign pension funds” or entities all of the interests of which are held by “qualified
foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of
these rules.
Retention
of Net Capital Gains.
Although
the law is not clear on the matter, it would appear that amounts we designate as retained net capital gains in respect of our
capital stock should be treated with respect to non-U.S. holders as actual distributions of capital gain dividends. Under this
approach, the non-U.S. holders may be able to offset as a credit against their U.S. federal income tax liability their proportionate
share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund to the extent their proportionate
share of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were to designate any portion of our net capital
gain as retained net capital gain, non-U.S. holders should consult their tax advisors regarding the taxation of such retained net capital
gain.
Participation
in the Dividend Reinvestment Plan.
Non-U.S.
holders who elect to participate in the Dividend Reinvestment Plan will generally have the tax consequences described above under “—
Taxation of Taxable U.S. Holders of Our Capital Stock – Participation in the Dividend Reinvestment Plan,” except that
the tax consequences of the resulting distribution will be as described above under this section entitled “— Taxation of
Non-U.S. Holders of Our Capital Stock.”
Sale
of Our Capital Stock.
Except
as described below under “— Redemption of Repurchase by Us,” gain
realized by a non-U.S. holder upon the sale, disposition, exchange or other taxable disposition of our capital stock generally
will not be subject to U.S. federal income tax unless such stock constitutes a USRPI. In general, stock of a domestic corporation that
constitutes a “United States real property holding corporation” (“USRPHC”) will constitute a USRPI. We
believe that we are a USRPHC. Our capital stock will not, however, constitute a USRPI so long as we are a “domestically
controlled qualified investment entity.” A “domestically controlled qualified investment entity” includes a REIT in
which at all times during a five-year testing period less than 50% in value of its stock is held directly or indirectly by non-United
States persons, subject to certain rules. For purposes of determining whether a REIT is a “domestically controlled qualified investment
entity,” a person who at all applicable times holds less than 5% of a class of stock that is “regularly traded” is
treated as a United States person unless the REIT has actual knowledge that such person is not a United States person. Recently finalized Treasury Regulations provide additional guidance for determining whether a REIT is a domestically controlled qualified investment
entity and clarify, among other things, that ownership by non-U.S. persons (other than persons treated as United States persons as described
in the preceding sentence) will be determined by looking through pass-through entities and certain U.S. corporations. We believe,
but cannot guarantee, that we are a “domestically controlled qualified investment entity.” Because our capital stock
will be publicly traded upon completion of this offering of our capital stock (and, we anticipate, will continue to be publicly
traded), no assurance can be given that we will continue to be a “domestically controlled qualified investment entity.”
Even
if we do not qualify as a “domestically controlled qualified investment entity” at the time a non-U.S. holder sells our capital
stock, gain realized from the sale or other taxable disposition by a non-U.S. holder of such capital stock would not be subject
to U.S. federal income tax under FIRPTA as a sale of a USRPI if:
(1) |
our
capital stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities
market such as Nasdaq; and |
(2) |
such
non-U.S. holder owned, actually and constructively, 10% or less of our capital stock throughout the shorter of the five-year
period ending on the date of the sale or other taxable disposition or the non-U.S. holder’s holding period. |
In
addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such
qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock.
Furthermore, dispositions of our capital stock by “qualified foreign pension funds” or entities all of the interests
of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax
advisors regarding the application of these rules.
Notwithstanding
the foregoing, gain from the sale, disposition, exchange or other taxable disposition of our capital stock not otherwise
subject to FIRPTA will be taxable to a non-U.S. holder if either (a) the investment in our capital stock is treated as effectively
connected income with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by
an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable),
in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S.
holder that is a corporation may also be subject to the 30% branch profits tax (or such lower rate as may be specified by an applicable
income tax treaty) on such gain, as adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present
in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder
would be subject to a 30% tax on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income
tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a
resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
In addition, even if we are a domestically controlled qualified investment entity, upon disposition of our capital stock, a non-U.S.
holder may be treated as having gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such
stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have
been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is deemed
to acquire, other shares of that stock during the 61-day period beginning with the first day of the 30-day period described in clause
(1), unless such stock is “regularly traded” and the non-U.S. holder did not own more than 10% of the stock at any time during
the one-year period ending on the date of the distribution described in clause (1).
If
gain on the sale, disposition, exchange or other taxable disposition of our capital stock were subject to taxation under
FIRPTA, the non-U.S. holder would be required to file a U.S. federal income tax return and would be subject to regular U.S. federal income
tax with respect to such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). In addition, if the sale, disposition, exchange or other
taxable disposition of our capital stock were subject to taxation under FIRPTA, and if shares of our capital stock were
not “regularly traded” on an established securities market, the purchaser of such capital stock generally would likely
be required to withhold and remit to the IRS 15% of the purchase price.
Redemption or Repurchase
by Us.
A redemption
or repurchase of shares of our capital stock will be treated under Section 302 of the Code as a distribution (and taxable as a dividend
to the extent of our current and accumulated earnings and profits) unless the redemption or repurchase satisfies one of the tests set
forth in Section 302(b) of the Code and is therefore treated as a sale, disposition, or exchange of the redeemed or repurchased shares. See “—
Taxation of Taxable U.S. Holders of Our Capital Stock — Redemption or Repurchase by Us.” Qualified shareholders and their
owners may be subject to different rules, and should consult their tax advisors regarding the application of such rules. If the redemption
or repurchase of shares is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair
market value of any property received. See “— Taxation of Non-U.S. Holders of Our Capital Stock — Distributions Generally”
above. If the redemption or repurchase of shares is not treated as a distribution, it will be treated as a taxable sale or exchange in
the manner described above under “— Sale of Our Capital Stock.”
Information
Reporting and Backup Withholding
U.S.
Holders.
A
U.S. holder may be subject to information reporting and backup withholding when such holder receives payments on our capital stock
or proceeds from the sale or other taxable disposition of such stock. Certain U.S. holders are exempt from backup withholding, including
corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise
exempt and:
● |
the
holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social
security number; |
● |
the
holder furnishes an incorrect taxpayer identification number; |
● |
the
applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or
dividends; or |
● |
the
holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that
the IRS has not notified the holder that the holder is subject to backup withholding. |
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against a U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S.
holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for
obtaining such an exemption.
Non-U.S.
Holders.
Payments
of dividends on our capital stock generally will not be subject to backup withholding, provided the applicable withholding agent
does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status,
such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or W-8IMY (with appropriate supporting W-8s for corresponding beneficial
owners) or otherwise establishes an exemption. However, information withholding returns are required to be filed with the
IRS in connection with any U.S. source dividends on our capital stock paid to the non-U.S. holder, regardless of whether
any tax was actually withheld. In addition, proceeds from the sale or other taxable disposition of such stock within the United
States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting,
if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that
such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of such stock conducted
through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies
of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement
to the tax authorities of the country in which the non-U.S. holder resides or is established.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Medicare
Contribution Tax on Unearned Income
Certain
U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on
stock and capital gains from the sale or other disposition of stock. U.S. holders should consult their tax advisors regarding the effect,
if any, of these rules on their ownership and disposition of our capital stock.
Additional
Withholding Tax on Payments Made to Foreign Accounts
Withholding
taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance
Act (“FATCA”) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities.
Specifically, a 30% withholding tax may be imposed on dividends on our capital stock paid to a “foreign financial institution”
or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes
certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial
United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner,
or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the
payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter
into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held
by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the
Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial
institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental
agreement with the United States governing FATCA may be subject to different rules.
Under
the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on
our capital stock. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes
at the time it is made, for purposes of these withholding rules we may treat the entire distribution as a dividend.
Prospective
investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our
capital stock.
Other
Tax Consequences
State,
local and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws, and this discussion
does not purport to describe any aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than
the income tax. You should consult your tax advisor regarding the effect of state, local and non-U.S. tax laws with respect to our tax
treatment as a REIT and on an investment in our capital stock.
LEGAL
MATTERS
Certain
legal matters relating to this offering will be passed upon for us by Sichenzia Ross Ference Carmel LLP, New York, New York and certain
legal matters regarding U.S. federal income tax matters will be passed upon for us by Whiteford, Taylor & Preston L.L.P., Baltimore,
Maryland. Certain matters of Maryland law will be passed upon for us by Venable LLP, Baltimore, Maryland. If legal matters in connection
with offerings made by this prospectus are passed on by counsel for the underwriters, dealers or agents, if any, that counsel will be
named in the applicable prospectus supplement.
EXPERTS
The
consolidated financial statements of Presidio Property Trust, Inc. as of December 31, 2023 and 2022 and for each of the years in the
two-year period ended December 31, 2023 are incorporated in this prospectus by reference from the Presidio Property Trust, Inc. Annual
Report on Form 10-K/A for the year ended December 31, 2023 and have been audited by Baker Tilly US, LLP, an independent registered public
accounting firm, as stated in their report thereon, incorporated herein by reference, and have been incorporated by reference in this
prospectus and registration statement in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, reports quarterly and special reports, proxy statements and other information with the SEC. You can read our SEC filings,
including this registration statement, over the internet at the SEC’s website at www.sec.gov. We also make this information available
on the investors’ relations section of our website at www.presidiopt.com. Information on, or accessible through, our website is
not part of, and is not incorporated into, this prospectus or the registration statement of which it forms a part.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
We
are “incorporating by reference” in this prospectus certain documents we file with the SEC, which means that we can disclose
important information to you by referring you to those documents. The information in the documents incorporated by reference is considered
to be part of this prospectus. Statements contained in documents that we file with the SEC and that are incorporated by reference in
this prospectus will automatically update and supersede information contained in this prospectus, including information in previously
filed documents or reports that have been incorporated by reference in this prospectus, to the extent the new information differs from
or is inconsistent with the old information. We have filed or may file the following documents with the SEC and they are incorporated
herein by reference as of their respective dates of filing.
● |
our
Annual Report on Form
10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 16, 2024, as amended by our Annual Report on
Form
10-K/A for the fiscal year ended December 31, 2023, filed with the SEC on April 17, 2024 as further amended by our Annual
Report on Form 10-K/A for the fiscal year ended December 31, 2023, filed with the SEC on April 26, 2024; |
● |
our
Current Reports on Form 8-K filed with the SEC on January
5, 2024, February
9, 2024, March
22, 2024, April
8, 2024, and April
11, 2024; and |
● |
the
description of our Series A Common Stock set forth in the registration statement on Form 8-A
registering our Series A Common Stock under Section 12 of the Exchange Act, which was filed with the SEC on October 2, 2020, including
any amendments or reports filed for purposes of updating such description. |
All
documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and before
the termination or completion of this offering of our securities shall be deemed to be incorporated by reference in this prospectus and
to be a part of it from the filing dates of such documents, except in each case for information contained in any such filing where we
indicate that such information is being furnished and is not to be considered “filed” under the Securities Exchange Act of
1934, as amended.
Any
statement contained in a document incorporated or deemed to be incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a statement contained in this prospectus, or in any subsequently
filed document that also is deemed to be incorporated by reference in this prospectus, modifies, supersedes or replaces such statement.
Any statement so modified, superseded or replaced shall not be deemed, except as so modified, superseded or replaced, to constitute a
part of this prospectus. None of the information that we disclose under Items 2.02 or 7.01 of any Current Report on Form 8-K or any corresponding
information, either furnished under Item 9.01 or included as an exhibit therein, that we may from time to time furnish to the SEC will
be incorporated by reference into, or otherwise included in, this prospectus, except as otherwise expressly set forth in the relevant
document. Subject to the foregoing, all information appearing in this prospectus is qualified in its entirety by the information appearing
in the documents incorporated by reference.
Documents
incorporated by reference are available from us without charge, excluding all exhibits unless we have specifically incorporated by reference
the exhibit in this prospectus. You may obtain documents incorporated by reference in this prospectus by requesting them in writing or
by telephone from:
Presidio
Property Trust, Inc.
4995
Murphy Canyon Road, Suite 300
San
Diego, CA 92123
Attention: Secretary
Telephone:
(760) 471-8536
Presidio
Property Trust, Inc.
Shares
of 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock
PROSPECTUS
SUPPLEMENT
|
Sole
Book Running Manager
|
|
The
Benchmark Company, LLC |
,
2024
Presidio Property (NASDAQ:SQFTW)
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