Registration
No. 333-280766
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT #1 TO
FORM
S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
STRAWBERRY
FIELDS REIT, INC.
(Exact
name of registrant as specified in its charter)
Maryland
(State
or other jurisdiction of incorporation or organization)
84-2336054
(I.R.S.
Employer Identification Number)
6101
Nimtz Parkway, South Bend, IN 46628
(574)
807-0800
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
David
M. Gross, Esq.
Strawberry
Fields REIT, Inc.
5683
North Lincoln Ave.
Chicago
IL 60659
(574)
807-0800
(Name,
address, including zip code, and telephone number, including area code of agent for service)
Please
send copies of all communications, including copies of all communications sent to agent for service, to:
Richard
Pearlman, Esq.
Christina
Ahrens, Esq.
Igler
and Pearlman, P.A.
2457
Care Drive, Suite 203
Tallahassee,
Florida 32308
From
time to time after the effective date of this registration statement
(Approximate
date of commencement of proposed sale to the public)
If
the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check
the following box: ☐
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following
box: ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective
upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ☐
If
this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| |
Large
accelerated filer |
☐ |
Accelerated filer |
☐ |
| |
Non-accelerated
filer |
☒ |
Smaller reporting company |
☒ |
| |
|
|
Emerging
growth company |
☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section 7(a)(2)(B) of the Securities Act. ☐
If
applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange
Act Rule 14e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange
Act Rule 14d-1(d) (Cross-Border Third-party Tender Offer) ☐
The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date
as the Commission, acting pursuant to Section 8(a), may determine.
EXPLANATORY
NOTE
Strawberry
Fields REIT, Inc., or the registrant, believes that filing a shelf registration statement provides it with the flexibility to issue and
sell securities if and when deemed appropriate and in the best interests of its stockholders. The registrant may or may not issue and
sell any securities under this registration statement.
This
registration statement contains:
●
a base prospectus which covers the offering, issuance and sale by the registrant of up to a maximum aggregate offering price of $100,000,000
of the securities identified above from time to time in one or more offerings, including the “at the market offering”
as described below; and
●
a sales agreement prospectus covering the offering, issuance and sale by the registrant of up to a maximum aggregate offering price of
$24,000,000 of the Registrant’s common stock that may be issued and sold under an At Market Issuance Sales Agreement by
and among the registrant, B. Riley Securities, Inc., and A.G.P. / Alliance Global Partners (the “Sales Agreement”).
The
base prospectus immediately follows this explanatory note. The specific terms of any securities to be offered pursuant to the base prospectus
will be specified in a prospectus supplement to the base prospectus. The sales agreement prospectus immediately follows the base prospectus.
The common stock that may be offered, issued and sold by the registrant under the sales agreement prospectus is included in the $100,000,000
of securities that may be offered, issued and sold by the registrant under the base prospectus. Upon termination of the Sales Agreement,
any portion of the $24,000,000 included in the sales agreement prospectus that is not sold pursuant to the Sales Agreement will
be available for sale in other offerings pursuant to the base prospectus and a corresponding prospectus supplement, and if no shares
are sold under the Sales Agreement, the full $24,000,000 of securities not sold may be sold in other offerings pursuant to the
base prospectus and a corresponding prospectus supplement.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED JULY 25, 2024
PROSPECTUS
STRAWBERRY
FIELDS REIT, INC.
$100,000,000
Shares
of Common Stock
Shares
of Preferred Stock
Warrants
Subscription
Rights
Units
We
may offer and sell, from time to time, together or separately, in one or more offerings, (i) shares of common stock, par value $0.0001
per share, which we refer to herein as “common stock,” (ii) shares of preferred stock, par value $0.0001 per share, which
we may issue in one or more series and which we refer to herein as “preferred stock,” (iii) warrants to purchase our equity
securities, (iv) subscription rights, and (v) units consisting of two or more of the foregoing, up to a maximum aggregate offering price
of $100,000,000.
We
will offer our securities in amounts, at prices and on the terms to be determined at the time we offer the securities. Each time we offer
securities, we will provide a supplement to this prospectus that will contain more specific information about the terms of that offering,
including the price at which those securities will be sold. We may also add, update or change in the prospectus supplement any of the
information contained in this prospectus. Our common stock is listed for trading on the NYSE American under the trading symbol “STRW.”
Each prospectus supplement will indicate if the securities offered thereby will be listed on any securities exchange.
The
securities may be offered on a delayed or continuous basis and may be offered and sold directly by us, through agents, underwriters or
dealers as designated from time to time, through a combination of these methods or through any other method provided in the applicable
prospectus supplement. If any underwriters are involved in the sale of the securities, the names of such underwriters and any applicable
commissions or discounts will be set forth in a prospectus supplement. For additional information on the methods of sale of the securities,
you should refer to the section entitled “Plan of Distribution” in this prospectus and to the corresponding section in the
applicable prospectus supplement. You should read this prospectus and the applicable prospectus supplement carefully before you invest.
This
prospectus may not be used to sell securities unless accompanied by a prospectus supplement or a free writing prospectus.
We
are organized and conduct our operations so as to qualify as a real estate investment trust, or REIT, for federal income tax purposes.
The specific terms of the securities may include limitations on actual, beneficial or constructive ownership and restrictions on the
transfer of the securities that may be appropriate to preserve our status as a REIT.
Investing
in our securities involves substantial risks. See “Risk Factors” on page 5 of this prospectus.
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 ________, 2024
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the United States Securities and Exchange Commission (the “SEC”),
utilizing a “shelf” registration process, which allows us to sell the securities covered by this prospectus from time to
time, together or separately, in one or more offerings up to an aggregate public offering price of $100,000,000.
This
prospectus only provides you with a general description of the securities we may offer. Each time we sell securities, we will provide
a supplement to this prospectus that will contain specific information about the terms of that offering, including the number of securities,
and the price at which, and the specific manner in which, those securities may be offered and sold. The prospectus supplement may also
add to, update or change information contained in this prospectus. Before purchasing any securities, you should carefully read both this
prospectus and any supplement, together with additional information described under the heading “Where You Can Find More Information.”
You
should rely only on the information contained or incorporated by reference in this prospectus and any prospectus supplement or amendment.
We have not authorized any other person to provide you information different from that contained in this prospectus or incorporated by
reference in this prospectus or any prospectus supplement or amendment. You should assume that the information appearing in this prospectus
or any applicable prospectus supplement or the documents incorporated by reference herein or therein is accurate only as of the date
on the cover page. Our business, financial condition, results of operations and prospects may have changed since that date.
Unless
the context requires otherwise, references to “Strawberry”, the “Company”, “we”, “our”,
“ours” and “us” are to Strawberry Fields REIT, Inc. and its subsidiaries included in our consolidated financial
statements. The phrase “this prospectus” refers to this prospectus and the applicable prospectus supplement, unless the context
otherwise requires. References to “securities” refer to the shares of common stock, shares of preferred stock, warrants and
subscription rights offered by this prospectus, unless we specify or the context indicates or requires otherwise.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and special reports, proxy statements and other information with the SEC. Our electronic filings with the SEC
are available to the public on the Internet at the SEC’s web site at http://www.sec.gov.
We
also maintain an Internet site where you can find additional information. The address of our Internet site is https://www.strawberryfieldsreit.com/.
All internet addresses provided in this prospectus or in any accompanying prospectus supplement are for informational purposes only and
are not intended to be hyperlinks. In addition, the information on our Internet website, or any other Internet site described herein,
is not a part of, and is not incorporated or deemed to be incorporated by reference in, this prospectus or any accompanying prospectus
supplement or other offering materials.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC’s rules allow us to incorporate by reference information into this prospectus. This means that we can disclose important information
to you by referring you to another document. Any information referred to in this way is considered part of this prospectus from the date
we file that document. Any reports filed by us with the SEC after the date of this prospectus will automatically update and, where applicable,
supersede any information contained in this prospectus or incorporated by reference in this prospectus. We incorporate by reference the
following documents (other than information “furnished” and not “filed”):
| ● | Our
Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March
19, 2024, and as amended by the Form 10-K/A filed with the SEC on May 8, 2024, (the “2023
Form 10-K”); |
| | | |
| ● | Our
March 31, 2024 Quarterly Report on Form 10-Q filed with the SEC on May 14, 2024. |
| | | |
| ● | Our
definitive proxy statement on Schedule 14A, filed with the SEC on April 16, 2024; |
| | | |
| ● | Our
Current Report on Form 8-K, filed on June 3, 2024; and |
| | | |
| ● | The
description of our securities registered with the SEC pursuant to Section 12 of the Exchange
Act included as Exhibit 4.1 to the 2023 Form 10-K. |
All
documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this prospectus and prior
to the termination of the offering of the securities to which this prospectus relates (other than information in such documents that
is furnished and not deemed to be filed) shall also be deemed to be incorporated by reference into this prospectus and to be part hereof
from the date of filing of those documents.
We
will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon his or her written
or oral request, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus,
excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. You may request a
copy of these filings, at no cost, by writing or telephoning us at our principal executive office:
Strawberry
Fields REIT, Inc.
Attn:
David Gross
6101
Nimtz Parkway,
South
Bend, IN 46628
(574)
807-0800
You
should rely only on the information contained or incorporated by reference in this prospectus and the applicable prospectus supplement.
We have not authorized anyone else to provide you with additional or different information. We are not making an offer of these securities
in any state where the offer is not permitted. You should not assume that the information in this prospectus or the applicable prospectus
supplement or any document incorporated by reference is accurate as of any date other than the dates of the applicable documents.
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in this prospectus are “forward-looking statements” within the meaning of the U.S. federal securities laws. Forward-looking
statements provide our current expectations or forecasts of future events and are not statements of historical fact. This prospectus
also contains forward-looking statements by third parties relating to market and industry data and forecasts; forecasts and other forward-looking
information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements
contained in this prospectus. These forward-looking statements include information about possible or assumed future events, including,
among other things, discussion and analysis of our future financial condition, results of operations, Funds From Operations (“FFO”),
our strategic plans and objectives, cost management, potential property acquisitions, anticipated capital expenditures (and access to
capital), amounts of anticipated cash distributions to our stockholders in the future and other matters. Words such as “anticipates,”
“expects,” “intends,” “plans,” “believes,” “seeks,” “estimates”
and variations of these words and other similar expressions are intended to identify forward-looking statements. These statements are
not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking
statements.
Forward-looking
statements involve inherent uncertainty and may ultimately prove to be incorrect or false. Readers are cautioned to not place undue reliance
on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could
differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited
to:
| ● | risks
and uncertainties related to the national, state and local economies, particularly the economies
of Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas,
and the real estate and healthcare industries in general; |
| ● | availability
and terms of capital and financing; |
| ● | the
impact of existing and future healthcare reform legislation on our tenants, borrowers and
guarantors; |
| ● | adverse
trends in the healthcare industry, including, but not limited to, changes relating to reimbursements
available to our tenants by government or private payors; |
| ● | competition
in long-term healthcare industry and shifts in the perception of various types of long-term
care facilities, including skilled nursing facilities; |
| ● | the
impact of COVID-19 on our business and the business of our tenants and operators, including
without limitation, increased costs and decreased occupancy levels experienced by operators
of skilled nursing facilities; |
| ● | our
tenants’ ability to make rent payments; |
| ● | our
dependence upon key personnel whose continued service is not guaranteed; |
| ● | availability
of appropriate acquisition opportunities and the failure to integrate successfully; |
| ● | ability
to source target-marketed deal flow; |
| ● | ability
to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or
to deploy the proceeds therefrom on favorable terms; |
| ● | fluctuations
in mortgage and interest rates; |
| ● | changes
in the ratings of our debt securities; |
| ● | risks
and uncertainties associated with property ownership and development; |
| ● | the
potential need to fund improvements or other capital expenditures out of operating cash flow; |
| ● | potential
liability for uninsured losses and environmental liabilities; |
| ● | the
outcome of pending or future legal proceedings; |
| ● | changes
in tax laws and regulations affecting REITs; |
| ● | our
ability to maintain our qualification as a REIT; and |
| ● | the
effect of other factors affecting our business or the businesses of our operators that are
beyond our or their control, including natural disasters, other health crises or pandemics
and governmental action; particularly in the healthcare industry. |
This
list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive.
New risks and uncertainties may also emerge from time to time that could materially and adversely affect us.
OUR
COMPANY
We
are a self-managed and self-administered real estate company that specializes in the acquisition, ownership and triple-net leasing of
skilled nursing facilities and other post-acute healthcare properties. We generate substantially all of our revenues by leasing our properties
to tenants under long-term leases primarily on a triple-net basis, under which the tenant pays the cost of real estate taxes, insurance
and other operating costs of the facility and capital expenditures.
We
elected to be taxed as a REIT for U.S. federal income tax purposes, pursuant to the Internal Revenue Code of 1986, as amended (the
“Code”), commencing with our taxable year ending December 31, 2022. We believe that we have been organized and have operated,
and we intend to continue to operate, in a manner to qualify for taxation as a REIT. We operate through an umbrella partnership, commonly
referred to as an UPREIT structure, in which substantially all of our properties and assets are held through Strawberry Fields Realty,
L.P. (the “Operating Partnership”). We are the general partner of the Operating Partnership. To maintain REIT status, we
must meet certain organizational and operational requirements, including requirements related to the sources of our gross income
and the composition of our assets, limitations on the concentration of ownership of our stock, and minimum distribution requirements
based on our taxable income.
The
Company’s common stock is registered with the SEC under the Exchange Act, and files periodic reports with the SEC. The Company’s
common stock trades on The NYSE American under the symbol “STRW.”
RISK
FACTORS
An
investment in our common stock involves risks. Before making an investment decision, you should carefully consider the following risk
factors, which address the material risks concerning our business and an investment in our common stock, together with the other information
contained in this prospectus. If any of the risks discussed in this prospectus were to occur, our business, prospects, financial condition,
liquidity, and results of operations and our ability make distributions to our stockholders and achieve our goals could be materially
and adversely affected, the value of our common stock could decline significantly and you could lose all or a part of your investment.
Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please
refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Capitalized
terms or acronyms used below which are undefined herein are defined in our 2023 Form 10-K, which is incorporated by reference herein.
Risks
Related to Business and Operations
We
lease 65 of our facilities to tenants that are affiliates of Moishe Gubin, who serves as Chairman of the Board and our Chief Executive
Officer, and Michael Blisko, who serves as one of our directors. As of March 31, 2024, approximately 69.6% of our annualized base rent
was attributable to these related-party tenants. The failure of these tenants to perform their obligations under their leases or renew
their leases upon expiration could have a material adverse effect on our business, financial condition and results of operations.
As
of March 31, 2024, 65 of our facilities are leased to tenants that are affiliates of Moishe Gubin, who serves as Chairman of the Board
and our Chief Executive Officer and Michael Blisko, who serves as one of our directors. As of March 31, 2024, approximately 69.6% of
our annualized base rent was attributable to these related party tenants. We expect that leases to related party tenants will continue
to be the primary source of our revenues for the foreseeable future. Due to such concentration, any failure by these entities to perform
their obligations under their leases or a failure to renew their leases upon expiration, could cause interruptions in the receipt of
lease revenue or result in vacancies, or both, which would reduce our revenue until the affected properties are leased, and could decrease
the ultimate value of the affected property upon sale and have a material adverse effect on our business, financial condition and results
of operations.
The
leases with related parties have not been negotiated on an arm’s-length basis, and the terms of those agreements may be less or
more favorable to us than they might otherwise have been in arm’s-length transactions.
While
we endeavor to have our leases with related parties reflect customary, arm’s-length commercial terms and conditions, these agreements
were not the result of arm’s-length negotiations, and consequently there can be no assurance that the terms of these agreements
were as favorable to us as if they had been negotiated with unaffiliated third parties. In addition, we may choose not to enforce, or
to enforce less vigorously, our rights under these leases because of our desire to maintain our ongoing relationship with these affiliates.
As of March 31, 2024, Moishe Gubin, our Chairman and Chief Executive Officer, and Michael Blisko, one of our directors, are the controlling
members of 65 of our tenants and related operators. Messrs. Gubin and Blisko are subject to potential conflicts of interest due to their
ownership of these tenants and their duties as directors of the Company. As a result of these conflicts, transactions between the Company
and these related party tenants would require approval of the audit committee of our board of directors, comprised of independent directors,
under our conflicts of interest policies.
We
have entered into 11 master lease agreements with respect to 88 of our facilities, including four master lease agreements with tenants
that are affiliates of Moishe Gubin, who serves as Chairman of the Board and our Chief Executive Officer, and Michael Blisko, who serves
as one of our directors. As of March 31, 2024, these 11 master leases represent approximately 76.2% of the annualized base rent under
all of our leases. The failure of these tenant/operators to meet their obligations to us could materially and adversely affect our business,
financial condition and results of operations and our ability to make distributions to our stockholders.
Each
master lease agreement provides that the tenants under the master lease are jointly and severally liable for the obligations of all of
the other tenants under such master lease. The tenants under each master lease agreement are affiliates of each other.
Rental
income under the master leases represents approximately 76.2% of our annualized base rent. Six of these master lease agreements account
for more than 5% of our annualized base rent and range from 6.7% to 16.8% of our annualized base rent.
Because
our tenants under each master lease agreement are affiliates of each other, the failure of one tenant, or operator under a master lease,
may cause the decline in the performance of all of the tenants or operators under the master lease, leading to a lease payment default
by multiple tenants.
In
addition, the affiliation of the tenants under each master lease increases the potential financial impact to us of an adverse event that
affects one of these tenant/operators, such as legal proceedings that seek to suspend or exclude an operator or its principals or employees
from Medicaid, Medicare or similar government programs, or otherwise make the tenant/operator ineligible for reimbursement. This type
of event could affect all of the tenants under a particular master lease, which could lead to defaults by all of the tenants under that
master lease.
Lease
payment defaults under any lease including the master lease agreements or declines in the operating performance of groups of tenants
could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions
to our stockholders.
If
a substantial number of our tenants default, we could lose a significant portion of our revenue. In the event of such a default, we may
experience delays in enforcing our rights as lessor and may incur substantial costs in protecting our investment and re-leasing these
properties. Further, we cannot assure you that we will be able to re-lease these properties for the rent previously received, or at all,
or that lease terminations will not cause us to sell the properties at a loss. The result of any of the foregoing risks could materially
and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
We
face potential adverse consequences of any bad acts that may be committed by our tenants, operators, borrowers, managers, and other obligors.
We
are exposed to the risk that our tenants, operators, borrowers, managers, or other obligors could commit bad acts in relation to their
businesses. Although our lease agreements will provide us with the right to exercise certain remedies in the event of default or upon
the occurrence of certain events, such events could impact those counterparties’ ability to run their businesses in a manner in
which they can fulfil their obligations to us.
Our
growth strategy will depend upon future acquisitions of healthcare properties, and we may be unsuccessful in identifying and consummating
attractive acquisitions or taking advantage of other investment opportunities, which would impede our growth.
Our
ability to expand through acquisitions is integral to our business strategy and requires that we identify and consummate suitable acquisition
or investment opportunities that meet our investment criteria and are compatible with our growth strategy. We may not be successful in
identifying and consummating acquisitions or investments in healthcare properties that meet our investment criteria, which would impede
our growth. In addition, general fluctuations in the market prices of securities and interest rates may affect our investment opportunities
and the value of our investments. Our ability to acquire healthcare properties on favorable terms, or at all, may be adversely affected
by the following significant factors:
| ● | competition
from other real estate investors, including public and private REITs, private equity investors
and institutional investment funds, many of whom may have greater financial and operational
resources and lower costs of capital than we have and may be able to accept more risk than
we can prudently manage; |
| | | |
| ● | competition
from other potential acquirers, which could significantly increase the purchase prices for
properties we seek to acquire; |
| | | |
| ● | we
may incur significant costs and divert management attention in connection with evaluating
and negotiating potential acquisitions, including ones that we are subsequently unable to
complete; |
| | | |
| ● | increases
in interest rates, inflationary pressures on the margins of our portfolio assets may impact
our investment activities. |
Our
failure to identify and consummate attractive acquisitions or take advantage of other investment opportunities without substantial expense,
delay or other operational or financial problems, would impede our growth and negatively affect our results of operations and cash available
for distribution to our stockholders.
Our
real estate investments are, and are expected to continue to be, concentrated in skilled nursing facilities, which could adversely affect
our operations relative to a more diversified portfolio of assets.
We
primarily invest in properties operated as skilled nursing facilities. As of March 31, 2024, approximately 96.6% of our total annualized
base rent is derived from skilled nursing facilities. We are subject to risks inherent in concentrating investments in real estate, and
the risks resulting from a lack of diversification may become even greater as a result of our business strategy to concentrate our investments
in these types of healthcare properties. Any adverse effects that result from these risks could be more pronounced than if we diversified
our investments outside of these types of healthcare properties. Given our focus on skilled nursing facilities, our tenant base is limited
to operators of this type of facility and dependent upon the healthcare industry generally, and in particular, that the Federal and State
governments, through their administration of the Medicare and Medicaid programs, have significant control over the amount and conditions
of payment for services rendered and increasingly on conditions for operation, which impact our tenants’ revenues. Any changes
in reimbursement or conditions of payment or operation which adversely impact our tenants’ revenues, as well as, any industry downturn
or negative regulatory or governmental development could adversely affect the ability of our tenants to make lease payments and our ability
to maintain current rental and occupancy rates. Accordingly, a downturn in the healthcare industry generally, or in the healthcare-related
facility specifically, could adversely affect our business, financial condition and results of operations and our ability to make distributions
to our stockholders.
Inflation
could adversely impact our operators and our results of operations.
Inflation,
both real or anticipated, as well as any resulting governmental policies, could adversely affect the economy and the costs of labor,
goods and services to our operators or borrowers. Our long-term leases and loans typically contain provisions such as rent and interest
escalators that are designed to mitigate the adverse impact of inflation on our results of operations. However, these provisions may
have limited effectiveness at mitigating the risk of high levels of inflation due to contractual limits on escalation that exist in substantially
all of our escalation provisions. Our leases are triple-net and typically require the operator to pay all property operating expenses,
and therefore, increases in property-level expenses at our leased properties generally do not directly affect us. However, increased
operating costs resulting from inflation have had, and may continue to have, an adverse impact on our operators and borrowers if increases
in their operating expenses exceed increases in their reimbursements, which has affected, and may continue to adversely affect, our operators’
or borrowers’ ability to pay rent or other obligations owed to us.
Increased
labor costs and historically low unemployment may adversely affect our business, results of operations, cash flows and financial condition.
The
market for qualified personnel is highly competitive and our tenants, borrowers and Senior Housing – Managed communities have experienced
and may continue to experience difficulties in attracting and retaining such personnel. An inability to attract and retain trained personnel
has negatively impacted, and may continue to negatively impact, our occupancy rates, operating income and the ability of our tenants
and borrowers to meet their obligations to us. A shortage of caregivers or other trained personnel, minimum staffing requirements or
general inflationary pressures on wages may continue to force tenants, borrowers and Senior Housing – Managed communities to enhance
pay and benefits packages to compete effectively for skilled personnel, or to use more expensive contract personnel, and they may be
unable to offset these added costs by increasing the rates charged to residents and patients. Any further increase in labor costs or
any failure by our tenants, borrowers and Senior Housing – Managed communities to attract and retain qualified personnel could
adversely affect our cash flow and have a materially adverse effect on our results of operations.
An
increase in market Interest rates could increase our interest costs on borrowings on our outstanding indebtedness and future debt and
could adversely affect our stock price.
Interest
rates rose substantially over the past couple of years. Additional increases in interest rates could increase our interest costs for
borrowings on our outstanding debt and any new debt we may incur. This increased cost could make the financing of any new investments
more costly. Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest
rates upon refinancing. In addition, an increase in interest rates could negatively impact the access to and cost of financing available
to third parties interested in purchasing assets we may make available for sale, thereby decreasing the amount they are willing to pay
for those assets, and consequently limit our ability to reposition our portfolio promptly in response to changes in economic or other
conditions.
We
depend on key personnel whose continued service is not guaranteed and each of whom would be difficult to replace.
We
depend on the efforts and expertise of Mr. Gubin, our Chief Executive Officer and Chairman of our board of directors, Mr. Flamion, our
Chief Financial Officer, and Mr. Jeffrey Bajtner, our Chief Investment Officer, to execute our business strategy. If we were to lose
the services of one or more of our executive officers and were unable to find suitable replacements, our business, financial condition
and results of operations and our ability to make distributions to our stockholders could be materially and adversely affected.
We
have a small number of employees, each of whom is important to our success.
We
have only nine full-time employees. Each of them plays a significant role in our success. The loss of any of our employees could have
a material adverse impact on our operations. Additionally, because each employee plays such a critical role in a company of this size,
any instances of human error or exercises of poor business judgment could negatively impact our company.
We
have substantial indebtedness, which could adversely affect our financial condition, results of operations and cash flows.
As
of March 31, 2024, we had total indebtedness of approximately $560.3 million, consisting of $269.4 million in HUD guaranteed debt,
$127.0 million in Series C Bonds and Series D Bonds outstanding and $163.9 million in commercial mortgage loans from third party lenders
that were not guaranteed by HUD. We expect to incur additional debt to finance future acquisitions.
We
currently anticipate that we will have sufficient liquidity to meet our working capital obligations, including our debt service obligations.
Nevertheless,
payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties or to pay the dividends
currently contemplated or necessary to qualify and maintain our qualification as a REIT.
Our
substantial level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including
the following:
| ● | our
cash flows may be insufficient to meet our required principal and interest payments; |
| | | |
| ● | we
may be unable to borrow additional funds as needed or on favorable terms, which could, among
other things, adversely affect our ability to meet operational needs; |
| | | |
| ● | we
may be unable to refinance our indebtedness at maturity or the refinancing terms may be less
favorable than the terms of our original indebtedness; |
| ● | we
may be forced to dispose of one or more of our properties, possibly on unfavorable terms
or in violation of certain covenants to which we may be subject; |
| | | |
| ● | we
may default on our obligations, in which case the lenders or mortgagees may have the right
to foreclose on any properties that secure the loans and/or directly collect rents and other
income from our properties; |
| | | |
| ● | increased
inflation may have a pronounced negative impact on the variable portion of the interest expense
we pay in connection with our outstanding indebtedness, as these costs could increase at
a rate higher than our rents; and |
| | | |
| ● | we
may violate restrictive covenants in our loan documents, which would entitle the lenders
to accelerate our debt obligations or reduce our ability to pay, or prohibit us from paying,
distributions to our stockholders. |
If
any one of these events were to occur, our financial condition, results of operations and cash flows could be materially adversely affected.
Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the
REIT distribution requirements imposed by the Code.
Certain
of our debt agreements include restrictive covenants which could limit our ability to make distributions.
The
indentures for our Series C Bonds and Series D Bonds contain restrictions on the payment of dividends by the BVI Company.
Under
these indentures, the BVI Company may not make any distribution unless certain conditions set forth in the indentures are fulfilled.
These conditions include limitations on annual dividends to a percentage of current income after tax, subject to certain adjustments,
and restrictions on dividends based on BVI Company’s equity and the ratio of BVI Company’s equity to its balance sheet. At
March 31, 2024, the BVI Company would have been permitted to pay dividends of up to $113.6 million under the indentures.
Additionally,
our subsidiaries that have received HUD guaranteed mortgage loans are parties to customary healthcare regulatory agreements with HUD.
These agreements restrict the ability of these subsidiaries to make distributions in the event that the subsidiary does not have surplus
funds to make a distribution. Surplus funds are calculated semi-annually and are funds in excess of the amount then required to make
the payments under the loan and other obligations related to the mortgaged property.
The
restrictions under the indentures for the Series C Bonds, Series D Bonds and the loan agreements for our other loans could affect the
ability of the BVI Company and its subsidiaries to make distributions to the Operating Partnership. This in turn could affect our ability
to make distributions to our stockholders, including cash dividends required to meet the annual distribution requirements applicable
to the Company as a REIT. In such event, we would seek to obtain additional loans or sell additional OP units in order to fund required
distributions or make elective stock dividends.
Mortgage
debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group
of properties subject to mortgage debt.
Substantially
all of our properties have been financed with mortgage debt. Mortgage and other secured debt obligations increase our risk of property
losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our
loss of the property securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could
adversely affect the overall value of our portfolio of properties. For tax purposes, a foreclosure on any of our properties that is subject
to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the
debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we
would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT
distribution requirements imposed by the Code. Foreclosures could also trigger our tax indemnification obligations under the terms of
our tax protection agreements with respect to the sales of certain properties.
The
indenture for the Series C Bonds and Series D Bonds provides for a balloon payment of the entire remaining principal in 2026. The loan
agreement for our $105 million term loan provides for a balloon payment in 2027. The loan agreement for our $66 million term loan provides
for a balloon payment in 2028. We may also obtain additional financing that contains balloon payment obligations. Refinancing these indentures
and loans with balloon payment obligations may be difficult and have a direct effect on us, including our cash flows, financial condition
and ability to make distributions.
The
indenture for the Series C Bond provides for the principal to be repaid in five annual payments. Payments for each of the first four
years covers 6% of the principal total under the Series C Bond and a balloon payment of the entire remaining principal is due in 2026.
The indenture for the Series D Bond provides for the principal to be repaid in three annual payments. Payments for each of the first
two years covers 6% of the principal total under the Series D Bond and a balloon payment of the entire remaining principal is due in
2026. The loan agreement for our $105 million term loan provides for monthly payments of principal and interest and a final balloon payment
of the unpaid principal balance together with accrued interest in 2027. The loan agreement for our $66 million term loan provides for
monthly payments of principal and interest and a final balloon payment of the unpaid principal balance together with accrued interest
in 2028.
It
is also possible that our future debt arrangements may require us to make a similar lump-sum or “balloon” payment at maturity.
To
the extent we have these types of obligations, our ability to make a balloon payment at maturity will depend on our working capital at
the time of repayment, our ability to obtain additional financing or our ability to sell any property securing such indebtedness. At
the time the balloon payment is due, we may or may not be able to refinance the existing financing on terms as favorable as the original
loan or sell any related property at a price sufficient to make the balloon payment. In addition, balloon payments and other payments
of principal and interest on our indebtedness may leave us with insufficient cash to pay the distributions that we are required to pay
to qualify and maintain our qualification as a REIT. In such event, we would seek to obtain additional loans or sell additional OP units
in order to fund required distributions or make elective stock dividends.
The
loan agreements for our $105 million and $66 million commercial bank term loans contains covenants and other terms that impose material
operating and financial restrictions. The loan agreements also contains provisions that allow the lender to accelerate the amounts due
under the loan agreement if Moishe Gubin, our Chairman and Chief Executive Officer, ceases to be actively involved in the executive management
of the Operating Partnership or ceases to be a director of the Company or if any person or group (other than Mr. Gubin) acquires more
than 30% of the common stock of the Company. A breach of these covenants and restrictions could result in the acceleration of the amounts
due under the loan agreement, which would have a material adverse effect on the Company’s financial conditions and results of operations.
On
March 18, 2022, the Operating Partnership and 21 of its subsidiaries received a $105 million mortgage loan from a commercial bank. The
loan is secured by a lien on all of the assets of the Operating Partnership and the 21 subsidiaries that are borrowers. The collateral
primarily consists of 21 properties owned by these subsidiaries. The loan is also secured by guarantees of the Company and the BVI Company.
The borrowers must pay down a portion of the loan in the event that the outstanding balance of the loan exceeds 65% of the fair market
value of the properties pledged to the lenders as collateral in order to bring that percentage down to 65% or lower.
On
August 25, 2023, the Operating Partnership and 19 of
its subsidiaries received a $66 million mortgage loan from a commercial bank. The loan is secured by a lien on all of the assets of the
Operating Partnership and the 19 subsidiaries that are borrowers. The collateral primarily consists of 19
properties (24 facilities) owned by these subsidiaries. The loan is also secured by guarantees of the Company and the BVI Company.
The borrowers must pay down a portion of the loan in the event that the outstanding balance of the loan exceeds 65% of the fair market
value of the properties pledged to the lenders as collateral in order to bring that percentage down to 65% or lower.
The
loan agreement contains a number of restrictive covenants that impose material operating and financial restrictions and may limit our
ability to undertake transactions that we may believe are in our long-term best interest. These restrictions limit the ability of the
Operating Partnership and the borrower subsidiaries to, among other things:
| ● | incur
additional indebtedness, other than indebtedness incurred by the Operating Partnership that
would not result in a violation of the financial covenants described below; |
| | | |
| ● | pay
dividends or make other distributions or repurchase or redeem capital stock, other than dividends
or distributions that would not result in an event of default, including a violation of the
financial covenants described below and distributions made by the Operating Partnership and
subsidiary borrowers that are used by the Company to make distributions that are necessary
to maintain our REIT status; |
| | | |
| ● | make
loans and investments, other than loans and investments by the Operating Partnership that
would not result in a violation of the financial covenants described below; |
| | | |
| ● | sell
assets, other than the sale of assets by the Operating Partnership; |
| | | |
| ● | incur
liens on any of the collateral for the loan or on the other assets of the borrower subsidiaries
other than certain enumerated, permitted liens; |
| | | |
| ● | enter
into transactions with affiliates except in the ordinary course of business on arm’s
length terms; and |
| | | |
| ● | enter
into any transaction, including any merger or consolidation, that could result in a change
of control. |
The
loan agreement defines a change of control as the occurrence of any of the following events:
| ● | the
BVI Company fails to own all of the equity interests in the borrower subsidiaries; |
| | | |
| ● | the
Operating Partnership fails to own all of the equity interests in the BVI Company; |
| | | |
| ● | the
failure of the Company to be the general partner of the Operating Partnership; |
| | | |
| ● | the
failure of Moishe Gubin to be a voting member of the board of directors of each of the Company
and the BVI Company; and |
| | | |
| ● | the
failure of Moishe Gubin to be actively involved in the executive management of the Operating
Partnership; or |
| | | |
| ● | any
person (other than Moishe Gubin) shall have acquired beneficial ownership, directly or indirectly,
of more than 30% of the common stock of the Company. |
In
addition, the loan agreement contains financial covenants that require us to maintain specified financial ratios and maintain a minimum
amount of equity in our subsidiaries.
The
financial covenants consist of (i) a covenant that the ratio of the Company’s indebtedness to its EBITDA cannot exceed 8.0 to 1.0,
(ii) a covenant that the ratio of the Company’s net operating income to its debt service before dividend distribution is at least
1.25 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement, (iii) a covenant that the ratio of the
Company’s net operating income to its debt service after dividend distribution is at least 1.05 to 1.00 for each fiscal quarter
as measured pursuant to the terms of the loan agreement, and (iv) a covenant that the Company’s equity in its subsidiaries equal
at least $20.0 million.
Our
ability to meet these financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them.
As
a result of these restrictions, we may be:
| ● | limited
in how we conduct our business; |
| | | |
| ● | unable
to raise additional debt or equity financing to operate during general economic or business
downturns; or |
| | | |
| ● | unable
to take advantage of new business opportunities. |
These
restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results and our substantial indebtedness
could adversely affect the availability and terms of additional financing.
A
breach of the covenants or restrictions under the loan agreement could result in an event of default under the loan agreement. Such a
default would allow the lender to accelerate the loan and may result in the acceleration of any debt to which a cross-acceleration or
cross-default provision applies.
The
restrictions related to a change of control include a requirement that Mr. Gubin remain actively involved in the management of our business
and serving as a director. Although we expect that Mr. Gubin will continue to be actively involved in the Company’s business because
he owns a significant portion of our common stock and the OP units in the Operating Partnership, it is possible that he could become
unavailable for reasons outside of his control such as illness or injury. Such an event could result in the breach of the loan agreement.
The
restrictions related to a change of control also include a requirement that no person or group (other than Mr. Gubin) acquire more than
30% of our common stock. We believe that the risk of a violation of this restriction is limited because the Company’s organizational
documents prohibit any person or such person’s affiliates from acquiring more than 9.9% of our common stock.
In
the event of any breach of the covenants or restrictions under the loan agreement, we would seek to obtain a waiver from the lender.
If the lender refused to grant a waiver, we would seek to refinance the loan with a new lender or seek to sell properties in order to
obtain funds to repay the loan. If we were unable to refinance the loan or repay the loan utilizing the proceeds from the sale of our
properties, the lenders could foreclose their mortgage lien against the properties pledged as collateral for the loan. Such an event
would have a material adverse effect on our financial condition and our operating results because it would eliminate a substantial portion
of our income generating assets and potentially result in the acceleration of any other debt that is subject to default if the loan agreement
is accelerated.
We
have experienced and expect to continue to experience significant growth and may not be able to adapt our management and operational
systems to respond to the integration of the healthcare properties we expect to acquire without unanticipated disruption or expense,
which could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions
to our stockholders.
We
have experienced and expect to continue to experience significant growth through the potential acquisition of healthcare properties that
we identify. We may not be able to adapt our management, administrative, accounting and operational systems or hire and retain sufficient
operational staff to manage such potential acquisitions without operating disruptions or unanticipated costs. Our failure to successfully
manage our growth could have a material adverse effect on our business, financial condition and results of operations and our ability
to make distributions to our stockholders.
We
may be unsuccessful in our efforts to develop relationships with unaffiliated operators.
Part
of our business strategy is to develop relationships with unaffiliated operators. We believe these efforts will assist us in expanding
our portfolio and reducing our dependency on operators that are related parties. As of March 31, 2024, 44 of our facilities, or approximately
40.4% of the total, were leased and operated by unaffiliated third parties. We do not have any commitments from any unaffiliated operators
to lease facilities and there can be no assurance that we will be able to establish such relationships or enter into leases with such
third parties.
Properties
in Illinois, Indiana, Tennessee and Arkansas account for approximately 83.0% of the annualized base rent from our portfolio as of March
31, 2024.
As
of March 31, 2024, approximately 83.0% of our annualized base rent was derived from properties located in the states of Indiana (32.6%),
Illinois (23.6%), Tennessee (16.3%) and Arkansas (10.4%). As a result of this geographic concentration, we are particularly exposed to
downturns in the economies of, as well as other changes in the real estate and healthcare industries in, these geographic areas or in
increased regulation or new conditions on operations or payment. Any material change in the current payment programs or regulatory, economic,
environmental or competitive conditions in these geographic areas could have a disproportionate effect on our overall business results.
In the event of negative economic or other changes in these geographic areas, our business, financial condition and results of operations
and our ability to make distributions to our stockholders may be adversely affected.
We
face potential adverse consequences of bankruptcy or insolvency by our tenants, operators, borrowers, managers and other obligors.
We
are exposed to the risk that our tenants, operators, borrowers, managers or other obligors could become bankrupt or insolvent. Although
our lease agreements will provide us with the right to exercise certain remedies in the event of default on the obligations owing to
us or upon the occurrence of certain insolvency events, the bankruptcy and insolvency laws afford certain rights to a party that has
filed for bankruptcy or reorganization. For example, a debtor-lessee may reject its lease with us in a bankruptcy proceeding. In such
a case, our claim against the debtor-lessee for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy
Code. This statutory cap could be substantially less than the remaining rent actually owed under the lease, and any claim we have for
unpaid rent might not be paid in full. In addition, a debtor-lessee may assert in a bankruptcy proceeding that its lease should be re-characterized
as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to a lessor, are generally more
limited. In the event of an obligor bankruptcy, we may also be required to fund certain expenses and obligations (e.g., real estate taxes,
debt costs and maintenance expenses) to preserve the value of our properties, avoid the imposition of liens on our properties or transition
our properties to a new tenant, operator or manager. As a result, our business, financial condition and results of operations and our
ability to make distributions to our stockholders could be adversely affected if an obligor becomes bankrupt or insolvent.
Long-term
leases may result in below market lease rates over time, which could adversely affect our business, financial condition and results of
operations and our ability to make distributions to our stockholders.
We
have entered into long-term leases with tenants/operators at most of our properties. Our long-term leases provide for rent to increase
over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of such long-term
leases at levels such that even after contractual rental increases, the rent under our long-term leases could be less than then-current
market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates.
As a result, our business, financial condition and results of operations and our ability to make distributions to our stockholders could
be materially and adversely affected.
We
may incur additional costs in acquiring or re-leasing properties, which could materially adversely affect our business, financial condition
and results of operations and our ability to make distributions to our stockholders.
We
may invest in properties designed or built primarily for a particular tenant/operator of a specific type of use known as a single-user
facility. If the tenant/operator fails to renew its lease or defaults on its lease obligations, we may not be able to readily market
a single-user facility to a new tenant/operator without making substantial capital improvements or incurring other significant costs.
We also may incur significant litigation costs in enforcing our rights against the defaulting tenant/operator. These consequences could
materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our
stockholders.
We
may have difficulty finding suitable replacement tenants in the event of a tenant default or non-renewal of our leases.
We
cannot predict whether our tenants will renew existing leases beyond their current terms. If any of our leases are not renewed upon expiration,
we would attempt to lease those properties to another tenant. In case of non-renewal, we generally expect to have advance notice before
expiration of the lease term to arrange for repositioning of the properties and our tenants are required to continue to perform all of
their obligations (including the payment of all rental amounts) for the non-renewed assets until such expiration. However, following
expiration of a lease term or if we exercise our right to replace a tenant in default, rental payments on the related properties could
decline or cease altogether while we reposition the properties with a suitable replacement tenant. We also might not be successful in
identifying suitable replacement tenants or entering into leases with new tenants on a timely basis or on terms as favorable to us as
our current leases, or at all, and we may be required to fund certain expenses and obligations (e.g., real estate taxes, debt costs and
maintenance expenses) to preserve the value of, and avoid the imposition of liens on, our properties while they are being repositioned.
Our ability to reposition our properties with a suitable tenant could be significantly delayed or limited by state licensing, receivership,
certificate of need or other laws, relating to debtor-creditor rights and obligations and the ownership and operation of health care
facilities, as well as by the Medicare and Medicaid change-of-ownership rules. We could also incur substantial additional expenses in
connection with any licensing, receivership or change-of-ownership proceedings, which can be complex and time consuming and can sometimes
require that new tenants comply with new or additional requirements for a facility’s physical plant or operations which might not
have been imposed on prior tenants because of grandfathering provisions in law or regulation. In addition, our ability to locate suitable
replacement tenants could be impaired by the specialized healthcare uses or contractual restrictions on use of the properties which are
designed for specific health care purposes, and we may be required to spend substantial amounts to adapt the properties to other uses
or obtain governmental approvals to do so. Any such delays, limitations and expenses could adversely impact our ability to collect rent,
obtain possession of leased properties or otherwise exercise remedies for tenant default and could have a material adverse effect on
us. In addition, if we are unable to re-let the properties to healthcare operators with the expertise necessary to operate the type of
properties in which we intend to invest, we may be forced to sell the properties at a loss due to the repositioning expenses likely to
be incurred by potential purchasers.
All
of these risks may be greater in smaller markets, where there may be fewer potential replacement tenants, making it more difficult to
replace tenants, especially for specialized space, and could have a material adverse effect on us.
Our
computer systems may be subject to potential cyberattacks.
Increased
activity and sophistication of bad actors has resulted in material risk of cyberattacks. In the event that our computer systems or database
were subject to such an attack, our ability to operate our business could be significantly impaired until we were able to address the
attack by rebuilding the parts of our computer systems and database affected by such an attack. Our computer database primarily consists
of financial information relating to our rental properties, including information concerning rental payments from tenants and the payment
of property and operating expenses by us and our tenants. We do not have any patient information. To address the risk of a possible cyberattack,
the Company has engaged a third-party consultant to implement additional security protections for our systems, including restrictions
on the ability of persons utilizing URLs located outside of the United States to log on to our systems. We also maintain backups of our
data on third party servers. Although these steps provide additional protection from cyberattacks, they are not full proof, and it is
possible that we may experience a cyberattack that materially disrupts our business.
We
and our directors and officers may become subject to litigation and disputes, which could have an adverse effect on our financial condition,
results of operations, cash flow and per share trading price of our common stock.
We
and our directors and officers may become subject to litigation, including claims relating to our operations, properties, offerings,
and otherwise in the ordinary course of business.
For
example, the sellers of certain properties acquired by the Predecessor Company in Arkansas and Kentucky have commenced legal proceedings
against two of our directors, Moishe Gubin, Michael Blisko, the Predecessor Company and certain of its subsidiaries, as well as the operators
of the facilities located at the acquired properties, asserting claims for fraud, breach of contract and rescission based on defendants’
alleged failure to perform certain post-closing obligations. We have potential direct exposure for these claims because the subsidiaries
of the Predecessor Company that were named as defendants are now subsidiaries of the Operating Partnership. Additionally, the Operating
Partnership is potentially liable for the claims made against Moishe Gubin, Michael Blisko and the Predecessor Company pursuant to the
provisions of the contribution agreement, under which the Operating Partnership assumed all of the liabilities of the Predecessor Company
and agreed to indemnify the Predecessor Company and its affiliates for such liabilities. Some of these claims may result in significant
defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. In addition, we
are regularly named as a defendant in claims made against our tenants/operators due to patient injuries. We generally intend to vigorously
defend ourselves; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these
types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if
the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse
effect on our financial condition, results of operations, cash flow and per share trading price of our common stock.
Our
use of OP units as consideration to acquire properties could result in stockholder dilution or limit our ability to sell such properties,
which could have a material adverse effect on our business, results of operations and cash flows.
In
the future, we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for OP units
in our Operating Partnership, which may result in stockholder dilution. This acquisition structure may have the effect of, among other
things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we
agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose
of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions
could limit our ability to sell properties at a time, or on terms, that would be favorable absent such restrictions, which could have
a material adverse effect on our business, results of operations and cash flows.
We
have limited operating history as a REIT and may not be able to operate our business successfully as a REIT.
We
elected to be taxed as a REIT for the 2022 calendar year. As a result, we have a limited operating history as a REIT. We cannot assure
you that the past experience of our senior management team will be sufficient to successfully operate the Company as a REIT. We will
be required to develop and implement control systems and procedures in order to qualify and maintain our qualification as a REIT, and
this transition could place a significant strain on our management systems, infrastructure and other resources. See “—Risks
Related to Our Status as a REIT.”
We
are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth
companies will make common stock less attractive to investors.
We
are an “emerging growth company” as defined in the JOBS Act. We will remain an “emerging growth company” until
the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1.07 billion (subject
to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the first sale of shares pursuant
to a registration statement filed under the Securities Act, (iii) the date on which we have, during the previous three-year period, issued
more than $1 billion in non-convertible debt or (iv) the date on which we are deemed to be a “large accelerated filer” under
the Exchange Act. We may take advantage of exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find
our common stock less attractive because we may rely on these exemptions and benefits under the JOBS Act. If some investors find our
common stock less attractive as a result, there may be a less active trading market for our common stock and the market price of our
common stock may be more volatile and decline significantly.
We
have elected to avail ourselves of the extended transition period for adopting new or revised accounting standards available to emerging
growth companies under the JOBS Act and will, therefore, not be subject to the same new or revised accounting standards as other public
companies that are not emerging growth companies, which could make our common stock less attractive to investors.
The
JOBS Act provides that an emerging growth company can take advantage of exemption from various reporting requirements applicable to other
public companies and an extended transition period for complying with new or revised accounting standards. This allows an emerging growth
company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We intend to avail
ourselves of these exemptions and the extended transition periods for adopting new or revised accounting standards and therefore, we
will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
As a result, our consolidated financial statements may not be comparable to companies that comply with public company effective dates.
We intend to avail ourselves of these options although, subject to certain restrictions, we may elect to stop availing ourselves of these
exemptions in the future even while we remain an “emerging growth company.” We cannot predict whether investors will find
our stock less attractive as a result of this election. If some investors find shares of our common stock less attractive as a result
of this election, there may be a less active trading market for our common stock and our stock price may be more volatile.
We
will be subject to the requirements of the Sarbanes-Oxley Act.
As
long as we remain an emerging growth company, as that term is defined in the JOBS Act, we will be permitted to gradually comply with
certain of the on-going reporting and disclosure obligations of public companies pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-
Oxley Act”).
However,
our management will be required to deliver a report that assesses the effectiveness of our internal controls over financial reporting,
pursuant to Section 302 of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act may require our auditors to deliver an attestation
report on the effectiveness of our internal controls over financial reporting in conjunction with their opinion on our audited financial
statements as of December 31 subsequent to the year in which this prospectus becomes effective if we are no longer an “emerging
growth company”. Substantial work on our part may be required to implement appropriate processes, document the system of internal
control over key processes, assess their design, remediate any deficiencies identified and test their operation. This process may be
both costly and challenging. We cannot give any assurances that material weaknesses will not be identified in the future in connection
with our compliance with the provisions of Section 302 and 404 of the Sarbanes-Oxley Act. The existence of any material weakness described
above would preclude a conclusion by management and our independent auditors that we maintained effective internal control over financial
reporting. Our management may be required to devote significant time and expense to remediate any material weaknesses that may be discovered
and may not be able to remediate any material weakness in a timely manner. The existence of any material weakness in our internal control
over financial reporting could also result in errors in our consolidated financial statements that could require us to restate our consolidated
financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial
information, all of which could lead to a decline in the per share trading price of our common stock.
We
face possible risks and costs associated with severe weather conditions, natural disasters or the physical effects of climate change.
Some
of our properties are located in areas particularly susceptible to revenue loss, cost increase or damage caused by severe weather conditions
or natural disasters such as hurricanes, earthquakes, tornadoes, fires and floods, as well as the effects of climate change. To the extent
that climate change impacts changes in weather patterns, our markets could experience more frequent and severe natural disasters. Operationally,
such events could cause a major power outage, leading to a disruption of our operators’ operations or require them to incur additional
costs associated with evacuation plans. Over time, any of these conditions could result in increased operator costs, delays in construction,
resulting in increased construction costs, or in the inability of our operators to operate our facilities at all. Such events could also
have a material adverse impact on our tenants’ operations and ability to meet their obligations to us. In the event of a loss in
excess of insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue from that
property. Any such loss could materially and adversely affect our business and our financial condition and results of operations.
Climate
change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we
find acceptable. To the extent that significant changes in the climate occur in areas where our properties are located, we may experience
more frequent extreme weather events which may result in physical damage to or a decrease in demand for properties located in these areas
or affected by these conditions. In addition, changes in federal and state legislation and regulation on climate change could result
in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more
on our new development properties without a corresponding increase in revenue. Should the impact of climate change be material in nature,
including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be
adversely affected.
Risks
Related to Healthcare Industry
Adverse
trends in healthcare provider operations may negatively affect the operations at our properties, which in turn, could materially adversely
affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
We
believe the healthcare industry is currently experiencing the following trends:
| ● | changes
in the demand for and methods of delivering healthcare services; |
| | | |
| ● | changes
in third-party reimbursement policies, including a shift to Medicaid managed care, and changes
in Medicare reimbursement for skilled nursing facility services which commenced on October
1, 2019; |
| | | |
| ● | significant
unused capacity in certain areas, which has created substantial competition for patients
among healthcare providers in those areas; |
| | | |
| ● | increased
expense for uninsured patients; |
| | | |
| ● | increased
expense arising from an older and sicker patient mix; |
| | | |
| ● | increased
competition among healthcare providers; |
| | | |
| ● | shortage
of qualified health care workers due to competition from other health industry employers
and enhancement of credentials required to perform specified services; |
| | | |
| ● | substantial
increases in costs associated with employing health care workers due to competition and health
care industry specific wage mandates, general inflationary pressures on wages and other statutory
and regulatory requirements associated with the employment of worker in the health industry
and specifically for skilled nursing facilities; |
| | | |
| ● | increased
liability insurance expense and reductions in the availability of certain coverages resulting
in gaps; |
| | | |
| ● | increasing
shift of the plaintiffs’ bar from medical malpractice to skilled nursing facility industry
liability; |
| | | |
| ● | continued
pressure by private and governmental payors to reduce payments to providers of services along
with the consolidation of payors, which has resulted in a decreased ability to negotiate
levels and conditions of payment; |
| | | |
| ● | increased
scrutiny of billing, referral and other practices by federal and state authorities and private
insurers; and |
| | | |
| ● | increasing
focus by relators and the qui tam bar on the skilled nursing facility industry. |
These
factors may materially adversely affect the economic performance of some or all of our tenants/operators, which in turn could materially
adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Both
we and the tenants and operators of our properties may be adversely affected by healthcare regulation and enforcement.
The
regulatory environment of the long-term healthcare industry has generally intensified over time both in the amount, complexity and type
of regulations and in the efforts to enforce those regulations. The extensive federal, state and local laws and regulations affecting
the healthcare industry include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition
of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights,
fraudulent or abusive behavior, and financial and other arrangements that may be entered into by healthcare providers. Moreover, changes
in enforcement policies by federal and state governments have resulted in an increase in the number of inspections, citations of regulatory
deficiencies and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, bars on Medicare and Medicaid
payments for new admissions, and certain services as well as more aggressive imposition of exclusions from participation in, and receipt
of reimbursement from, the Medicare and Medicaid programs, civil monetary penalties and even criminal penalties. We are unable to predict
the scope of future federal, state and local regulations and legislation, including the Medicare and Medicaid statutes and regulations,
or the intensity of enforcement efforts with respect to such regulations and legislation, and any changes in the regulatory framework
could have a material adverse effect on our tenants, operators, guarantors and managers, which, in turn, could have a material adverse
effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Further,
if our tenants and operators fail to comply with the extensive laws, regulations and other requirements applicable to their businesses
and the operation of our properties (some of which are discussed below), they could become ineligible to receive reimbursement from governmental
and private third-party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be
required to make significant changes to their operations. We also may become subject directly to healthcare laws and regulations because
of the broad nature of some of these restrictions. Our tenants, operators, borrowers, guarantors, managers and we also could be forced
to expend considerable resources responding to an investigation or other enforcement action under applicable laws or regulations or in
implementing new or additional measures to reduce the possibility of enforcement action. In such event, the results of operations and
financial condition of our tenants, operators, borrowers, guarantors and managers and the results of operations of our properties operated
or managed by those entities could be adversely affected, which, in turn, could have a material adverse effect on our business, financial
condition and results of operations and our ability to make distributions to our stockholders.
All
healthcare providers who accept Medicare and Medicaid reimbursement are subject to the federal Anti-Kickback Statute, which establishes
civil, criminal and administrative penalties with respect to any person who knowingly and willfully offers, pays, solicits, or receives
any remuneration to induce or in return for (1) referring an individual to a person for the furnishing or arranging for the furnishing
of any item or service payable in whole or in part under a Federal healthcare program; or (2) purchasing, leasing, ordering or arranging
for, or recommending the purchasing, leasing or ordering of any good, facility service, or item payable under a Federal healthcare program,
such as Medicare and Medicaid. Remuneration is defined broadly to include the transfer of anything of value, in case or in kind, directly
or indirectly, overtly or covertly. Certain healthcare facilities are also subject to the Federal Ethics in Patient Referral Act of 1989,
commonly referred to as the Stark Law. The Stark Law prohibits the submission of claims to Medicare for payment if the claim results
from a physician referral (including an order or prescription) for certain designated services and the physician has a financial relationship
with the health service provider that does not qualify under one of the exceptions for a financial relationship under the Stark Law.
Similar prohibitions on kickbacks, physician self-referrals and submission of claims apply to state Medicaid programs and may also apply
to private payors under state laws, which in some cases are even broader and contain stricter prohibitions or requirements than Federal
prohibitions. Violations of these laws subject persons and entities to termination from participation in Medicare, Medicaid and other
federally funded healthcare programs or result in criminal prosecution, the imposition of civil monetary penalties, the imposition of
treble damages and fines and/or other penalties as well as potential civil liability under the Federal False Claims Act. In addition,
criminal liability under the Federal Travel Act is increasingly used to prosecute healthcare providers for certain business relationships.
Healthcare facilities and providers may also experience an increase in audits and medical record reviews from public and private payors
and a host of government agencies and contractors, including the HHS Office of the Inspector General, the Department of Justice, Zone
Program Integrity Contractors, and Recovery Audit Contractors.
Other
laws that impact how the operators conduct their operations include: federal and state laws designed to protect the confidentiality and
security of patient health information; state and local licensure laws; laws protecting consumers against deceptive practices; laws generally
affecting the operators’ management of property and equipment and how the operators generally conduct their operations, such as
fire, health and safety, and environmental laws; federal and state laws affecting assisted living facilities mandating quality of services
and care, and quality of food service; resident rights (including abuse and neglect laws); and health standards set by the federal Occupational
Safety and Health Administration. For example, HIPAA imposes extensive requirements on the way in which certain healthcare entities use,
disclose, and safeguard protected health information (as that term is defined under HIPAA), including requirements to protect the integrity,
availability, and confidentiality of electronic medical records. Many of these obligations were expanded under the HITECH Act. In order
to comply with HIPAA and the HITECH Act, covered entities often must undertake significant operational and technical implementation efforts.
Operators also may face significant financial exposure if they fail to maintain the privacy and security of medical records, personal
health information about individuals, or protected health information. HIPAA violations are also potentially subject to criminal penalties.
We
may also be adversely affected by possible changes to CON laws which serve as a barrier to entry in eight of the nine states in which
we own properties. If these laws are repealed in states in which we own properties, we and the tenants and operators of our properties
could be subject to increased competition.
Our
tenants/operators may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured
liabilities, which may affect their ability to pay their rent payments to us and, thus, could materially adversely affect our business,
financial condition and results of operations and our ability to make distributions to our stockholders.
As
is typical in the healthcare industry, our tenants/operators may often become subject to claims that their services have resulted in
patient injury or other adverse effects. Many of these tenants/operators may have experienced an increasing trend in the frequency and
severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage
maintained by tenants/operators may not cover all claims made against them nor continue to be available at a reasonable cost, if at all.
In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims
and/or litigation may not, in certain cases, be available to these tenants/operators due to state law prohibitions or limitations of
availability. As a result, these types of tenants/operators of our healthcare properties operating in these states may be liable for
punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has
been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of
Medicare/Medicaid overbilling and compliance with the conditions of payment and participation and false claims, as well as an increase
in debar actions resulting from these investigations. Insurance is generally not available to cover such losses, including the costs
of investigation and any penalties in the absence of specialized underwriting. None of our related party tenants, and to our knowledge,
none of our other tenants, have such insurance. Additionally, neither the Company nor its subsidiaries have such insurance. The costs
of a comprehensive investigation along with any adverse determination in a legal proceeding or governmental investigation, whether currently
asserted or arising in the future or a condition imposed as a result of an investigation such as a monitoring by an independent review
organization (“IRO”) under a Corporate Integrity Agreement, could have a material adverse effect on a tenant/operator’s
financial condition. Neither our related party tenants nor, to our knowledge, our other tenants, are subject to any pending or threatened
legal proceedings or investigations by any governmental authorities, and none of them has entered into any Corporate Integrity Agreements.
If a tenant/operator were unable to obtain or maintain insurance coverage, if judgments were obtained in excess of the insurance coverage,
if a tenant/operator were required to pay uninsured or uninsurable punitive damages, or if a tenant/operator were subject to an uninsured
or uninsurable payor audit or government enforcement action, the tenant/operator could be exposed to substantial additional liabilities,
which could affect the tenant/operator’s ability to pay rent to us, which in turn could have a material adverse effect on our business,
financial condition and results of operations and our ability to make distributions to our stockholders. Neither the Company nor its
subsidiaries are subject to any pending or threatened legal proceedings or investigations by any governmental authorities, and none of
them has entered into any Corporate Integrity Agreements.
Risks
Related to Real Estate Industry
Our
business is subject to risks associated with real estate assets and the real estate industry, which could materially adversely affect
our financial condition, results of operations, cash flow, cash available for distribution and our ability to service our debt obligations.
Our
ability to pay dividends to our stockholders depends on our ability to generate revenues in excess of expenses, scheduled principal payments
on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that
are beyond our control may decrease cash available for distribution and the value of our properties. These events include many of the
risks set forth above under “—Risks Related to Our Business and Operations,” as well as the following:
| ● | adverse
changes in financial conditions of buyers, sellers and tenants of properties; |
| | | |
| ● | vacancies
or our inability to rent space on favorable terms, including possible market pressures to
offer tenants rent abatements, tenant improvements, early termination rights or below-market
renewal options, and the need to periodically repair, renovate and re-let space; |
| | | |
| ● | increased
operating costs, including insurance premiums, utilities, real estate taxes and state and
local taxes; |
| | | |
| ● | civil
unrest, acts of war, terrorist attacks and natural disasters, including hurricanes, which
may result in uninsured or underinsured losses; |
| | | |
| ● | geopolitical
challenges and uncertainties (including wars and other forms of conflict, terrorist acts
and security operations), such as the war between Russia and Ukraine and the severe economic
sanctions and export controls imposed by the U.S. and other governments against Russia and
Russian interests; |
| | | |
| ● | decreases
in the underlying value of our real estate; and |
| | | |
| ● | changing
market demographics. |
In
addition, periods of economic downturn or recession, rising interest rates or declining demand for real estate, or the public perception
that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases,
which could materially adversely affect our financial condition, results of operations, cash flow, cash available for distribution and
ability to service our debt obligations.
As
an owner of real estate, we could incur significant costs and liabilities related to environmental matters.
Under
various federal, state and local laws and regulations relating to the environment, as a current or former owner of real property, we
may be liable for costs and damages resulting from the presence or release of hazardous or toxic substances, waste or petroleum products
at, on, in, under or migrating from such property, including costs to investigate, clean up such contamination and liability for any
alleged harm to human health, property or natural resources. Such laws often impose strict liability without regard to fault, including
whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and
several. These liabilities could be substantial and the cost of any required investigation, remediation, removal, fines or other costs
could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate
contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or property damage or
materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In
addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address
such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner
in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.
Some
of our properties may have been or may be impacted by contamination arising from current or prior uses of the property, or adjacent properties,
for commercial or industrial purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from
tanks used to store such materials. In most cases, the Company or the Predecessor Company obtained Phase I Environmental Site Assessments
for acquired properties. The Phase I Environmental Site Assessments are of limited scope and may not have conducted comprehensive asbestos,
lead-based paint, lead in drinking water, mold or radon assessments. Although these assessments provide some assurance regarding environmental
issues at the properties, they are not a guarantee that the properties do not have an environmental issue. As a result, we may not be
aware of all potential or existing environmental contamination liabilities at the properties in our portfolio. There also exists the
risk that material environmental conditions, liabilities or compliance concerns may arise in the future. If any of our properties are
subject to environmental issues, we could potentially incur material liability for these issues. The realization of any or all of these
environmental issues may also have an adverse effect on our business, financial condition and results of operations.
As
the owner of the buildings on our properties, we could face liability for the presence of hazardous materials, such as asbestos or lead,
or other adverse conditions, such as poor indoor air quality, in our buildings. Environmental laws govern the presence, maintenance,
and removal of hazardous materials in buildings, and if we do not comply with such laws, we could face fines for such noncompliance and
could be required to abate, remove or otherwise address the hazardous material to achieve compliance with applicable environmental laws
and regulations. Also, we could be liable to third parties, such as occupants or employees of the buildings, for damages related to exposure
to hazardous materials or adverse conditions in our buildings, and we could incur material expenses with respect to abatement or remediation
of hazardous materials or other adverse conditions in our buildings. If we incur material environmental liabilities in the future, we
may find it difficult to sell or lease any affected properties.
Our
properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health
effects and costs of remediation.
When
excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains
undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues
can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such
as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety
of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other
airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold
or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold
or other airborne contaminants could expose us to liability from our sole tenant, employees of our sole tenant or others if property
damage or personal injury is alleged to have occurred.
Our
properties may be subject to impairment charges.
On
a quarterly basis, we will assess whether there are any indicators that the value of our properties may be impaired. A property’s
value is considered to be impaired only if the estimated aggregate future cash flows (undiscounted and without interest charges) to be
generated by the property are less than the carrying value of the property. In our estimate of cash flows, we will consider factors such
as expected future operating income, trends and prospects, the effects of demand, competition and other factors. If we are evaluating
the potential sale of an asset or development alternatives, the undiscounted future cash flows analysis will consider the most likely
course of action at the balance sheet date based on current plans, intended holding periods and available market information. We will
be required to make subjective assessments as to whether there are impairments in the value of our properties. These assessments may
be influenced by factors beyond our control, such as early vacating by a tenant or damage to properties due to earthquakes, tornadoes,
hurricanes and other natural disasters, fire, civil unrest, terrorist acts or acts of war. These assessments may have a direct impact
on our earnings because recording an impairment charge results in an immediate negative adjustment to earnings. There can be no assurance
that we will not take impairment charges in the future related to the impairment of our properties. Any such impairment could have a
material adverse effect on our business, financial condition and results of operations in the period in which the charge is taken.
We
may incur significant costs complying with various federal, state and local laws, regulations and covenants, as well as the terms and
conditions of any recorded instruments, that are applicable to our properties.
Properties
are subject to various covenants and federal, state and local laws and regulatory requirements, including permitting and licensing requirements.
Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers
upon each property may restrict our use of our properties and may require us to obtain approval from local officials or restrict our
use of our properties and may require us to obtain approval from third parties (such as, but not limited to, adjacent land owners, applicable
governmental authorities, and local officials of community standards organizations) at any time with respect to our properties, including
prior to developing or acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these
restrictions may relate to construction, permitted uses, fire and safety, seismic or hazardous material abatement requirements. There
can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future development,
acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs.
Existing improvements within a property may be in violation of recorded instruments or may otherwise have been constructed in a manner
inconsistent with the requirements of such instruments and/or applicable features of the underlying land. Our growth strategy may be
affected by our ability to obtain permits, licenses, and zoning, and any other relief that may be applicable in connection with any such
applicable covenants and federal, state and local laws and regulatory requirements, including permitting and licensing requirements.
In
addition, federal and state laws and regulations, including laws such as the ADA and the Fair Housing Amendment Act of 1988, or FHAA,
impose further restrictions on our properties and operations. Under the ADA and the FHAA, all public accommodations must meet federal
requirements related to access and use by disabled persons. Although we believe that all our properties are in compliance with the requirements
of the ADA and the FHAA, if one or more of the properties in our portfolio were not in compliance with the ADA, the FHAA or any other
regulatory requirements, we could incur additional costs to bring such properties into compliance, be subject to governmental fines or
the award of damages to private litigants or be unable to refinance such properties. In addition, we do not know whether existing requirements
will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely impact
our financial condition, results of operations and cash flow.
Risks
Related to Our Organizational Structure
Moishe
Gubin, our Chairman and Chief Executive Officer, and Michael Blisko, one of our directors, are the beneficial owners of approximately
9.4% of our outstanding shares and approximately 84% of the OP units in the Operating Partnership. They have the ability
to influence decisions by the Company and the Operating Partnership, including the approval of matters involving conflicts of interest
and significant corporate transactions.
Moishe
Gubin, our Chairman and our Chief Executive Officer, and Michael Blisko, one of our directors, control the tenants and operators of 65
of our facilities.
As
a result of their ownership of our common stock and the OP units, and their board positions, Moishe Gubin and Michael Blisko and their
affiliates have the ability to influence the outcome of matters presented to our directors or stockholders, including the election of
our board of directors, matters related to the leases of our properties to their affiliates and approval of significant corporate transactions,
including business combinations, consolidations and mergers.
As
a landlord, the Company does not control the operations of its tenants, including related party tenants, and is not able to cause its
tenants to take any specific actions to address trends in occupancy at the facilities operated by its tenants, other than to monitor
occupancy and income of its tenants, discuss trends in occupancy with tenants and possible responses, and, in the event of a default,
to exercise its rights as a landlord. However, Mr. Gubin and Mr. Blisko, as the controlling members of 65 of our tenants and related
operators, have the ability to obtain information regarding these tenants and related operators and cause the tenants and operators to
take actions, including with respect to occupancy. Mr. Gubin and Mr. Blisko are subject to potential conflicts of interest due to their
ownership of these tenants and their duties as directors of the Company.
The
ability of Mr. Gubin and Mr. Blisko to influence decisions by the Board is limited by our conflicts of interest policy, which requires
transactions in which a director has a conflict of interest to be approved by the audit committee of the Board, which consists exclusively
of independent directors. The ability of Mr. Gubin, Mr. Blisko and their affiliates to influence decisions by the Company’s stockholders
is limited by the terms of our articles of incorporation, which prohibit any stockholder from holding more than 9.8% of the shares of
our common stock. Additionally, the ability of Mr. Gubin, Mr. Blisko and their affiliates to influence decisions by the Operating Partnership
is limited because the Operating Partnership is controlled by the Company as its sole general partner and the OP units issued to the
Predecessor Company have no voting rights.
Nevertheless,
Moishe Gubin, Mr. Blisko and their affiliates have significant influence over us and it is possible that they could exercise influence
in a manner that is not in the best interests of our other stockholders. Furthermore, as discussed above, certain conflicts of interest
may exist between the interests of Mr. Gubin, Mr. Blisko, and their affiliates and the interests of our stockholders. Their voting power
might also have the effect of delaying or preventing a change of control that our stockholders may view as beneficial.
Conflicts
of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of OP units
in the Operating Partnership, which may impede business decisions that could benefit our stockholders.
Conflicts
of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and
the Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to the Company under Maryland
law in connection with their management of the Company. At the same time, we, as the general partner of the Operating Partnership, have
fiduciary duties and obligations to the Operating Partnership and its limited partners under Delaware law and the partnership agreement
of the Operating Partnership in connection with the management of the Operating Partnership. Our fiduciary duties and obligations as
the general partner of the Operating Partnership may come into conflict with the duties of our directors and officers to the Company.
Moishe Gubin, our Chairman and Chief Executive Officer, and Michael Blisko, one of our directors, beneficially own 84.0% of the
OP units in the Operating Partnership and may have conflicts of interest in making decisions that affect both our stockholders and the
limited partners of the Operating Partnership, particularly since their ownership interests in the Operating Partnership is significantly
greater than their 9.4% ownership interest in shares of the common stock of the Company.
The
partnership agreement provides that we will be under no obligation to consider the separate interests of the limited partners of our
Operating Partnership in deciding whether to cause the Operating Partnership to take or decline to take any actions. The partnership
agreement also provides that, in the event of a conflict between the interests of the Operating Partnership or any limited partner, on
the one hand, and the separate interests of the Company or our stockholders, on the other hand, that cannot be resolved in a manner not
adverse to either our stockholders or the limited partners, we, in our capacity as the general partner of the Operating Partnership,
shall resolve the conflict in favor of the Company and our stockholders. Additionally, any action or failure to act on our part or on
the part of our board of directors that does not violate the contract rights of the limited partners of the Operating Partnership but
does give priority to the separate interests of the Company or our stockholders shall not be deemed to violate our duty of loyalty to
the Operating Partnership and its limited partners that arises from our role as the general partner of the Operating Partnership.
Additionally,
the partnership agreement provides that we will not be liable to the Operating Partnership or any partner for monetary damages for losses
sustained, liabilities incurred as a result of errors in judgment or mistakes of fact or law or of any act or omission if any such party
acted in good faith. Our Operating Partnership must indemnify us, our directors and officers, officers of the Operating Partnership and
our designees from and against any and all claims that relate to the operations of the Operating Partnership, unless it is established
that: (i) the act or omission of the person was material to the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the person had reasonable cause to believe that the act or omission
was unlawful. Our Operating Partnership must also pay or reimburse the reasonable expenses of any such person upon its receipt of a written
affirmation of the person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written
undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct
for indemnification. The Operating Partnership will not indemnify or advance funds to any person with respect to any action initiated
by the person seeking indemnification without our approval (except for any proceeding brought to enforce such person’s right to
indemnification under the partnership agreement) or if the person is found to be liable to the Operating Partnership on any portion of
any claim in the action.
Our
charter contains certain provisions restricting the ownership and transfer of our stock that may delay, defer or prevent a change of
control transaction that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their
best interests.
Our
charter contains certain ownership limits with respect to our stock. Our charter, among other restrictions, prohibits, subject to certain
exceptions, the beneficial or constructive ownership by any person of more than 9.8% in value of the aggregate outstanding shares of
our common stock or more than 9.8% in value of the outstanding shares of any class or series of our preferred stock. Our board of directors,
in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from this ownership limit if certain conditions
are satisfied. See “Description of Common Stock - Restrictions on Ownership and Transfer” included in this prospectus. This
ownership limit as well as other restrictions on ownership and transfer of our stock in our charter may:
| ● | discourage
a tender offer, proxy contest, or other transactions or a change in management or of control
that might result in a premium price for our common stock or that our stockholders otherwise
believe to be in their best interests; and |
| | | |
| ● | result
in the transfer of shares acquired in excess of the restrictions to a trust for the benefit
of a charitable beneficiary and, as a result, the forfeiture by the acquirer of certain of
the benefits of owning the additional shares. |
We
could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval.
Our
board of directors, without stockholder approval, has the power under our charter to amend our charter to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue. In addition, under
our charter, our board of directors, without stockholder approval, has the power to authorize us to issue authorized but unissued shares
of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into
one or more classes or series of stock and set the preference, conversion or other rights, voting powers, restrictions, limitations as
to dividends and other distributions, qualifications or terms or conditions of redemption for such newly classified or reclassified shares.
See “See “Description of Common Stock - Restrictions on Ownership and Transfer” included in this prospectus. As a
result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers and rights, voting or otherwise,
that are senior to, or otherwise conflict with, the rights of holders of our common stock. Although our board of directors has no such
intention at the present time, it could establish a class or series of preferred stock that could, depending on the terms of such series,
delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or that our stockholders
otherwise believe to be in their best interests.
Certain
provisions of Maryland General Corporation Law, or MGCL, could inhibit changes of control, which may discourage third parties from conducting
a tender offer or seeking other change of control transactions that could involve a premium price for our common stock or that our stockholders
otherwise believe to be in their best interests.
Certain
provisions of the MGCL may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of
control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a
premium over the then-prevailing market price of such shares, including:
| ● | “business
combination” provisions that, subject to limitations, prohibit certain business combinations
between us and an “interested stockholder” (defined generally as any person who
beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or
an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of
10% or more of the voting power of our then outstanding voting stock at any time within the
two-year period immediately prior to the date in question) for five years after the most
recent date on which the stockholder becomes an interested stockholder, and thereafter imposes
certain fair price and/or supermajority stockholder voting requirements on these combinations;
and |
| | | |
| ● | “control
share” provisions that provide that holders of “control shares” of the
Company (defined as shares that, when aggregated with other shares controlled by the stockholder,
entitle the stockholder to exercise one of three increasing ranges of voting power in electing
directors) acquired in a “control share acquisition” (defined as the direct or
indirect acquisition of ownership or control of issued and outstanding “control shares”)
have no voting rights with respect to their control shares, except to the extent approved
by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled
to be cast on the matter, excluding all interested shares. |
We
have opted out of the business combination provisions of the MGCL, which provides that any business combination between us and any other
person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our
board of directors (including a majority of directors who are not affiliates or associates of such persons). In addition, pursuant to
a provision in our bylaws, we have opted out of the control share provisions of the MGCL.
Certain
provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our
charter or bylaws, to implement certain corporate governance provisions, some of which (for example, a classified board) are not currently
applicable to us. If implemented, these provisions may have the effect of limiting or precluding a third party from making an unsolicited
acquisition proposal for us or of delaying, deferring or preventing a change in control of us under circumstances that otherwise could
provide the holders of shares of our common stock with the opportunity to realize a premium over the then current market price. Our charter
contains a provision whereby we have elected to be subject to Section 3-804(c) of the MGCL relating to the filling of vacancies on our
board of directors. Section 3-804(c) provides that any vacancy, whether resulting from an increase in the size of the board or the death,
resignation or removal of a director, may be filled only by the affirmative vote of a majority of the remaining directors in office,
even if the remaining directors do not constitute a quorum. See “Certain Provisions of Maryland Law and of Our Charter and Bylaws”
in this prospectus.
Our
bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings
that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers or employees.
Our
bylaws generally provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore
City, Maryland (or in certain circumstances, the United States District Court for the District of Maryland, Northern Division) shall
be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders with respect to
the Company, our directors, our officers or our employees. This choice of forum provision may limit a stockholder’s ability to
bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers or employees,
which may discourage meritorious claims from being asserted against us and our directors, officers and employees. Alternatively, if a
court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of
actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely
affect our business, financial condition or results of operations. We adopted this provision because Maryland judges have more experience
in dealing with issues of Maryland corporate law than judges in any other state and we believe it makes it less likely that we will be
forced to incur the expense of defending duplicative actions in multiple forums and less likely that plaintiffs’ attorneys will
be able to employ such litigation to coerce us into otherwise unjustified settlements. These provisions of our bylaws will not apply
to claims that may be asserted under federal securities laws.
Certain
provisions in the partnership agreement of the Operating Partnership may delay or prevent unsolicited acquisitions of us.
Provisions
in the partnership agreement of the Operating Partnership may delay, or make more difficult, unsolicited acquisitions of us or changes
of our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change
of our control, although some of our stockholders might consider such proposals, if made, desirable. These provisions include, among
others:
| ● | redemption
rights; |
| | | |
| ● | a
requirement that we may not be removed as the general partner of the Operating Partnership
without our consent; |
| | | |
| ● | transfer
restrictions on OP units; |
| | | |
| ● | our
ability, as general partner, in some cases, to amend the partnership agreement and to cause
the Operating Partnership to issue units with terms that could delay, defer or prevent a
merger or other change of control of us or the Operating Partnership without the consent
of the limited partners; and |
| | | |
| ● | the
right of the limited partners to consent to direct or indirect transfers of the general partnership
interest, including as a result of a merger or a sale of all or substantially all of our
assets, in the event that such transfer requires approval by our common stockholders. |
The
tax protection agreement with the Predecessor Company and its affiliates could limit our ability to sell or otherwise dispose of certain
properties.
In
connection with the formation transaction, we entered into a tax protection agreement with members of the Predecessor Company and certain
of their affiliates, including affiliates of Moishe Gubin, our Chairman and Chief Executive Officer and Michael Blisko, one of our directors,
that provides that if we dispose of any interest in the protected initial properties in a taxable transaction prior to the tenth anniversary
of the completion of the formation transaction, subject to certain exceptions, we will indemnify with the Predecessor Company, its members
and their beneficial owners (the “protected parties”) for their tax liabilities attributable to the built-in gain that exists
with respect to such property interests as of the time of the formation transaction, and the tax liabilities incurred as a result of
such tax protection payment. Pursuant to the tax protection agreement, it is anticipated that the total amount of protected built-in
gain on the properties and other assets contributed to the Company in connection with the formation transaction will be approximately
$423.4 million. Such indemnification obligations could result in aggregate payments, based on current tax laws, of up to $176.7 million.
The amount of tax is calculated without regard to any deductions, losses or credits that may be available.
In
this regard, the Company has granted the tenants of six of the Company’s properties in southern Illinois an option to purchase
the properties for an aggregate price of $27.0 million. If the tenants had exercised its option as of March 31, 2024, the Company would
have recognized a built-in gain of approximately $19.6 million on such properties, which could have required the Company to make a tax
indemnity payment of approximately $8.2 million. The Company has also entered into an option agreement with the tenants in 13 of the
Company’s properties in Arkansas to grant these tenants an option to purchase the properties for an aggregate price of $90 million.
If the Company had sold these properties for this price as of March 31, 2024, the Company would have recognized a built-in gain of approximately
$57.1 million on such properties, which could have required the Company to make a tax indemnity payment of approximately $23.8 million.
In
light of our indemnification obligations under the tax protection agreement, it may be economically prohibitive for us to sell our properties
even if it may be otherwise in our stockholders’ best interests to do so. Moreover, as a result of these potential tax liabilities,
Moishe Gubin and Michael Blisko may have a conflict of interest with respect to our determination as to the disposition of these properties.
In addition, to the extent that any breach, dispute or ambiguity arises with respect to the tax protection agreement, we may choose not
to enforce, or to enforce less vigorously, our rights under these agreements due to our ongoing relationships with the members of our
executive management team and directors.
Our
board of directors may change our strategies, policies and procedures without stockholder approval and we may become more highly leveraged,
which may increase our risk of default under our debt obligations.
Our
investment, financing, leverage and distribution policies, and our policies with respect to all other activities, including growth, capitalization
and operations, will be determined exclusively by our board of directors, and may be amended or revised at any time by our board of directors
without notice to or a vote of our stockholders. This could result in us conducting operational matters, making investments or pursuing
different business or growth strategies than those contemplated in this prospectus. Further, our charter and bylaws do not limit the
amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current
policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged which could
result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change
in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which
we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our
policies with regards to the foregoing could materially adversely affect our financial condition, results of operations and cash flow.
Our
rights and the rights of our stockholders to take action against our directors and officers are limited.
Under
Maryland law, generally, a director will not be liable if he or she performs his or her duties in good faith, in a manner he or she reasonably
believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances.
In addition, our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for
liability resulting from:
| ● | actual
receipt of an improper benefit or profit in money, property or services; or |
| | | |
| ● | active
and deliberate dishonesty by the director or officer that was established by a final judgment
as being material to the cause of action adjudicated. |
Our
charter requires us to indemnify, and advance expenses to, each director and officer, to the maximum extent permitted by Maryland law,
in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us.
We entered into customary indemnification agreements with our directors and executive officers that will require us, among other things,
to indemnify our directors and executive officers against certain liabilities that may arise by reason of their status as directors or
officers to the maximum extent permitted by Maryland law and provide for the advancement of expenses in connection therewith. As a result,
we and our stockholders may have more limited rights against our directors and officers than might otherwise exist absent the current
provisions in our charter or that might exist with other companies.
We
are a holding company with no direct operations and, as such, we will rely on funds received from our limited ownership interest in the
Operating Partnership to pay liabilities, and the interests of our stockholders will be structurally subordinated to all liabilities
and obligations of the Operating Partnership and its subsidiaries.
We
are a holding company and will conduct substantially all of our operations through the Operating Partnership. We do not have, apart from
our limited ownership interest in the Operating Partnership, which represents only 13.3% of the outstanding OP units, any independent
operations. As a result, we rely on cash distributions from the Operating Partnership to pay any dividends we might declare on shares
of our common stock. We also rely on distributions from the Operating Partnership to meet any of our obligations, including any tax liability
on taxable income allocated to us from the Operating Partnership. In addition, because we are a holding company, your claims as a stockholder
will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of the Operating
Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of the
Operating Partnership and its subsidiaries will be available to satisfy the claims of our stockholders only after all of our and the
Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.
Our
Operating Partnership may issue additional OP units to third parties without the consent of our stockholders, which would reduce our
limited ownership percentage in the Operating Partnership even further and could have a dilutive effect on the amount of distributions
made to us by the Operating Partnership and, therefore, the amount of distributions we can make to our stockholders.
As
discussed above, we own approximately 13.3% of the outstanding OP units. We may, in connection with our acquisition
of properties or otherwise, issue additional OP units to third parties. Such issuances would reduce our limited ownership percentage
in the Operating Partnership and could affect the amount of distributions made to us by the Operating Partnership and, therefore, the
amount of distributions we can make to our stockholders. Because you will not directly own OP units, you will not have any voting rights
with respect to any such issuances or other partnership level activities of the Operating Partnership.
If
we are deemed to be an investment company under the Investment Company Act, our stockholders’ investment return may be reduced.
We
are not registered as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”),
based on exceptions we believe are available to us. If we were obligated to register as an investment company, we would have to comply
with a variety of substantive requirements under the Investment Company Act that impose, among other things, limitations on capital structure,
restrictions on specified investments, prohibitions on transactions with affiliates, and compliance with reporting, record keeping, voting,
proxy disclosure and other rules and regulations that would significantly increase our operating expenses.
Risks
Related to Status as a REIT
Qualifying
as a REIT involves highly technical and complex provisions of the Code.
Qualifying
as a REIT involves the application of highly technical and complex provisions of the Code for which only limited judicial and administrative
authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT will
depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a
continuing basis. Compliance with these requirements must be carefully monitored on a continuing basis, and there can be no assurance
that our personnel responsible for doing so will be able to successfully monitor and manage our compliance. In addition, our ability
to satisfy the requirements to qualify to be taxed as a REIT may depend, in part, on the actions of third parties over which we have
either no control or only limited influence. If we fail to qualify as a REIT, we will be a treated as a regular corporation taxable under
subchapter C of the Code (i.e., a C corporation) and we will be subject to entity-level tax on our income, and will not be permitted
a tax deduction for dividend payments. In addition, we will, in that case, generally be precluded from re-electing status as a REIT for
five years upon a loss of REIT qualification.
If
our Operating Partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and
suffer other adverse consequences.
We
believe that our Operating Partnership has been and will continue to be treated as a partnership for federal income tax purposes. As
a partnership, our Operating Partnership generally will not be subject to federal income tax on its income. Instead, each of its partners,
including us, will be allocated, and may be required to pay tax with respect to, its share of our Operating Partnership’s income.
We cannot assure you, however, that the IRS will not challenge the status of our Operating Partnership, or any other subsidiary partnership
in which we own an interest, as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. For
example, the IRS could attempt to classify the Operating Partnership as a publicly traded partnership that should be treated as a corporation
for U.S. income tax purposes. See “Material U.S. Federal Income Tax Consequences — Other Tax Consequences — Tax Aspects
of Our Investments in Our Operating Partnership and Subsidiary Partnerships — Classification as Partnerships”.
Furthermore,
if the IRS were successful in treating our Operating Partnership or any such other subsidiary partnership as an entity taxable as a corporation
for federal income tax purposes, we may fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly,
we could cease to qualify as a REIT. Also, the failure of our Operating Partnership or any other subsidiary partnership to qualify as
a partnership could cause it to become subject to federal and state corporate income tax, which would significantly reduce the amount
of cash available for debt service and for distribution to its partners, including us.
Even
if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our
ability to make distributions to our stockholders.
Even
if we qualify as a REIT for federal income tax purposes, we may be subject to federal, state and local taxes in certain situations. For
example:
| |
● |
To
the extent that we have any TRSs, such TRSs will be subject to entity-level corporate income tax on their income. |
| |
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● |
Income
and gain from “foreclosure property” are subject to special rules. Generally, income and gain from foreclosure property
are subject to corporate income tax at the highest applicable rate, except to the extent that such income or gain is otherwise treated
as qualifying income for purposes of the 75% gross income test applicable to REITs. |
| |
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|
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● |
If
we sell an asset that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the
100% “prohibited transaction” tax. |
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|
|
| |
● |
If
we fail to meet the gross income requirements but the failure is due to reasonable cause and not willful neglect, and we meet certain
other requirements so that we are able to nevertheless maintain our qualification as a REIT, we will in such case be required to
pay a 100% tax equal to the product of the amount by which the nonqualifying income caused us to fail the gross income test and a
fraction intended to reflect our profitability. |
| |
|
|
| |
● |
If
we fail to meet certain gross asset tests and cannot cure the violation with 30 days of quarter end, but the failure is due to reasonable
cause and not willful neglect, and we meet certain other requirements so that we are able to nevertheless maintain our qualification
as a REIT, we will in such case be required to pay a tax equal to the greater of (i) $50,000 or (ii) the product of the income generated
by the excess assets that caused the violation over the period of time of the violation, multiplied by the highest applicable corporate
tax rate. |
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|
|
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● |
If
we fail to meet any REIT requirement other than the income or asset requirements, and the failure is due to reasonable cause and
not willful neglect, we may nevertheless be able to maintain our will be required to pay a $50,000 penalty per violation. |
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● |
We
may also be subject to a variety of taxes on our assets and operations, including, as applicable, local property taxes, payroll taxes,
sales taxes, excise taxes, real property transfer taxes and mortgage recording taxes, among others. |
Our
ownership of and relationship with any future taxable REIT subsidiaries will be limited and a failure to comply with the limits could
jeopardize our REIT status and may result in the application of a 100% excise tax.
A
REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries (“TRSs”). A TRS may earn income that would
not be qualifying income, or that would be subject to a penalty tax, if earned directly by the parent REIT. Both the subsidiary
and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation (other than a REIT) of which a TRS directly or indirectly
owns securities possessing more than 35% of the total voting power or total value of the outstanding securities of such corporation will
automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s total assets may consist of stock or securities
of one or more TRSs. A domestic TRS will pay U.S. federal, state and local income tax at regular corporate rates on any income that it
earns. In addition, the TRS rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not
conducted on an arm’s-length basis. Any domestic TRS that we own or form will pay U.S. federal, state and local income tax on its
taxable income, and its after-tax net income will be available for distribution to us but is not required to be distributed to us unless
necessary to maintain our REIT qualification.
We
do not currently own any subsidiaries that are, or are expected to be, TRSs, nor do we have any plans to establish any
TRSs in the future. However, in the event we were to form a TRS, it would need to comply with the foregoing requirements.
Our
ownership of and relationship with our tenants will be limited and a failure to comply with such limits would jeopardize our REIT status.
If
a REIT owns, actually or constructively, 10% or more (measured by voting power or fair market value) of the stock of a corporate lessee,
or 10% or more of the assets or net profits of any non-corporate lessee (each a “related party tenant”), other than a TRS,
any income that a REIT receives from the lessee will be non-qualifying income for purposes of a REIT’s 75% or 95% gross income
tests. The constructive ownership rules generally provide that, if 10% or more in value of our stock is owned, directly or indirectly,
by or for any person, the REIT is considered as owning the shares or other equity interests owned, directly or indirectly, by or for
such person. An entity that fails either the 75% or 95% gross income tests, or both, in a taxable year, may lose its qualification
as a REIT and thereafter be treated as a regular subchapter C corporation that is subject to entity-level tax on its income, without
any ability to deduct dividend payments. Moreover, the entity would generally be precluded from re-electing taxation as a REIT for five
years following the loss of REIT qualification. Nonetheless, if the failure to satisfy the gross income tests was due to reasonable
cause and not willful neglect, and the nature and amounts of the REIT’s items of gross income are properly disclosed to
the Internal Revenue Service, the entity may in that case maintain its status as a REIT. However, in such a case, we would
be required to pay a penalty 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.
Our
charter prohibits transfers of our stock that would cause us to own, actually or constructively, 10% or more of the ownership
interests in any non-TRS lessee. Based on the foregoing, we should not own, actually or constructively, 10% or more of any lessee other
than a TRS. However, because the constructive ownership rules are broad and it is not possible to monitor continually direct and indirect
transfers of our stock, no absolute assurance can be given that such transfers or other events of which we have no knowledge will not
cause us to own constructively 10% or more of a lessee (or a subtenant, in which case only rent attributable to the subtenant is disqualified)
other than a TRS at some future date. At the present time, to our knowledge, no person beneficially or constructively owns more than
9.8% of our stock. Two of our directors, Moishe Gubin and Michael Blisko, beneficially own approximately 9.4% of our outstanding
common stock as well as 84.0% of the outstanding OP units in the Operating Partnership. They also own majority interests in more
than 65 of our tenants. We believe that these tenants would not currently be treated as related party tenants for purposes of the REIT
qualification requirements because we believe that Mr. Gubin and Mr. Blisko do not constructively own 10% of the Company’s stock.
However, if their constructive ownership of the Company were to exceed 10% in the future, or if interests in these tenants are otherwise
treated as constructively owned by us, the rental income from the tenants controlled by Mr. Gubin and Mr. Blisko would not be qualifying
income for REIT qualification purposes, which would cause us to fail to satisfy the REIT gross income tests and could cause us
to fail to qualify as a REIT or be subject to a substantial penalty tax. The Company intends to closely monitor their ownership of the
Company to avoid this issue.
We
may potentially have additional tax exposure from built-in gains from the disposal of assets that we held at the time that we became
a REIT.
We
elected to be taxed as a REIT for the tax year beginning on January 1, 2022. Notwithstanding our qualification and taxation as a REIT,
we may still be subject to corporate taxation in particular circumstances. If we recognize gain on the disposition of any REIT asset
that is held by us on the date that we become a REIT (i.e., January 1, 2022) during a specified period (generally five years) thereafter,
then we will generally pay tax at the highest regular corporate tax rate, currently 21%, on the lesser of (a) the excess, if any, of
the asset’s fair market value over our basis in the asset, each determined on January 1, 2022, or (b) our gain recognized in the
disposition. Accordingly, any taxable disposition during the specified period of a REIT asset we held on January 1, 2022 could be subject
to this built-in gains tax.
If
any of the promissory notes or other obligations that we hold do not meet the straight debt safe harbor under Code Section 856(m)
and cause the Company to not satisfy the 10% value test, then the Company will not satisfy the REIT asset tests and our REIT qualification
could be threatened.
To
qualify as a REIT, we must satisfy certain asset tests at the end of each quarter of each taxable year, including that, in general,
we may not own more than 10% of the value of any one issuer’s outstanding securities. Most promissory notes and debt obligations
are treated as securities for purposes of this test. Promissory notes and debt obligations that are secured by real estate, issued
by individuals, estates or REITs, or which meet the straight debt safe harbor in Code Section 856(m), do not violate
this requirement. We hold various unsecured promissory notes and other obligations issued by entities that have arisen in
the course of our business. The IRS has issued very limited guidance to date regarding qualification under the straight debt safe harbor.
As a result, it is possible that the IRS may take the position that one or more of the promissory notes or obligations we own do not
meet the straight debt safe harbor. If any of these unsecured promissory notes or other obligations do not meet the straight debt safe
harbor or another exemption and constitute more than 10% of the value of the outstanding securities of the particular issuer,
then we will not meet the REIT asset tests if held at the end of any calendar quarter.
In
the event that we violate the 10% value test described above at the end of any calendar quarter, we will not lose our REIT qualification
if (i) the failure is de minimis (up to the lesser of 1% of our assets or $10 million) and (ii) we dispose of assets that have caused
the violation or otherwise comply with the asset tests within six months after the last day of the quarter in which we identified
such failure. In the event of a more than de minimis failure of the 10% value test, as long as the failure was due to reasonable cause
and not to willful neglect, we will not lose our REIT qualification if we (i) dispose of assets that have caused the violation
or otherwise comply with the asset tests within six months after the last day of the quarter in which we identified such failure, (ii)
file a schedule with the IRS describing the assets that caused such failure in accordance with regulations promulgated by the Secretary
of the U.S. Treasury and (iii) pay a tax equal to the greater of $50,000 or 35% of the net income from the nonqualifying assets during
the period in which we failed to satisfy this asset test. It is not possible to state whether we would be entitled to the benefit of
these relief provisions with regard any promissory notes or obligations we hold or may hold or in any other circumstances. If these relief
provisions are inapplicable to the holding of a promissory note or obligation that violates the 10% value test, we will not qualify as
a REIT.
Dividends
payable by REITs do not qualify for the reduced tax rates available for some dividends.
Dividends
payable by non-REIT corporations to stockholders that are individuals, trusts and estates are generally taxed at reduced tax rates as
compared to other types of ordinary income (i.e., under current law, the maximum tax rate on certain qualified dividends is 20%, compared
to 37% for ordinary income). Dividends payable by REITs, however, generally are not eligible for the reduced rates. The more favorable
rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments
in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could adversely
affect the value of the shares of REITs, including shares of our common stock. However, dividends received from a REIT by certain noncorporate
taxpayers, including individuals, may qualify for a deduction of up to 20% for REIT ordinary dividends under Section 199A of the Code
for taxable years prior to 2026.
The
prohibited transactions tax may limit our ability to dispose of our properties.
A
REIT’s net income from prohibited transactions is subject to tax at a rate of 100%. In general, prohibited transactions
are sales or other dispositions of property, other than foreclosure property, which has been held primarily for sale to
customers in the ordinary course of business. We may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition
of real property. Although a safe harbor is potentially available to prevent a sale of real property by a REIT from being characterized
as a prohibited transaction, we cannot assure you that we can comply with the safe harbor in all instances, or that we will
avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently,
we may choose not to engage in certain sales of our properties, or we may conduct such sales through a TRS, which would
be subject to federal and state income taxation at regular corporate tax rates.
Legislative,
administrative, regulatory or other actions affecting REITs, including positions taken by the IRS, could have an adverse impact on our
investors or us.
The rules dealing with U.S. federal income taxation are constantly under
review by persons involved in the legislative process, and by the IRS and the U.S. Department of the Treasury (the “Treasury”).
Changes to the tax laws or interpretations thereof by the IRS and the Treasury, with or without retroactive application, could materially
and adversely affect our investors or the Company. We cannot predict how changes in the tax laws might affect our investors or us. New
legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability
to qualify to be taxed as a REIT and/or the U.S. federal income tax consequences to our investors and the Company of such qualification.
REIT
distribution requirements could adversely affect our liquidity and our ability to execute our business plan.
In order for us to qualify to be taxed as a REIT, and assuming that certain
other requirements are also satisfied, we generally must distribute at least 90% of our REIT taxable income, determined without regard
to the dividends paid deduction and excluding any net capital gains, to our stockholders each year. To the extent that we satisfy this
distribution requirement and qualify for taxation as a REIT, but distribute less than 100% of our REIT taxable income, determined without
regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on
our undistributed net taxable income. In addition, we will be subject to a 4% non-deductible excise tax if the actual amount that we distribute
to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions
to our stockholders to comply with the REIT requirements.
Under
some circumstances, we may be able to rectify a failure to meet the distribution requirement for a year by paying dividends to stockholders
in a later year, which may be included in our deduction for dividends paid for the earlier year (“deficiency dividends”).
Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends. We will, however, be required to pay interest
based upon the amount of any deduction taken for deficiency dividends.
The
IRS has also issued administrative guidance authorizing public REITs to make certain elective stock dividends (e.g.,
distributions pursuant to which shareholders are permitted to choose between receiving cash or shares of stock, but subject to an aggregate
cap on the amount payable in cash). Pursuant to this guidance, the IRS will treat the distribution as a dividend eligible
for the deduction for dividends paid to the extent of the public REIT’s earnings and profits, as long as at least 20%
of the total distribution is available in cash and certain other requirements are met. In the case of a taxable stock dividend,
stockholders may be required to include the dividend as income and would be required to satisfy the potential tax liability associated
with the distribution with cash from other sources.
From
time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition
of taxable income and the actual receipt of cash or the effect of non-deductible capital expenditures, the creation of reserves or required
debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable
terms, sell assets at disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions, capital expenditures
or repayment of debt, or make taxable distributions of our capital stock or debt securities to make distributions sufficient to enable
us to pay out enough of our taxable income to satisfy the REIT distribution requirement and avoid corporate income tax and the 4% excise
tax in a particular year. These alternatives could increase our costs or reduce our equity. Further, amounts distributed will not be
available to fund investment activities. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely
affect the value of our shares. Any restrictions on our ability to incur additional indebtedness or make certain distributions could
preclude us from meeting the REIT distribution requirements. Decreases in FFO due to unfinanced expenditures for acquisitions
of properties or increases in the number of shares outstanding without commensurate increases in FFO each would adversely affect our
ability to maintain distributions to our stockholders. Consequently, there can be no assurance that we will be able to make distributions
at the anticipated distribution rate or any other rate.
Complying
with REIT requirements may cause us to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments.
To
qualify to be taxed as a REIT for U.S. federal income tax purposes, we must ensure that, at the end of each calendar quarter, at least
75% of the value of our assets consist of cash, cash items, government securities and “real estate assets” (as defined in
the Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified
real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any
particular issuer or more than 10% of the total value of the outstanding securities of the issuer.
Additionally,
in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities
issued by a TRS) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented
by securities of one or more TRSs. Please refer to “Material U.S. Federal Income Tax Considerations.” If we fail to comply
with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar
quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
As a result, we may be required to liquidate or forego otherwise attractive investments. These actions could have the effect of reducing
our income and amounts available for distribution to our stockholders.
In
addition to the asset tests set forth above, to qualify to be taxed as a REIT, we must continually satisfy tests concerning, among other
things, the sources of our gross income, the amounts we distribute to our stockholders and the ownership of our shares. We may
be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification
requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive
investments.
Complying
with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The
REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Income from certain potential hedging
transactions that we may enter into to manage risk of interest rate changes with respect to borrowings made, or to be made,
to acquire or carry real estate assets or from transactions to manage risk of currency fluctuations with respect to any item of income
or gain that satisfy the REIT gross income tests (including gain from the termination of such a transaction) does not constitute “gross
income” for purposes of the 75% or 95% gross income tests that apply to REITs (i.e., is not taken into account in determining
compliance with the gross income tests), provided that certain identification requirements are met. To the extent that we enter into
other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying
income for purposes of both of the gross income tests. Please refer to “Material U.S. Federal Income Tax Considerations.”
In addition, to the extent that our position in a hedging transaction has positive value, it may not be treated as a qualifying asset
for purposes of the quarterly gross asset tests that apply to REITs.
As
a result of these rules, we may be required to limit our use of advantageous hedging techniques, or implement those hedges through
a TRS. To the extent that we engage in hedging transactions through a TRS, any income derived from the hedge would be subject to corporate
income tax, and any losses from the hedge would generally not be available to offset our income from other sources.
The
share ownership limit imposed by the Code for REITs and our charter may inhibit market activity in our shares and restrict our business
combination opportunities.
In
order for us to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last
half of each taxable year after our first taxable year as a REIT. Our charter, with certain exceptions, will authorize our board of directors
to take the actions that are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors,
no person may beneficially own more than 9.8% of our outstanding common stock or more than 9.8% of any outstanding class or series of
our preferred stock, as determined by value. The board of directors may exempt a person from the ownership limit if the board of directors
receives a ruling from the IRS, an opinion of tax counsel that such ownership will not jeopardize our status as a REIT,
or such other documents as the board deems appropriate. These ownership limits could delay or prevent a transaction or a change
in our control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
If
rent attributable to personal property exceeds 15% of the rents payable under our property leases, this could adversely affect our qualification
as a REIT.
If
rent attributable to personal property leased in connection with any lease of our real property exceeds 15% of the total rents payable
under such lease (based on the relative values of the personal property and real property covered by such lease), in that case all of
the rent attributable to the personal property would be treated as nonqualifying income for purposes of the gross income requirements
applicable to REITs, which could adversely affect our qualification as a REIT. With respect to each of our leases, we believe either
that the personal property component is less than 15% of the total rent, or that any rent attributable to excess personal property, when
taken together with all of our other non-qualifying income, will not jeopardize our ability to qualify as a REIT. There can be no assurance,
however, that the IRS would not challenge our calculation of the relative rents attributable to real and personal property, or that a
court would not uphold such assertion. If such a challenge were successfully asserted, we could fail to satisfy either or both of the
75% and 95% gross income tests, and thus potentially lose our REIT status.
If
the Infinity Healthcare consulting services provided to certain tenants are treated as provided by the REIT due to the ownership and
control of Infinity Healthcare by Mr. Gubin, the Company’s Chairman and Chief Executive Officer, and Mr. Blisko, a director of
the Company, then the rents paid by the tenants may not qualify as “rents from real property” and our REIT qualification
could be threatened.
In
general, we may only provide services to our tenants,
if the services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not
considered to be provided for the tenants’ convenience, or the services are provided through an independent contractor from
which we derive no income and certain other requirements are met, or through a TRS. In addition, we may provide a minimal amount
of “noncustomary” services to the tenants of a property, other than through an independent contractor or a TRS, as
long as our income from the services (valued at not less than 150% of the direct cost of performing such services) does not exceed 1%
of our income from the property. If we provide other services to our tenants which exceed this threshold, then the rents from the tenants
will not qualify as “rents from real property,” and our REIT qualification could be threatened.
If
any of the consulting services provided by Infinity Healthcare to our tenants are considered to be “noncustomary services”
and are treated as provided by us to the tenants due to the fact that the Company’s Chairman and Chief Executive Officer
and director own and control Infinity Healthcare and these individuals hold officer and/or director positions with the Company, the rents
from these tenants will not qualify as “rents from real property” and our REIT qualification could be threatened.
Risks
Related to Ownership of our Common Stock
Although
the shares of our common stock are currently listed on the NYSE American, there has been limited trading of our shares. Following the
offering, an active trading market may not develop or continue to be liquid and the market price of shares of our common stock may be
volatile.
To
date, there has been only limited trading of our shares on the NYSE American. Following the offering, there can no assurance that an
active market for shares of our common stock would develop or be sustained. In the absence of an active public trading market, shareholders
may not be able to sell their shares of our common stock. The lack of an active market for our shares may also impair our ability to
raise capital by selling shares, our ability to motivate our employees through equity incentive awards and our ability to acquire other
companies, products or technologies by using shares as consideration.
We
are required to satisfy NYSE American’s continued qualification standards. If we fail to do so, our shares would no longer be eligible
for trading on the NYSE American.
The
market price and trading volume of our common stock may be volatile following this offering.
Even
if an active trading market develops for our common stock, the trading price of the common stock may be volatile. In addition, the trading
volume in our common stock may fluctuate and cause significant price variations to occur. If the trading price of our common stock declines
significantly, you may be unable to resell your shares at or above the public offering price. Some of the factors that could negatively
affect our share price or result in fluctuations in the price or trading volume of our common stock include:
| ● | the
number of shares of our common stock publicly owned and available for trading; |
| | | |
| ● | overall
performance of the equity markets and/or publicly listed healthcare REITs; |
| | | |
| ● | actual
or anticipated fluctuations in our revenue or other operating metrics; |
| | | |
| ● | our
actual or anticipated operating performance and the operating performance of our competitors; |
| | | |
| ● | changes
in the financial projections we provide to the public or our failure to meet these projections; |
| | | |
| ● | failure
of securities analysts to initiate or maintain coverage of us, changes in financial estimates
by any securities analysts who follow our company, or our failure to meet the estimates or
the expectations of investors; |
| | | |
| ● | any
major change in our Board, management, or key personnel; |
| | | |
| ● | the
economy as a whole and market conditions in our industry; |
| | | |
| ● | rumors
and market speculation involving us or other companies in our industry; |
| | | |
| ● | announcements
by us or our competitors of significant innovations, new products, services, features, integrations
or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital
commitments; |
| | | |
| ● | new
laws or regulations or new interpretations of existing laws or regulations applicable to
our business, including those related to data privacy and cyber-security in the U.S. or globally; |
| ● | lawsuits
threatened or filed against us; |
| | | |
| ● | other
events or factors, including those resulting from war, incidents of terrorism, or responses
to these events; and |
| | | |
| ● | sales
or expected sales of our common stock by us and our officers, directors and principal stockholders. |
In
addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of
equity securities of many companies. Stock prices of many companies have fluctuated in a manner often unrelated to the operating performance
of those companies. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources
and the attention of management from our business and harm our business, results of operations and financial condition.
Sales
of substantial amounts of our common stock in the public market following the offering or the perception that sales might occur, could
cause the market price of our common stock to decline.
In
addition to the supply and demand and volatility factors discussed above, sales of a substantial number of shares of our common stock
into any public market for our shares, particularly sales by our directors, executive officers and principal stockholders, or the perception
that these sales might occur in large quantities, could cause the market price of our common stock to decline.
We
also may issue our capital stock or securities convertible into our capital stock from time to time in connection with a financing, acquisition,
investments, or otherwise, but we will not conduct any such issuance during any period in which this registration statement is effective.
Any such issuance could result in substantial dilution to our Shareholders and cause the public price
of our common stock to decline.
Increases
in market interest rates may have an adverse effect on the trading prices of our common stock as prospective purchasers of our common
stock may expect a higher dividend yield.
One
of the factors that will influence the trading prices of our common stock will be the dividend yield on the common stock (as a percentage
of the price of our common 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 our common stock to expect a higher dividend yield (with a resulting
decline in the trading prices of our common stock) and higher interest rates would likely increase our borrowing costs and potentially
decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decrease.
Sales
of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock
to decline, even if our business is doing well.
Sales
of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock
to decline, even if our business is doing well. Sales of substantial amounts of our common stock or other securities in the public market,
or the perception that these sales could occur, could materially and adversely affect the price of our common stock and could impair
our ability to raise capital through the sale of additional shares.
Historically,
we have used our shares of common stock to fund our operating partnership and satisfy our outstanding debt obligations, and, in the future,
we expect to continue to issue our securities to raise additional capital, fund our operating partnership, or satisfy outstanding debt
obligations. The number of new shares of our common stock issued in connection with raising additional capital could constitute a material
portion of the then-outstanding shares of our common stock.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of July 18, 2024, certain information regarding the beneficial ownership of shares of our Common Stock
and shares of Common Stock issuable upon redemption of OP units for (1) each person who is the beneficial owner of 5% or more of our
outstanding Common Stock, (2) each of our directors and named executive officers, and (3) all of our directors and executive officers
as a group. Each person named in the table has sole voting and investment power with respect to all of the shares of our Common Stock
shown as beneficially owned by such person, except as otherwise set forth in the footnotes to the table. The extent to which a person
holds shares of Common Stock as opposed to OP units is set forth in the footnotes below.
The
SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or
investment power over such security. A stockholder is also deemed to be, as of any date, the beneficial owner of all securities that
such stockholder has the right to acquire within 60 days after that date through (1) the exercise of any option, warrant or right, (2)
the conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement or (4) the automatic termination
of a trust, discretionary account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of our Common Stock subject to options or other rights (as set forth above) held by that person that
are exercisable as of July 18, 2024, or will become exercisable within 60 days thereafter, are deemed outstanding, while such shares
are not deemed outstanding for purposes of computing percentage ownership of any other person.
Unless
otherwise indicated, the address of each named person is c/o Strawberry Fields REIT, Inc. at 6101 Nimtz Parkway, South Bend, Indiana
46628. No shares beneficially owned by any executive officer or director have been pledged as security for a loan.
| | |
Number
of Shares of Common Stock Beneficially Owned(1) | | |
Number of Shares of Common Stock
and OP Units Beneficially Owned | | |
Percentage
of All Shares of Common Stock(2) | | |
Percentage
of All Shares of Common Stock and OP Units(2) | |
| | |
| | |
| | |
| | |
| |
| Moishe Gubin(3) | |
| 440,582 | | |
| 19,060,076 | | |
| 6.4 | % | |
| 36.8 | % |
| Michael Blisko(4) | |
| 204,880 | | |
| 19,346,271 | | |
| 3.0 | % | |
| 37.4 | % |
| Essel Bailey | |
| 45,503 | | |
| 45,503 | | |
| 0.7 | % | |
| 0.1 | % |
| Jack Levine | |
| 102,181 | | |
| 102,181 | | |
| 1.5 | % | |
| 0.2 | % |
| Reid Shapiro | |
| — | | |
| — | | |
| 0.0 | % | |
| 0.0 | % |
| Jeffrey Bajtner | |
| — | | |
| — | | |
| 0.0 | % | |
| 0.0 | % |
| Greg Flamion | |
| — | | |
| — | | |
| 0.0 | % | |
| 0.0 | % |
| All Directors and Executive Officers as a group (six persons) | |
| 793,146 | | |
| 38,554,031 | | |
| 11.5 | % | |
| 74.4 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Beneficial Owners of More than Five Percent (5%) | |
| | | |
| | | |
| | | |
| | |
Moishe Gubin/Gubin Enterprises LP
5683 N Lincoln Ave.
Chicago IL 60659 | |
| 440,582 | | |
| 19,060,076 | | |
| 6.4 | % | |
| 36.8 | % |
Michael Blisko/Blisko Enterprises LP
2477 E. Commercial Blvd.
Ft. Lauderdale FL. 33308 | |
| 204,880 | | |
| 19,346,271 | | |
| 3.0 | % | |
| 37.4 | % |
Ted Lerman/A&F Realty LLC
2722 W Tucker Dr.
South Bend IN. 46624 | |
| 528,087 | | |
| 6,550,437 | | |
| 7.7 | % | |
| 12.6 | % |
B&N Realty Investment LLC
5218 14th Ave.
Brooklyn NY. 11219
| |
| 668,864 | | |
| 1,611,516 | | |
| 9.7 | % | |
| 3.1 | % |
Wissati Irrevocable Trust
2201 Main St.
Evanston IL. 60202 | |
| 520,147 | | |
| 520,147 | | |
| 7.5 | % | |
| 1.0 | % |
Hebrew Orthodox Congregation
2722 W Tucker Dr.
South Bend IN. 46624 | |
| 668,864 | | |
| 750,000 | | |
| 9.7 | % | |
| 1.4 | % |
Nahman
Eingal(5) 5683
N Lincoln Ave. Chicago
IL 60659 | |
| 403,360 | | |
| 403,360 | | |
| 5.8 | % | |
| 0.8 | % |
Congregation Shaarei Halacha of Chestnut Ridge
41 Eastbourne Dr.
Spring Valley NY. 10977 | |
| 522,788 | | |
| 522,788 | | |
| 7.6 | % | |
| 1.0 | % |
South Bend Kollel
2722 W Tucker Dr.
South Bend IN. 46624 | |
| 668,864 | | |
| 750,000 | | |
| 9.7 | % | |
| 1.4 | % |
The Jewish Federation of Metropolitan Chicago
30 S. Wells St.
Chicago IL. 60606 | |
| 330,000 | | |
| 330,000 | | |
| 4.8 | % | |
| 0.6 | % |
(1)
Excludes shares of common stock that may be issued upon redemption of OP units.
(2)
Based on an aggregate of 6,898,867 shares of common stock and an aggregate of 44,889,469 OP units (which excludes OP units held by the
Company) issued and outstanding on March 15, 2024.
(3)
Gubin Enterprises LP, a limited partnership indirectly controlled by Mr. Gubin, is the owner of 15,980,535 OP units and 373,842 shares
of our Common Stock. In addition, Strawberry Patch Aleph LLC, a limited liability company managed by Mr. Gubin and Michael Blisko, is
the owner of 54,713 shares of our Common Stock. New York Boys Management LLC, a limited liability company managed by Mr. Gubin and Michael
Blisko, is the owner of 102,690 shares of our Common Stock and 3,342,014 OP units. R&Q Quest Insurance Limited for and on behalf
of the Empire Indemnity 2 Segregated Account, a segregated account that Mr. Blisko and Mr. Gubin have indirect beneficial interests in,
is the owner of 1,935,904 OP units.
(4)
Blisko Enterprises LP, a limited partnership indirectly controlled by Mr. Blisko, is the owner of 16,502,432 OP units and 139,050 shares
of our Common Stock. In addition, Strawberry Patch Aleph LLC, a limited liability company managed by Mr. Gubin and Michael Blisko, is
the owner of 54,713 shares of our Common Stock. New York Boys Management LLC, a limited liability company managed by Mr. Gubin and Michael
Blisko, is the owner of 102,690 shares of our Common Stock and 3,342,014 OP units. R&Q Quest Insurance Limited for and on behalf
of the Empire Indemnity 2 Segregated Account, a segregated account that Mr. Blisko and Mr. Gubin have indirect beneficial interests in,
is the owner of 1,935,904 OP units.
(5)
A&F Realty LLC, a limited liability company that Mr. Lerman is on the Board of Managers, is the direct and indirect owner of 6,022,350
OP units and 528,087 shares of our Common Stock, excluding 2,289 shares held directly by Mr. Lerman.
(6)
T&N Realty LLC, a limited liability company managed by Mr. Eingal, the former Chief Financial Officer, is the owner of 403,360 shares
of our Common Stock.
USE
OF PROCEEDS
Unless
otherwise indicated in the applicable prospectus supplement, we anticipate that the net proceeds from the sale of the securities that
we may offer under this prospectus will be contributed to our Operating Partnership in exchange for OP units. We may also use the net
proceeds for (i) the acquisition of additional properties (including equity investments in joint ventures that acquire such properties
and/or the acquisition of the interest of our joint venture partners in one or more joint ventures), (ii) other direct or indirect acquisitions
of, or investments in, real estate and related assets, and (iii) general corporate purposes. General corporate purposes may include repayment
of debt, capital expenditures and any other purposes that we may specify in the applicable prospectus supplement. If a material part
of the net proceeds is used to repay indebtedness, we will set forth the interest rate and maturity of such indebtedness in a prospectus
supplement, as required.
We
will have significant discretion in the use of any net proceeds. Investors will be relying on the judgment of our management regarding
the application of the proceeds from any sale of the securities. We may invest the net proceeds temporarily until we use them for their
stated purpose.
DESCRIPTION
OF SECURITIES OFFERED
The
following description is a summary of the material terms of our securities, including Common Stock, Preferred Stock, Warrants, Units,
and Subscription Rights as set forth in our charter and our bylaws and the Maryland General Corporation Law (the “MGCL”).
These documents may be amended from time to time. You should read our charter and our bylaws because they, not this description, define
your rights as a stockholder.
Our
charter authorizes us to issue up to 600,000,000 shares of stock, consisting of 500,000,000 shares of common stock, par value $0.0001
per share, and 100,000,000 shares of preferred stock, par value $0.0001 per share. As of July 18, 2024, 6,898,867 shares
of our common stock and no shares of our preferred stock were issued and outstanding.
All
of our outstanding shares of common stock were duly authorized and validly issued and are fully paid and nonassessable.
Under
Maryland law, stockholders generally are not personally liable for our debts or obligations solely as a result of their status as stockholders.
DESCRIPTION
OF COMMON STOCK
Voting
Rights of Common Stock
Subject
to the provisions of our charter regarding the restrictions on transfer and ownership of shares of our common stock and except as may
otherwise be specified in the terms of any class or series of common stock, each outstanding share of common stock entitles the holder
to one vote on all matters submitted to a vote of stockholders, including the election of directors, and, except as provided with respect
to any other class or series of capital stock, the holders of shares of common stock will possess the exclusive voting power. There is
no cumulative voting in the election of the Company’s directors, which means that the stockholders entitled to cast a majority
of the votes of the outstanding shares of common stock can elect all of the directors then standing for election, and the holders of
the remaining shares will not be able to elect any directors.
Under
the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert, sell all or substantially all of its assets,
engage in a statutory share exchange or engage in similar transactions outside the ordinary course of business unless approved by its
board of directors and approved by the affirmative vote of stockholders holding at least two-thirds of the shares entitled to vote on
the matter unless a lesser percentage (but not less than a majority of all the votes entitled to be cast on the matter) is set forth
in the corporation’s charter. Our charter provides that these actions (other than certain amendments to the provisions of our charter
related to the removal of directors and the vote required to amend the charter, which requires at least two-thirds of the votes entitled
to be cast) may be taken if advised by our board of directors and approved by the vote of stockholders holding at least a majority of
all the votes entitled to be cast on the matter. However, Maryland law permits a corporation to transfer all or substantially all of
its assets without the approval of the stockholders of the corporation to one or more persons if all of the equity interests of the person
or persons are owned, directly or indirectly, by the corporation. In addition, because assets may be held by a corporation’s subsidiaries,
as will be the case with the Company, these subsidiaries may be able to transfer all or substantially all of such assets without a vote
of our stockholders.
Dividends,
Distributions, Liquidation and Other Rights
Subject
to the preferential rights of any other class or series of our stock and to the provisions of our charter regarding the restrictions
on transfer of shares of stock, holders of shares of common stock are entitled to receive dividends on such shares of common stock if,
as and when authorized by our board of directors and declared by us out of assets legally available therefor. Such holders are also entitled
to share ratably in the assets of the Company legally available for distribution to our stockholders in the event of our liquidation,
dissolution or winding up after payment or establishment of reserves for all debts and liabilities of the Company and any shares with
preferential rights thereto.
Holders
of shares of common stock have no appraisal, preference, conversion, exchange, sinking fund or redemption rights, have no preemptive
rights to subscribe for any of our securities, except as may be provided by our board of directors in setting the terms and rights of
any class or series of our stock. Subject to the preferential rights of any other class or series of our stock and to the provisions
of our charter regarding the restrictions on transfer of shares of stock, all shares of common stock have equal dividend, liquidation
and other rights.
Power
to Reclassify Our Unissued Shares of Stock
Our
charter authorizes our board of directors, without stockholder approval, to classify and reclassify any unissued shares of common or
preferred stock into other classes or series of shares of stock and to establish the number of shares in each class or series and to
set the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption for each such class or series. As a result, our board of directors could authorize the issuance
of shares of preferred stock that have priority over the shares of common stock with respect to dividends, distributions and rights upon
liquidation and with other terms and conditions that could have the effect of delaying, deterring or preventing a transaction or a change
in control that might involve a premium price for holders of shares of our common stock or otherwise might be in their best interest.
No shares of preferred stock are presently outstanding, and we have no present plans to issue any shares of preferred stock.
Power
to Increase or Decrease Authorized Stock and Issue Additional Shares of Our Common Stock and Preferred Stock
Our
charter authorizes our board of directors, with the approval of a majority of the entire board of directors, to amend our charter to
increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series
without stockholder approval. We believe that the power of our board of directors to increase or decrease the number of authorized shares
of stock and to classify or reclassify unissued shares of our common stock or 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. The additional classes or series, as well as the additional shares of stock, will be available for future
issuance without further action by our stockholders, unless such action is required by applicable law, the terms of any other class or
series of stock or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Our
board of directors could authorize us to issue a class or series that could, depending upon the terms of the particular class or series,
delay, defer or prevent a transaction or a change in control of the Company that might involve a premium price for our stockholders or
otherwise believe to be in their best interests.
Restrictions
on Ownership and Transfer
In
order to qualify as a REIT under the Code, our shares of 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 our outstanding shares of capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year
(other than the first year for which an election to be a REIT has been made).
Because
our board of directors believes it is at present essential for us to qualify as a REIT, among other purposes, our charter, subject to
certain exceptions, contains restrictions on the number of our shares of stock that a person may own. Our charter provides that,
subject to certain exceptions, (i) no person, may beneficially or constructively own more than 9.8% in value of the aggregate outstanding
shares of our common stock, and (ii) no person may beneficially or constructively own more than 9.8%, in value of the outstanding shares
of any class or series of our preferred stock (collectively, the “ownership limit”).
Our
charter also prohibits any person from:
●
beneficially or constructively owning or transferring shares of our capital stock if such ownership or transfer would result in our being
“closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held
during the last half of a year);
●
transferring shares of our capital stock if such transfer would result in our capital stock being owned by fewer than 100 persons (determined
under the principles of Section 856(a)(5) of the Code);
●
beneficially or constructively owning shares of our capital stock to the extent that such beneficial or constructive ownership
would cause us to constructively own 9.9% or more of the stock or other equity interests (determined in accordance with
Section 856(d)(2)(B) of the Code) issued by a tenant, other than TRS, of our real property;
●
beneficially or constructively owning or transferring shares of our capital stock if such beneficial or constructive ownership or transfer
would otherwise cause us to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any “eligible
independent contractor” (as defined in Section 856(d)(9)(A) of the Code) that operates a “qualified health care property”
(as defined in Section 856(e)(6)(D)(i) of the Code) on behalf of a TRS failing to qualify as such under the Code; or
●
acquiring shares of our capital stock if such acquisition would disqualify us as a REIT under the Code.
Our
board of directors is authorized to consider the lack of certainty in the provisions of the Code relating to the ownership of stock that
may prevent a corporation from qualifying as a REIT and may make interpretations concerning the ownership limitations, ownership
attribution rules and related matters on as conservative a basis as the board of directors deems advisable so as
to minimize or eliminate uncertainty as to our qualification or continued qualification as a REIT. Our charter does not restrict the
authority of the board to take such other actions as it deems necessary or advisable to protect to us and the interests of the
stockholders by preserving our qualification as a REIT under the Code.
Our
board of directors, in its sole discretion, may prospectively or retroactively exempt a person from certain of the limits described above and may establish or increase an excepted holder percentage limit for such person if our board of directors obtains
such representations, covenants and undertakings as it deems appropriate in order to conclude that granting the exemption and/or establishing
or increasing the excepted holder percentage limit will 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. Our board of directors may not grant an exemption to any person if that exemption would result in our failing to qualify as
a REIT. Our board of directors may require a ruling from the IRS or an opinion of counsel, in either case in form and substance satisfactory
to our board of directors, in its sole discretion, in order to determine or ensure our status as a REIT.
Notwithstanding
the receipt of any ruling or opinion, our board of directors may impose such guidelines or restrictions as it deems appropriate in connection
with granting any such exemption. In connection with granting a waiver of the ownership limit or creating an exempted holder limit
or at any other time, our board of directors from time to time may increase or decrease the ownership limit, subject to certain exceptions.
A decreased ownership limit will not apply to any person or entity whose percentage of ownership of our stock is in excess of the decreased
ownership limit until the person or entity’s ownership of our stock equals or falls below the decreased ownership limit, but any
further acquisition of our stock will be subject to the decreased ownership limit.
Any
attempted transfer of shares of our capital stock which, if effective, would violate any of the restrictions described above will result
in the number of shares of our capital stock causing the violation (rounded up to the nearest whole share) to be automatically transferred
to a trust for the exclusive benefit of one or more charitable beneficiaries and the purported owner or transferee (the “prohibited
owner”) acquiring no rights in such shares, except that any transfer that results in the violation of the restriction relating
to shares of our capital stock being beneficially owned by fewer than 100 persons will be void ab initio. In either case, the prohibited
owner will not acquire any rights in those shares. The automatic transfer will be deemed to be effective as of the close of business
on the business day prior to the date of the purported transfer or other event that results in the transfer to the trust. Shares held
in the trust will be issued and outstanding shares. The prohibited owner will not benefit economically from ownership of any shares held
in the trust, will have no rights to dividends or other distributions and will have no rights to vote or other rights attributable to
the shares held in the trust. The trustee of the trust will have all voting rights and rights to dividends or other distributions with
respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend
or other distribution paid prior to our discovery that shares have been transferred to the trust will be paid by the recipient to the
trustee upon demand. Any dividend or other distribution authorized but unpaid will be paid when due to the trustee. Any dividend or other
distribution paid to the trustee will be held in trust for the charitable beneficiary. Subject to Maryland law, the trustee will have
the authority (i) to rescind as void any vote cast by the prohibited owner prior to our discovery that the shares have been transferred
to the trust 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 will not have the authority to rescind and recast the
vote.
Within
20 days of receiving notice from us that shares of our stock have been transferred to the trust, the trustee will sell the shares to
a person, designated by the trustee, whose ownership of the shares will not violate the above ownership and transfer limitations. Upon
the sale, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds
of the sale to the prohibited owner and to the charitable beneficiary as follows. The prohibited owner will receive the lesser of (i)
the price paid by the prohibited owner for the shares or, if the prohibited owner did not give value for the shares in connection with
the event causing the shares to be held in the trust (e.g., a gift, devise or other similar transaction), the market price (as defined
in our charter) of the shares on the day of the event causing the shares to be held in the trust and (ii) the price per share received
by the trustee (net of any commission and other expenses of sale) from the sale or other disposition of the shares. The trustee may reduce
the amount payable to the prohibited owner by the amount of dividends or other distributions paid to the prohibited owner and owed by
the prohibited owner to the trustee. Any net sale proceeds in excess of the amount payable to the prohibited owner will be paid immediately
to the charitable beneficiary. If, prior to our discovery that shares of our stock have been transferred to the trust, the shares are
sold by the prohibited owner, then (i) the shares shall be deemed to have been sold on behalf of the trust and (ii) to the extent that
the prohibited owner received an amount for the shares that exceeds the amount he or she was entitled to receive, the excess shall be
paid to the trustee upon demand.
In
addition, shares of our stock held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share
equal to the lesser of (i) 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 the devise or gift) and (ii) the market price on the date we, or our designee, accept the offer,
which we may reduce by the amount of dividends and distributions paid to the prohibited owner and owed by the prohibited owner to the
trustee. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable
beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the prohibited owner.
If
a transfer to a charitable trust, as described above, would be ineffective for any reason to prevent a violation of a restriction contained
in our charter, the transfer that would have resulted in a violation will be void ab initio, and the prohibited owner shall acquire
no rights in those shares.
The
foregoing restrictions on transferability and ownership will not apply if our board of directors determines that it is no longer in our
best interests to attempt to qualify, or to continue to qualify, as a REIT.
Any
certificate representing shares of our capital stock, and any notices delivered in lieu of certificates with respect to the issuance
or transfer of uncertificated shares, will bear a legend referring to the restrictions described above.
Any
person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our capital stock that will or
may violate any of the foregoing restrictions on transferability and ownership, or any person who would have owned shares of our capital
stock that resulted in a transfer of shares to a charitable trust, is required to give written notice immediately to us, or in the case
of a proposed or attempted transaction, to give at least 15 days’ prior written notice, 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.
Every
owner of 5% or more (or any lower percentage as required by the Code or the regulations promulgated thereunder) in number or value of
the outstanding shares of our capital stock, within 30 days after the end of each taxable year, is required to give us written notice,
stating his or her name and address, the number of shares of each class and series of shares of our capital stock that he or she beneficially
owns and a description of the manner in which the shares are held. Each of these owners must provide us with additional information that
we may request in order to determine the effect, if any, of his or her beneficial ownership on our status as a REIT and to ensure compliance
with the ownership limits. In addition, each stockholder will upon demand be required to provide us with information that we may request
in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental
authority or to determine our compliance.
These
ownership limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for shares
of our common stock or otherwise be in the best interests of our stockholders.
Transfer
Agent and Registrar
The
transfer agent and registrar for our shares of common stock is Continental Stock Transfer & Trust Company.
DESCRIPTION
OF PREFERRED STOCK
The
following paragraphs constitute a general description of the terms of the preferred stock we may issue from time to time. Particular
terms of any preferred stock we offer will be described in the prospectus supplement relating to such securities. The description in
the applicable prospectus supplement of any preferred stock we offer will not necessarily be complete and will be qualified in its entirety
by reference to the applicable preferred stock designation, which will be filed with the SEC if we offer preferred stock.
Our
charter authorizes our board of directors issue up to 100,000,000 shares of preferred stock, par value $0.0001 per share, in one or more
series and with rights, preferences, privileges and restrictions that our board of directors may fix or designate without any further
vote or action by our stockholders. Our charter also authorizes our board of directors to classify and reclassify any unissued shares
of our common stock or preferred stock into other classes or series of stock, including one or more classes or series of preferred stock,
and authorizes us to issue the newly classified shares. Before authorizing the issuance of a new class or series of preferred stock,
our board of directors is required by Maryland law and our charter, subject to the provisions of our charter regarding the restrictions
on ownership and transfer of our stock, to fix the preferences, conversion and other rights, voting powers, restrictions, limitations
as to dividends and other distributions, qualifications and terms and conditions of redemption for each class or series. Our board of
directors also may increase or decrease the authorized number of shares of any class or series of our stock, including any class or series
of our preferred stock, and may classify or reclassify any unissued shares of a class or series of our stock by fixing or altering from
time to time the terms of such shares.
These
actions may be taken without stockholder approval 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 shares of our stock are listed or traded.
Therefore, our board of directors could authorize the issuance of shares of preferred stock that have priority over our common stock
with respect to dividends or other distributions or rights upon liquidation or the issuance of shares of common stock or preferred stock
with terms and conditions that could have the effect of delaying, deferring or preventing a change in control or other transaction that
might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
Terms
Articles
supplementary that will become part of our charter will set forth the specific terms of any new series of preferred stock offered. A
prospectus supplement will describe these specific terms, including:
●
the title and stated value;
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the number of shares, liquidation preference and offering price;
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the dividend rate, dividend periods and payment dates;
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the date on which dividends begin to accrue or accumulate;
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any auction and remarketing procedures;
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any retirement or sinking fund requirement;
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the price and the terms and conditions of any redemption right;
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any listing on any securities exchange;
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the price and the terms and conditions of any conversion or exchange right;
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any voting rights;
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the relative ranking and preferences as to dividends, liquidation, dissolution or winding up;
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any limitations on issuing any series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividends,
liquidation, dissolution or winding up;
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any limitations on direct or beneficial ownership and restrictions on transfer; and
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any other specific terms, preferences, rights, limitations or restrictions.
Restrictions
on Ownership and Transfer; Change of Control Provisions
As
discussed above under “Description of Common Stock-Restrictions on Ownership and Transfer,” our charter contains restrictions
on ownership and transfers of our capital stock. In addition, the articles supplementary designating the terms of each series of preferred
stock may also contain additional provisions restricting the ownership and transfer of the preferred stock. The prospectus supplement
will describe any additional ownership limitation relating to a series of our preferred stock.
DESCRIPTION
OF WARRANTS
The
following paragraphs constitute a general description of the terms of the warrants we may issue from time to time. Particular terms of
any warrants we offer will be described in the prospectus supplement relating to such warrants. The description in the applicable prospectus
supplement of any warrants we offer will not necessarily be complete and will be qualified in its entirety by reference to the applicable
warrant certificate or warrant agreement, which will be filed with the SEC if we offer warrants.
General
We
may issue warrants to purchase our equity securities. We may issue warrants independently or together with any other offered securities.
The warrants may be attached to or separate from those offered securities. We may issue the warrants under warrant agreements to be entered
into between us and a transfer agent or bank or trust company to be named in the applicable prospectus supplement, as warrant agent,
all as described in the applicable prospectus supplement. Any warrant agent will act solely as our agent in connection with the warrants
and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants.
The
prospectus supplement relating to any warrants that we may offer will contain the specific terms of the warrants. These terms may include
the following:
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the
title of the warrants; |
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the
designation, amount and terms of the securities for which the warrants are exercisable; |
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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; |
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the
price or prices at which the warrants will be issued; |
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the
aggregate number of warrants; |
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any
provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of
the warrants; |
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the
price or prices at which the securities purchasable upon exercise of the warrants may be purchased; |
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the
date on which the right to exercise the warrants will commence, and the date on which the right will expire; |
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if
applicable, the date on and after which the warrants and the securities purchasable upon exercise of the warrants will be separately
transferable; |
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if
applicable, a discussion of certain material U.S. federal income tax considerations applicable to the warrants; |
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any
other terms of the warrants, including terms, procedures and limitations relating to the redemption, exchange and exercise of the
warrants; |
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the
maximum or minimum number of warrants that may be exercised at any time; and |
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information
with respect to book-entry procedures, if any. |
Exercise
of Warrants
Each
warrant will entitle the holder of warrants to purchase for cash the amount of equity securities 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, unexercised warrants will become void. Warrants may be exercised as 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 or any other office indicated in the prospectus supplement, we will, as soon as possible, forward the equity securities
that the warrant holder has purchased. If the warrant holder exercises the warrant for less than all of the warrants represented by the
warrant certificate, we will issue a new warrant certificate for the remaining warrants.
DESCRIPTION
OF UNITS
This
section describes some of the general terms and provisions applicable to units we may issue from time to time. We will describe the specific
terms of a series of units and the applicable unit agreement in the applicable prospectus supplement. The following description and any
description of the units in the applicable prospectus supplement may not be complete and is subject to and qualified in its entirety
by reference to the terms and provisions of the applicable unit agreement. A form of the unit agreement reflecting the particular terms
and provisions of a series of offered units will be filed with the SEC in connection with the offering and incorporated by reference
in the registration statement and this prospectus.
We
may issue units from time to time in such amounts and in as many distinct series as we determine. We will issue each series of units
under a unit agreement to be entered into between us and a unit agent to be designated in the applicable prospectus supplement. When
we refer to a series of units, we mean all units issued as part of the same series under the applicable unit agreement.
We
may issue units consisting of any combination of two or more securities described in this prospectus. Each unit will be issued so that
the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and
obligations of a holder of each included security. The unit agreement under which a unit is issued may provide that the securities included
in the unit may not be held or transferred separately, at any time or at any time before a specified date.
The
applicable prospectus supplement will describe the terms of the units offered pursuant to it, including one or more of the following:
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the
designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those
securities may be held or transferred separately; |
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the
aggregate number of, and the price at which we will issue, the units; |
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any
provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units; |
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whether
the units will be issued in fully registered or global form; |
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the
name of the unit agent; |
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a
description of the terms of any unit agreement to be entered into between us and a bank or trust company, as unit agent, governing
the units; |
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if
appropriate, a discussion of the material U.S. federal income tax consequences applicable to the units; and |
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whether
the units will be listed on any securities exchange. |
Additionally,
in order to enable us to preserve our status as a REIT, we may take certain actions to restrict ownership and transfer of our outstanding
securities, including any units. The prospectus supplement related to the offering of any units will specify any additional ownership
limitation relating to the units being offered thereby.
DESCRIPTION
OF SUBSCRIPTION RIGHTS
The
following paragraphs constitute a general description of the terms of the subscription rights we may issue from time to time. Particular
terms of any subscription rights we offer will be described in the prospectus supplement relating to such subscription rights. The description
in the applicable prospectus supplement of any subscription rights we offer will not necessarily be complete and will be qualified in
its entirety by reference to the applicable subscription rights certificate or subscription rights agreement, which will be filed with
the SEC if we offer subscription rights.
We
may issue subscription rights to purchase our common shares, preferred shares or other securities. These subscription rights may be issued
independently or together with any other security offered hereby and may or may not be transferable by the securityholder receiving the
subscription rights in such offering. In connection with any offering of subscription rights, we may enter into a standby arrangement
with one or more underwriters or other purchasers pursuant to which the underwriters or other purchasers may be required to purchase
any or a portion of the securities remaining unsubscribed for after such offering.
The
applicable prospectus supplement will describe the specific terms of any offering of subscription rights for which this prospectus is
being delivered, including the following:
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the
price, if any, for the subscription rights; |
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the
exercise price payable for each common share, preferred share or other security upon the exercise of the subscription rights; |
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the
number of subscription rights issued to each securityholder; |
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the
number and terms of the common shares, preferred shares or other securities which may be purchased per each subscription right; |
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the
extent to which the subscription rights are transferable; |
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any
other terms of the subscription rights, including the terms, procedures and limitations relating to the exchange and exercise of
the subscription rights; |
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the
date on which the right to exercise the subscription rights shall commence, and the date on which the subscription rights shall expire; |
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the
extent to which the subscription rights may include an over-subscription privilege with respect to unsubscribed securities; and |
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if
applicable, the material terms of any standby underwriting or purchase arrangement entered into by us in connection with the offering
of subscription rights. |
CERTAIN
PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
Although
the following summary describes certain provisions of Maryland law and the material provisions of our charter and bylaws, it is not a
complete description of our charter and bylaws, copies of which are filed as exhibits to the registration statement of which this prospectus
forms a part, or of Maryland law.
Our
Board of Directors
Our
charter and bylaws provide that the number of directors of the Company may be established, increased or decreased by our board of directors,
but may not be less than the minimum number required under the MGCL, which is one, or, unless our bylaws are amended, more than fifteen.
We have elected by a provision of our charter to be subject to a provision of Maryland law requiring that, subject to the rights of holders
of one or more classes or series of preferred stock, any vacancy resulting from an increase in the number of directors, or the resignation,
death or removal of a director may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute
a quorum, and any director elected to fill a vacancy will serve for the full term of the directorship in which such vacancy occurred
and until his or her successor is duly elected and qualifies.
Each
member of our board of directors is elected by our stockholders to serve until the next annual meeting of stockholders and until his
or her successor is duly elected and qualifies. Holders of shares of our common stock will have no right to cumulative voting in the
election of directors, and directors will be elected by a plurality of the votes cast in the election of directors. Consequently, at
each annual meeting of stockholders, stockholders entitled to cast a majority of all the votes entitled to be cast in the election of
directors will be able to elect all of our directors.
Removal
of Directors
Our
charter provides that, subject to the rights of holders of one or more classes or series of preferred stock to elect or remove one or
more directors, a director may be removed only for cause (as defined in our charter) and only by the affirmative vote of stockholders
entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors. This provision, when coupled
with the exclusive power of our board of directors to fill vacant directorships, may preclude stockholders from removing incumbent directors
except for cause and by a substantial affirmative vote and filling the vacancies created by such removal with their own nominees.
Business
Combinations
Under
the MGCL, certain “business combinations” (including a merger, consolidation, share exchange or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an “interested
stockholder” (defined generally as any person (other than the corporation or any subsidiary) who beneficially owns 10% or more
of the voting power of the corporation’s outstanding voting stock after the date on which the corporation had 100 or more beneficial
owners of its 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, directly or indirectly, of 10% or more of the voting power of the then outstanding stock
of the corporation after the date on which the corporation had 100 or more beneficial owners of its stock) 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.
Thereafter, any such business combination between the Maryland corporation and an interested stockholder generally must be recommended
by the board of directors of such corporation and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast
by holders of outstanding shares of voting stock of the corporation and (2) two-thirds of the votes entitled to be cast by holders 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, unless, among other conditions, the
corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received
in cash or in the same form as previously paid by the interested stockholder for its shares. Under the MGCL, a person is not an “interested
stockholder” under the statute if the board of directors approved in advance the transaction by which the person otherwise would
have become an interested stockholder. 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 it.
The
statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior
to the time that the interested stockholder became an interested stockholder. As permitted by the MGCL, our board of directors has adopted
a resolution exempting any business combination between us and any other person from the provisions of this statute, provided that the
business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates
of such persons). However, our board of directors may repeal or modify this resolution at any time in the future, in which case the applicable
provisions of this statute will become applicable to business combinations between us and interested stockholders.
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 those shares except to the extent approved by the affirmative vote of stockholders entitled to cast
at least two-thirds of the votes entitled to be cast on the matter, excluded shares of stock in respect of which any of the following
persons is entitled to exercise or direct the exercise of the voting power of such shares generally in the election of directors: (1)
the person who makes or proposes to make a control share acquisition, (2) an officer of the corporation or (3) an employee of the corporation
who is also a director of the corporation. “Control shares” are outstanding shares of voting stock which, if aggregated with
all other such shares of stock previously acquired 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: (1) one-tenth or more but less than one-third, (2) one-third or more but
less than a majority or (3) a majority or more of all voting power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the
acquisition of issued and outstanding control shares, subject to certain exceptions.
A
person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses and making an “acquiring person statement” as described in the MGCL), may compel the board of directors to
call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. 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 acquiring person does not deliver an acquiring person statement as required by
the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except
those for which voting rights have previously been approved) for fair value 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 of any meeting of stockholders at which
the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders
meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such 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 to, among other things, (1) shares acquired in a merger, consolidation or share exchange
if the corporation is a party to the transaction or (2) 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.
There can be no assurance that such provision will not be amended or eliminated at any time in the future by our board of directors.
Subtitle
8
Subtitle
8 of Title 3 of the MGCL permits the board of directors of a Maryland corporation with a class of equity securities registered under
the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution
of its board of directors, without stockholder approval, and notwithstanding any contrary provision in the charter or bylaws, to any
or all of five provisions of the MGCL which provide, respectively, that:
1.
the corporation’s board of directors will be divided into three classes;
2.
the affirmative vote of two-thirds of the votes entitled to be cast in the election of directors generally is required to remove a director;
3.
the number of directors may be fixed only by the vote of the directors;
4.
a vacancy on its board of directors be filled only by the remaining directors and, if the board of directors is divided into classes,
that directors elected to fill a vacancy will serve for the remainder of the full term of the class of directors in which the vacancy
occurred; and
5.
the request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting is required for
the calling of a special meeting of stockholders.
We
have elected by a provision in our charter to be subject to the provisions of Subtitle 8 relating to the filling of vacancies on our
board of directors. In addition, without our having elected to be subject to Subtitle 8, our charter and bylaws already (1) require the
affirmative vote of holders of shares entitled to cast at least two-thirds of all the votes entitled to be cast generally in the election
of directors to remove a director from our board of directors, (2) vest in our board of directors the exclusive power to fix the number
of directors and (3) require, unless called by our chairman, our president and chief executive officer 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. Our board of directors is not currently classified. In the future, our board of directors may elect, without stockholder approval,
to classify our board of directors or elect to be subject to any of the other provisions of Subtitle 8.
Meetings
of Stockholders
Pursuant
to our bylaws, an annual meeting of our stockholders for the purpose of the election of directors and the transaction of any other business
will be held on a date and at the time and place set by our board of directors. Each of our directors is elected by our stockholders
to serve until the next annual meeting or until his or her successor is duly elected and qualifies under Maryland law. In addition, our
chairman, our president and chief executive officer 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 mailing the notice of meeting (including our proxy materials), and the
requesting stockholder must pay such estimated cost before our secretary may prepare and mail the notice of the special meeting.
Amendments
to Our Charter and Bylaws
Under
the MGCL, a Maryland corporation generally cannot amend its charter unless 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
all of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. Except for certain amendments related
to the removal of directors and the vote required to amend the charter (which must be declared advisable by our board of directors and
approved by the affirmative vote of stockholders entitled to cast not less than two-thirds of all the votes entitled to be cast on the
matter), our charter generally may be amended only if the amendment is declared advisable by our board of directors and approved by the
affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Our board of directors,
with the approval of a majority of the entire board, and without any action by our stockholders, may also amend our charter to increase
or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series we are authorized to issue.
Our
board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws.
Extraordinary
Transactions
Under
the MGCL, a Maryland corporation generally cannot dissolve, merge, convert, sell all or substantially all of its assets, engage in a
statutory share exchange or engage in similar transactions outside the ordinary course of business unless 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 all of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. As permitted
by the MGCL, our charter provides that any of these actions 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. Many of our operating assets will be held by our subsidiaries, and
these subsidiaries may be able to merge or sell all or substantially all of their assets without the approval of our stockholders.
Appraisal
Rights
Our
charter provides that our stockholders generally will not be entitled to exercise statutory appraisal rights.
Advance
Notice of Director Nominations and New Business
Our
bylaws provide that, with respect to an annual meeting of stockholders, nominations of individuals for election to our board of directors
and the proposal of other business to be considered by our stockholders at an annual meeting of stockholders 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 our board of directors for the purposes of determining stockholders entitled to vote at the meeting,
at the time of giving of notice and at the time of the meeting, who is entitled to vote at the meeting on the election of the individual
so nominated or such other business and who has complied with the advance notice procedures set forth in our bylaws, including a requirement
to provide certain information about the stockholder and its affiliates and the nominee or business proposal, as applicable.
With
respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before the meeting.
Nominations of individuals for election to our board of directors may be made at a special meeting of stockholders at which directors
are to be elected only (1) by or at the direction of our board of directors or (2) provided that the special meeting has been properly
called in accordance with our bylaws for the purpose of electing directors, by any stockholder who was a stockholder of record at the
record date set by our board of directors for the purposes of determining stockholders entitled to vote at the meeting, at the time of
giving of notice and at the time of the meeting, who is entitled to vote at the meeting on the election of each individual so nominated
and who has complied with the advance notice provisions set forth in our bylaws, including a requirement to provide certain information
about the stockholder and its affiliates and the nominee.
Anti-Takeover
Effect of Certain Provisions of Maryland Law and Our Charter and Bylaws
Our
charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that
might involve a premium price for our common stock or otherwise be in the best interests of our stockholders, including:
●
supermajority vote and cause requirements for removal of directors;
●
requirement that stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting must act together to make
a written request before our stockholders can require us to call a special meeting of stockholders;
●
provisions that vacancies on our board of directors may be filled only by the remaining directors for the full term of the directorship
in which the vacancy occurred;
●
the power of our board of directors, without stockholder approval, to increase or decrease the aggregate number of authorized shares
of stock or the number of shares of any class or series of stock;
●
the power of our board of directors to cause us to issue additional shares of stock of any class or series and to fix the terms of one
or more classes or series of stock without stockholder approval;
●
the restrictions on ownership and transfer of our stock; and
●
advance notice requirements for director nominations and stockholder proposals.
Likewise,
if the resolution opting out of the business combination provisions of the MGCL was repealed, or the business combination is not approved
by our board of directors, or the provision in the bylaws opting out of the control share acquisition provisions of the MGCL were rescinded,
these provisions of the MGCL could have similar anti-takeover effects.
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, Northern Division, will
be the sole and absolute forum for (a) any Internal Corporate Claim, as such term is defined in Section 1-101 of the MGCL, (b) any derivative
action or proceeding brought on our behalf other than actions arising under the federal securities laws, (c) 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, (d) 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 (e) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the
internal affairs doctrine and no such action may be brought in any court sitting outside of the State of Maryland or in another circuit
court within the State of Maryland unless we consent in writing to such court. These provisions of our bylaws will not apply to claims
that may be asserted under federal securities laws.
Limitation
of Liability and Indemnification of Directors and Officers
Maryland
law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages, except for liability resulting from (1) actual receipt of an improper benefit or
profit in money, property or services or (2) active and deliberate dishonesty that is established by a final judgment as being material
to the cause of action. Our charter contains a provision that eliminates such liability to the maximum extent permitted by Maryland law.
Our
charter obligates us, to the fullest 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 of our officers and
directors against liabilities to the maximum extent permitted by the MGCL, as amended from time to time.
The
MGCL requires a corporation (unless its 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, or threatened to be made,
a party by reason of his or her service in that capacity. The MGCL permits a corporation to indemnify its 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 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 (1) was committed in bad
faith or (2) 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.
However,
under the MGCL, a Maryland corporation may not indemnify a director or officer for an adverse judgment in a suit by or in the right of
the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court
orders indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, and then only
for expenses. In addition, the MGCL permits a Maryland corporation to advance reasonable expenses to a director or officer upon its receipt
of:
●
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 by the corporation; and
●
a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid or reimbursed
by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct.
●
Our charter obligates 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 such a proceeding to:
●
any present or former director or officer of the Company who is made, or threatened to be made, a party to the proceeding by reason of
his or her service in that capacity; or
●
any individual who, while a director or officer of the 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 other enterprise and who is made, or threatened to be made, a party to the proceeding by reason of his
or her service in that capacity.
Our
charter also permits us to indemnify and advance expenses to any individual who served the Predecessor Company in any of the capacities
described above and to any employee or agent of the Company or our Predecessor.
We
entered into customary indemnification agreements with our directors and executive officers that will require us, among other things,
to indemnify our directors and executive officers against certain liabilities that may arise by reason of their status as directors or
officers to the maximum extent permitted by Maryland law and provide for the advancement of expenses in connection therewith.
REIT
Qualification
Our
charter provides that our board of directors may revoke or otherwise terminate our REIT election, without approval of our stockholders,
if it determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.
Transfer
Agent and Registrar
The
transfer agent and registrar for our shares of common stock is Continental Stock Transfer & Trust Company.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
This
section summarizes the material federal income tax considerations that may be relevant to you as a holder of our stock. For purposes
of this section, references to “we,” “us,” “our” and the “Company” refer only to Strawberry
Fields REIT, Inc., and not to the Operating Partnership or our other subsidiaries, unless otherwise required by the context. Because
this section is a summary, it does not address all aspects of taxation that may be relevant to particular stockholders in light of their
personal investment or tax circumstances, or to certain types of stockholders that are subject to special treatment under the federal
income tax laws, such as:
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tax-exempt
organizations (except to the limited extent discussed in “—Taxation of Tax-Exempt Stockholders” below); |
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financial
institutions or broker-dealers; |
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non-U.S.
individuals and foreign corporations (except to the limited extent discussed in “—Taxation of Non-U.S. Stockholders”
below); |
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U.S.
expatriates; |
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persons
who account for their investment in our stock on a mark-to-market basis; |
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subchapter
S corporations; |
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U.S.
stockholders (as defined below) whose functional currency is not the U.S. dollar; |
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regulated
investment companies and REITs; |
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trusts
and estates; |
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holders
who receive our stock through the exercise of employee stock options or otherwise as compensation; |
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persons
holding our stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic
security” or other integrated investment; |
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persons
subject to the alternative minimum tax provisions of the Code; and |
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persons
holding our stock through a partnership or similar pass-through entity. |
This
summary assumes that stockholders hold our stock as capital assets for federal income tax purposes, which generally means property held
for investment.
The
statements in this section are not intended to be, and should not be construed as, tax advice. Greenberg Traurig, LLP has acted as
our tax counsel in connection with the preparation and review of this section. The statements in this section are based on the Code,
current, temporary and proposed Treasury regulations, the legislative history of the Code, current administrative interpretations and
practices of the IRS, and court decisions. The reference to IRS interpretations and practices includes the IRS positions as set forth
in private letter rulings, which are not binding on the IRS except with respect to the taxpayer that receives the ruling. In each
case, these sources are relied upon as they exist on the date of this summary. Future legislation, Treasury regulations, administrative
interpretations and court decisions could change current law or adversely affect existing interpretations of current law on which the
information in this section is based. Any such change could apply retroactively. We have not received any rulings from the IRS concerning
our qualification as a REIT. Accordingly, even if there is no change in the applicable law, no assurance can be provided that the statements
made in the following discussion, which do not bind the IRS or the courts, will not be challenged by the IRS or will be sustained by
a court if so challenged.
WE
URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF OUR STOCK
AND OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND REGARDING POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.
Taxation
of the Company
We
have elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2022. We believe
that have been organized and operated in such a manner so as to qualify for taxation as a REIT under the Code, and we intend to
continue to operate in such a manner, but no assurances can be given that we will operate in a manner so as to qualify or remain
qualified as a REIT. This section discusses the laws governing the federal income tax treatment of a REIT and its stockholders. These
laws are highly technical and complex. This summary sets forth only the material aspects of such provisions and is qualified in its entirety
by the express language of applicable Code provisions, Treasury Regulations promulgated thereunder, and administrative and judicial interpretations
thereof. This section is not a substitute for careful tax planning. We urge you, as a prospective investor, to consult your own tax advisor
regarding the specific tax consequences to you of a purchase of shares of our stock, ownership and sale of the shares and of our
election to be taxed as a REIT.
In
connection with this offering, Greenberg Traurig, LLP is rendering its opinion that, commencing with our taxable year ended December
31, 2022, we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the
Code, and that our proposed method of operation will enable us to continue to satisfy the requirements for qualification and taxation
as a REIT under the Code. Investors should be aware that Greenberg Traurig, LLP’s opinion is based upon customary assumptions,
will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of
our assets and the conduct of our business (including those of our subsidiaries), is not binding upon the IRS or any court, and speaks
as of the date issued. In addition, Greenberg Traurig, LLP’s opinion is based on existing federal income tax law governing qualification
as a REIT, which is subject to change, either prospectively or retroactively. Moreover, our qualification and taxation as a REIT will
depend upon our ability to meet, on a continuing basis, through actual annual and quarterly operating results, certain qualification
tests set forth in the federal income tax laws. Those qualification requirements relate to the sources of our gross income and the composition
of our assets, limitations on the concentration of ownership of our stock, and minimum distribution requirements based on our taxable
income. Greenberg Traurig, LLP will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be
given that our actual results of operations for any particular taxable year will satisfy such requirements. Greenberg Traurig LLP’s
opinion does not foreclose the possibility that we may have to use one or more of the REIT savings provisions described below, which
would require us to pay an excise or penalty tax (which could be material), in order for us to maintain our REIT qualification. For a
discussion of the tax consequences of our failure to qualify as a REIT, see “—Failure to Qualify.”
For
as long as we qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on our taxable income
that we distribute to our stockholders on a current basis, because the REIT provisions of the Code generally allow a REIT to deduct
dividends paid to its stockholders. This substantially eliminates the federal “double taxation” on earnings (taxation
at both the corporate level and stockholder level) that usually results from an investment in a corporation. However, even if we qualify
for taxation as a REIT, we will be subject to federal tax in the following circumstances:
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We will pay federal corporate income tax on any taxable income, including undistributed net capital gain, that we do not distribute to
stockholders during, or within a specified time period after, the calendar year in which the income is earned.
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We will pay income tax at the highest corporate rate on:
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net
income from the sale or other disposition of property acquired through foreclosure (“foreclosure property”) that we hold
primarily for sale to customers in the ordinary course of business, and |
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other
non-qualifying income from foreclosure property that would not otherwise be qualifying income for purposes of the 75% income test
applicable to REITs as described below. |
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We will pay a 100% tax on net income from prohibited transactions (which are, in general, sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary course of business).
●
If we fail to satisfy one or both of the 75% gross income test or the
95% gross income test, as described below under “—Gross Income Tests,” and nonetheless continue to qualify as a REIT
because we meet other requirements, we will pay a 100% tax on the gross income attributable to the greater of the amount by which we fail
the 75% gross income test or the 95% gross income test, in either case, multiplied by a fraction intended to reflect our profitability.
●
If we fail to distribute during a calendar year at least the sum of (i) 85% of our REIT ordinary income for the year, (ii) 95% of our
REIT capital gain net income for the year, and (iii) any undistributed taxable income required to be distributed from earlier periods,
we will pay a 4% nondeductible excise tax on the excess of the required distribution over the amount that we actually distribute.
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We may elect to retain and pay income tax on our net long-term capital gain. In that case, a stockholder would be taxed on its proportionate
share of our undistributed long-term capital gain (to the extent that we made a timely designation of such gain to the stockholders)
and would receive a credit or refund for its proportionate share of the tax that we paid.
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To the extent that we had built-in gain assets at the time of the effectiveness of our REIT election on January 1, 2022
and we subsequently recognize gain on the disposition of such an asset during the 5-year period following the effectiveness
of our REIT election, or if we otherwise acquire any asset from a C corporation (i.e., a corporation generally subject
to corporate-level tax) in a tax-deferred carryover-basis transaction and we subsequently recognize gain on the disposition of
the asset during the 5-year period beginning on the date on which we acquired the asset, then all or a portion of the gain may be subject
to tax at the highest regular corporate rate.
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We may be subject to a 100% excise tax on certain transactions with any TRS that are not conducted on an arm’s-length
basis, including services provided by a TRS.
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If we fail any of the asset tests, other than a de minimis failure of the 5% asset test, the 10% vote test or 10% value test, as described
below under “—Asset Tests,” as long as the failure was due to reasonable cause and not to willful neglect, we file
a description of each asset that caused such failure with the IRS, and we dispose of the assets causing the failure or otherwise comply
with the asset tests within six months after the last day of the quarter in which we identify such failure, in such circumstance we
may retain our qualification as a REIT but will then be required to pay a tax equal to the greater of $50,000 or the highest federal
income tax rate then applicable to U.S. corporations on the net income from the non-qualifying assets during the period in which we failed
to satisfy the asset tests.
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If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, and such
failure is due to reasonable cause and not to willful neglect, we may retain our qualification as a REIT but will be required
to pay a penalty of $50,000 for each such failure.
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We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements
intended to monitor our compliance with rules relating to the composition of a REIT’s stockholders, as described below in “—Recordkeeping
Requirements.”
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The earnings of our lower-tier entities that are subchapter C corporations, including any TRSs of the Company, will be
subject to federal corporate income tax.
In
addition, notwithstanding our qualification as a REIT, we also may have to pay certain state and local income taxes because not all states
and localities treat REITs in the same manner that they are treated for federal income tax purposes. Moreover, as further described below,
our TRS and any other TRSs we form in the future will be subject to federal, state and local corporate income tax on their taxable income.
Requirements
for Qualification
A
REIT is a corporation, trust, or association that meets certain requirements. In order for us to qualify, and continue to qualify, as
a REIT, the Company must meet, generally on a continuing basis, each of the following requirements:
1.
It is managed by one or more trustees or directors.
2.
Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest.
3.
It would be taxable as a domestic corporation, but for the special rules Sections 856 through 859 of the Code that apply to
REITs.
4.
It is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws.
5.
It has at least 100 persons are beneficial owners of its shares or ownership certificates.
6.
Not more than 50% in value of its outstanding shares are owned, directly or indirectly, by five or fewer individuals, which the
Code defines to include certain entities, during the last half of any taxable year.
7.
It elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative
requirements established by the IRS that must be met to elect and maintain REIT status.
8.
It meets certain other qualification tests, described below, regarding the nature of its income and assets and the amount of its distributions
to stockholders.
9.
It uses a calendar year for federal income tax purposes and complies with the recordkeeping requirements of the federal income tax laws.
We
must meet requirements 1 through 4, 7, 8 and 9 during our entire taxable year and must meet requirement 5 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. If we comply with all the requirements
for ascertaining the ownership of our outstanding stock in a taxable year and have no reason to know that we violated requirement 6,
we will be deemed to have satisfied requirement 6 for that taxable year. For purposes of determining stock ownership under requirement
6, an “individual” generally includes a supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable purposes. An “individual,” however, generally
does not include a trust that is a qualified employee pension or profit-sharing trust under the federal income tax laws, and beneficiaries
of such a trust will be treated as holding our stock in proportion to their actuarial interests in the trust for purposes of requirement
6. Requirements 5 and 6, relating to the ownership of our stock, did not have to be met during our initial tax year as a REIT in 2022.
As
a Maryland corporation, we satisfied the third requirement. In addition, we are managed by a board of directors, we have transferable
shares and we do not intend to operate as a financial institution or insurance company. We utilize the calendar year for federal income
tax reporting purposes. Our charter provides restrictions regarding the transfer and ownership of shares of our capital stock which
are intended, among other things, to enable us to satisfy requirements 5 and 6 above. See “Description of Stock — Restrictions
on Ownership and Transfer.” These provisions permit us to refuse to recognize certain transfers of shares that could otherwise
cause us to violate these REIT provisions. We can offer no assurance that our refusal to recognize a transfer will be effective.
Notwithstanding compliance with the share ownership requirements outlined above, certain tax-exempt stockholders may be required
to treat all or a portion of their distributions from us as UBTI if tax-exempt stockholders, in the aggregate, exceed certain ownership
thresholds set forth in the Code.
Effect
of Lower-Tier Entities
Qualified
REIT Subsidiaries
A
corporation that is a “qualified REIT subsidiary” is not treated as a corporation separate from its parent REIT. All assets,
liabilities, and items of income, deduction, and credit of a “qualified REIT subsidiary” are treated as assets, liabilities,
and items of income, deduction, and credit of the REIT. A “qualified REIT subsidiary” is a corporation, other than a TRS,
all of the stock of which is owned by the REIT. Thus, in applying the requirements described herein, any “qualified REIT subsidiary”
that we own will be ignored, and all assets, liabilities, and items of income, deduction, and credit of such subsidiary will be treated
as our assets, liabilities, and items of income, deduction, and credit.
Other
Disregarded Entities and Partnerships
An
unincorporated domestic entity, such as a limited liability company, that has a single owner for federal income tax purposes generally
is not treated as an entity separate from its owner for federal income tax purposes. An unincorporated domestic entity with two or more
owners generally is treated as a partnership for federal income tax purposes. In the case of a REIT that is a partner in a partnership
that has other partners, the REIT is treated as owning its proportionate share of the assets of the partnership and as earning its allocable
share of the gross income of the partnership for purposes of the applicable REIT qualification tests. Our proportionate share for purposes
of the 10% value test (see “—Asset Tests”) is based on our proportionate interest in the equity interests and certain
debt securities issued by the partnership. For all of the other asset and income tests, our proportionate share is based on our proportionate
interest in the capital interests in the partnership. Our proportionate share of the assets, liabilities, and items of income of any
partnership, joint venture, or limited liability company that is treated as a partnership for federal income tax purposes in which we
hold an equity interest, directly or indirectly, including the Operating Partnership, will be treated as our assets and
gross income for purposes of applying the various REIT qualification requirements.
We
have control of our Operating Partnership and intend to control any subsidiary partnerships and limited liability companies, and we intend
to operate them in a manner consistent with the requirements for our qualification as a REIT. We may from time to time be a limited partner
or non-managing member in some of our partnerships and limited liability companies. If a partnership or limited liability company in
which we own an interest 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 that 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.
In
addition, the character of the assets and gross income of the partnership, qualified REIT subsidiary or other disregarded entity shall
retain the same character in the hands of the REIT for purposes of satisfying the gross income tests and asset tests set forth in the
Code.
Taxable
REIT Subsidiaries (TRSs)
A
REIT may own up to 100% of the shares of one or more TRSs. A TRS is a fully taxable corporation that may earn income that would not be
qualifying income if earned directly by the parent REIT. The subsidiary and the REIT must jointly elect to treat the subsidiary as a
TRS. A corporation (other than a REIT) of which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding
securities will automatically be treated as a TRS. The separate existence of a TRS or other taxable corporation, unlike a “qualified
REIT subsidiary” or other disregarded entity, as discussed above, is not ignored for U.S. federal income tax purposes. Accordingly,
a TRS is generally subject to corporate income tax on its earnings, which may reduce the cash flow generated by such entity. We
are not treated as holding the assets of a TRS or as receiving any income that the TRS earns. Rather, the stock issued by a TRS to us
is an asset in our hands, and we treat the distributions paid to us from such TRS, if any, as dividend income to the extent of the TRS’s
current and accumulated earnings and profits. This treatment may affect our compliance with the gross income and asset tests. Because
we do not include the assets and income of TRSs in determining our compliance with the REIT requirements, we may use such entities to
undertake indirectly activities that the REIT rules might otherwise preclude us from doing directly or through pass-through subsidiaries.
Overall, no more than 20% of the value of a REIT’s gross assets may consist of stock or securities of one or more TRSs.
A
TRS pays income tax at regular corporate rates on any income that it earns. In addition, limitations on the deductibility of net interest
expense by businesses could apply to any TRSs that we own. Further, the rules impose a 100% excise tax on certain transactions
between a TRS and its parent REIT or the REIT’s tenants that are not conducted on an arm’s-length basis.
Rent
that we receive from a TRS will qualify as “rents from real property” for purposes of the gross income tests applicable
to REITs so long as either (A) the property is a health care property and is operated on behalf of the lessee TRS by an “eligible
independent contractor” that meets certain requirements, or (B) (1) at least 90% of the leased space in the property is leased
to persons other than TRSs and related-party tenants, and (2) the amount paid by the TRS to rent space at the property is substantially
comparable to rents paid by other tenants of the property for comparable space, as described in further detail below under “—Gross
Income Tests — Rents from Real Property.” If we lease space to a TRS in the future, we will seek to comply with these requirements.
We do not currently own, or have plans to form or acquire, any TRSs, although we may elect to treat entities as TRSs in the future.
Any such TRSs will be subject to corporate income tax on their taxable income.
Gross
Income Tests
We
must satisfy two gross income tests annually to qualify and maintain our qualification as a REIT. First, at least 75% of our gross income
for each taxable year must consist of certain specified types of income that we derive, directly or indirectly, from investments
relating to real property or mortgages on real property or qualified temporary investment income. Qualifying income for purposes of that
75% gross income test generally includes:
●
rents from real property;
●
interest on debt secured by mortgages on real property, or on interests in real property, other than on nonqualified publicly-offered
REIT debt instruments;
●
dividends or other distributions on, and gain from the sale of, shares in other REITs;
●
gain from the sale of real estate assets;
●
income and gain derived from foreclosure property;
●
amounts (other than amounts the determination of which depends in whole or in part on the income or profits of any person) received or
accrued as consideration for entering into agreements (i) to make loans secured by mortgages on real property or on interests in real
property or (ii) to purchase or lease real property (including interests in real property and interests in mortgages on real property);
and
●
income derived from the temporary investment of new capital that is attributable to the issuance of our stock or a public offering of
our debt with a maturity date of at least five years and that we receive during the one-year period beginning on the date on which we
received such new capital.
Generally,
gross income from dispositions of real property held primarily for sale in the ordinary course of business is excluded altogether
from the 75% income test.
Although
a debt instrument issued by a “publicly offered REIT” (i.e., a REIT that is required to file annual and periodic reports
with the SEC under the Exchange Act) is treated as a “real estate asset” for the asset tests, neither the gain from the sale
of such debt instruments nor interest on such debt instruments is treated as qualifying income for the 75% gross income test unless the
debt instrument is secured by real property or an interest in real property.
Second,
in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the
75% gross income test, other types of interest and dividends, gain from the sale or disposition of stock or securities, or any combination
of these. Gross income from our sale of property that we hold primarily for sale to customers in the ordinary course of business is excluded
from both the numerator and the denominator in both gross income tests, but is subject to a 100% tax on income from prohibited transactions.
In addition, income and gain from “hedging transactions” (as defined in “—Hedging Transactions”) that
we enter into to hedge indebtedness incurred or to be incurred to acquire or carry real estate assets and that are clearly and timely
identified as such will be excluded from both the numerator and the denominator for purposes of the 75% and 95% gross income tests. In
addition, certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. See
“— Foreign Currency Gain.” Finally, gross income attributable to cancellation of indebtedness income will be excluded
from both the numerator and denominator for purposes of both of the gross income tests. The following paragraphs discuss the specific
application of the gross income tests to us.
Rents
from Real Property. Rent that we receive from our real property will qualify as “rents from real property,” which is qualifying
income for purposes of the 75% and 95% gross income tests, only if the following conditions are met:
●
First, the rent must not be based, in whole or in part, on the income or profits of any person; however, an amount received or accrued
generally will not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage
or percentages of gross receipts or sales if the percentages (1) are fixed at the time that the leases are entered into; (2) are not
renegotiated during the term of the leases in a manner that has the effect of basing rent on income or profits; and (3) conform with
normal business practice. More generally, rent will not qualify as “rents from real property” if, considering the leases
and all surrounding circumstances, the arrangement does not conform with normal business practice, but is in reality used as a means
of basing the rent on income or profits.
●
Second, rents received from a tenant will not qualify as “rents from real property” if we or a direct or constructive
owner of 10% or more of our stock directly or constructively owns 10% or more of the tenant except that rents received from
a TRS under certain circumstances qualify as rents from real property even if the REIT owns more than a 10% interest in the subsidiary.
●
Third, if the rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent
received under the lease, then the rent attributable to personal property will qualify as rents from real property. However, if the 15%
threshold is exceeded, none of the rent attributable to personal property will qualify as rents from real property.
●
Fourth, we generally must not operate or manage our real property or furnish or render services to our tenants, other than through an
“independent contractor” who is adequately compensated and from whom we do not derive revenue. Furthermore, we may own up
to 100% of the stock of a TRS which may provide customary and noncustomary services to our tenants without tainting our rental income
for the related properties. However, we need not provide services through an “independent contractor” or a TRS, but instead
may provide services directly to our tenants, if the services are “usually or customarily rendered” in connection with the
rental of space for occupancy only and are not considered to be provided for the tenants’ convenience. In addition, we may provide
a minimal amount of “noncustomary” services to the tenants of a property, other than through an independent contractor or
a TRS, as long as our income from the services (valued at not less than 150% of our direct cost of performing such services) does not
exceed 1% of our income from the related property.
If
we own, actually or constructively, 10% or more
(measured by voting power or fair market value) of the stock of a corporate lessee, or 10% or more of the assets or net profits of any
non-corporate lessee (each a “related party tenant”), other than a TRS, any income that we receive from the lessee
will be non-qualifying income for purposes of the 75% and 95% gross income tests. The constructive ownership rules generally provide
that, if 10% or more in value of our stock is owned, directly or indirectly, by or for any person, we are considered as owning the shares
owned, directly or indirectly, by or for such person. Our charter prohibits transfers of our stock that would cause us to own actually
or constructively, 10% or more of the ownership interests in any non-TRS lessee. Based on the foregoing, we should not own, actually
or constructively, 10% or more of any lessee other than a TRS. However, because the constructive ownership rules are broad and it is
not possible to continually monitor direct and indirect transfers of our stock, no absolute assurance can be given that such transfers
or other events of which we have no knowledge will not cause us to constructively own 10% or more of a lessee (or a subtenant,
in which case only rent attributable to the subtenant is disqualified) other than a TRS at some future date.
We
may own up to 100% of the shares of one or more TRSs. Under an exception to the related-party tenant rule described in the preceding
paragraph, rent that we receive from a TRS will qualify as “rents from real property” as long as (i) at least 90% of the
leased space in the property is leased to persons other than TRSs and related-party tenants, and (ii) the amount paid by the TRS to rent
space at the property is substantially comparable to rents paid by other tenants of the property for comparable space. The “substantially
comparable” requirement must be satisfied when the lease is entered into, when it is extended, and when the lease is modified,
if the modification increases the rent paid by the TRS. If the requirement that at least 90% of the leased space in the related property
is rented to unrelated tenants is met when a lease is entered into, extended, or modified, such requirement will continue to be met as
long as there is no increase in the space leased to any TRS or related party tenant. Any increased rent attributable to a modification
of a lease with a TRS in which we own directly or indirectly more than 50% of the voting power or value of the stock (a “controlled
TRS”) may not be treated as “rents from real property.” If in the future we receive rent from a TRS, we will
seek to comply with this exception.
While
rents from real property do not generally include amounts received from an entity in which the REIT owns, directly or indirectly, a 10%
or greater interest by voting power or value, the Code permits a REIT to lease a healthcare facility to a TRS, provided that the
TRS engages an eligible independent contractor (i.e., an unrelated third party) to manage and operate the healthcare facility. A healthcare
facility is defined as a hospital, nursing facility, assisted living facility or congregate care facility, and may also include
certain independent living facilities or other licensed facilities that provide medical or nursing services to patients. The eligible
independent contractor must be responsible for the daily supervision and direction of the employees on behalf of the TRS pursuant to
a management agreement or similar service contract.
Under
the Code, a TRS can receive all revenue and bear all expenses of operating qualified healthcare property, less the independent contractor’s
fee. The TRS’s net income, after paying management fees, rent to the REIT, and other operating expenses, would
be subject to corporate level taxation. The net after tax earnings of the TRS may be distributed by the TRS to the REIT and would constitute
good REIT income for purposes of the 95% income test, but not for purposes of the 75% income test.
With
respect to senior housing properties that are healthcare facilities, we could utilize a TRS structure for our senior housing properties
by leasing such properties to our TRS or one of its subsidiaries and engaging third party operators; however, we generally lease our
senior housing properties to tenants under triple-net or similar lease structures, where the tenant bears all or substantially all of
the costs (including cost increases for real estate taxes, utilities, insurance and ordinary repairs).
The
rent attributable to the personal property leased
in connection with the lease of a property must not be greater than 15% of the total rent received under the lease in order to be
treated as qualifying rental income for purposes of the gross income tests applicable to REITs. The rent attributable to the personal
property contained in a property is generally the amount that bears the same ratio to total rent for the taxable year as the average
of the fair market values of the personal property at the beginning and at the end of the taxable year bears to the average of the aggregate
fair market values of both the real and personal property contained in the property at the beginning and at the end of such taxable year
(the “personal property ratio”). With respect to each of our leases, we believe either that the personal property ratio is
less than 15% or that any rent attributable to excess personal property, when taken together with all of our other non-qualifying income,
will not jeopardize our ability to qualify as a REIT. There can be no assurance, however, that the IRS would not challenge our calculation
of a personal property ratio, or that a court would not uphold such assertion. If such a challenge were successfully asserted, we could
fail to satisfy the 75% or 95% gross income test, and thus potentially lose our REIT status.
Except
as described below, we generally cannot furnish
or render noncustomary services to the tenants of our properties, or manage or operate our properties, other than through an independent
contractor who is adequately compensated and from whom we do not derive or receive any income. However, we need not provide services
through an “independent contractor,” but instead may provide services directly to our tenants, if the services are “usually
or customarily rendered” in connection with the rental of space for occupancy only and are not considered to be provided for the
tenants’ convenience. In addition, we may provide a minimal amount of “noncustomary” services to the tenants of a property,
other than through an independent contractor, as long as our income from the services (valued at not less than 150% of our direct cost
for performing such services) does not exceed 1% of our income from the related property. Finally, we may own up to 100% of the shares
of one or more TRSs, which may provide noncustomary services to our tenants without tainting our rents from the related properties. We
believe that we do not perform any services other than customary ones for our lessees, other than any services that are provided
through independent contractors or TRSs. In such a case, income attributable to the noncustomary services will not be treated as qualifying
rental income, but will not adversely affect the qualification of other rental income derived from the property.
If
a portion of the rent that we receive from a property does not qualify as “rents from real property” because the rent attributable
to personal property exceeds 15% of the total rent for a taxable year, the portion of the rent that is attributable to personal property
will not be qualifying income for purposes of either the 75% or 95% gross income test. Thus, if such rent attributable to personal property,
plus any other income that is non-qualifying income for purposes of the 95% gross income test, during a taxable year exceeds 5% of our
gross income during the year, we would lose our REIT qualification. If, however, the rent from a particular property does not qualify
as “rents from real property” because either (i) the rent is considered to be based on the income or profits of the
related lessee, (ii) the lessee either is a related party tenant or fails to qualify for the exceptions to the related party tenant rule
for qualifying TRSs or (iii) we furnish more than a de minimis amount of noncustomary services to the tenants of the property,
or manage or operate the property, other than through a qualifying independent contractor or a TRS, in such cases none of the
rent from that property would qualify as “rents from real property.” In such scenarios, we might lose our REIT qualification
because we would be unable to satisfy either the 75% or 95% gross income test. In addition to the rent, the lessees are required to pay
certain additional charges. We believe that our leases are structured in a manner that will enable us to continue to satisfy the
REIT gross income tests.
Interest.
The term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination
of such amount depends in whole or in part on the income or profits of any person. However, interest generally includes the following:
●
an amount that is based on a fixed percentage or percentages of receipts or sales; and
●
an amount that is based on the income or profits of a debtor, as long as the debtor derives substantially all of its income from the
real property securing the debt from leasing substantially all of its interest in the property, and only to the extent that the amounts
received by the debtor would be qualifying “rents from real property” if received directly by a REIT.
Interest
on debt secured by a mortgage on real property or on interests in real property, including, for this purpose, discount points, prepayment
penalties, loan assumption fees, and late payment charges that are not compensation for services, generally is qualifying income for
purposes of the 75% gross income test. However, if a loan is secured by real property and other property and the highest principal amount
of a loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of the date the REIT
agreed to originate or acquire the loan or on the date the REIT modifies the loan (if the modification is treated as “significant”
for federal income tax purposes), a portion of the interest income from such loan will not be qualifying income for purposes of the 75%
gross income test, but will be qualifying income for purposes of the 95% gross income test. The portion of the interest income that will
not be qualifying income for purposes of the 75% gross income test will be equal to the portion of the principal amount of the loan that
is not secured by real property — that is, the amount by which the loan exceeds the value of the real estate that is security for
the loan. For purposes of this paragraph, however, we do not need to redetermine the fair market value of the real property securing
a loan in connection with a loan modification that is occasioned by a borrower default or made at a time when we reasonably believe that
the modification to the loan will substantially reduce a significant risk of default on the original loan. In addition, in the case of
a loan that is secured by both real property and personal property, if the fair market value of such personal property does not exceed
15% of the total fair market value of all such property securing the loan, then the personal property securing the loan will be treated
as real property for purposes of determining whether the interest on such loan is qualifying income for purposes of the 75% gross income
test.
If
a loan contains a provision that entitles a REIT to a percentage of the borrower’s gain upon the sale of the real property securing
the loan or a percentage of the appreciation in the property’s value as of a specific date, income attributable to that loan provision
will be treated as gain from the sale of the property securing the loan, which generally is qualifying income for purposes of both gross
income tests provided that the loan and the underlying property are both held for investment.
We
may modify the terms of any mortgage loans that we originate or acquire. Under the Code, if the terms of a loan are modified in
a manner constituting a “significant modification,” such modification triggers a deemed exchange of the original loan for
the modified loan. IRS Revenue Procedure 2014-51 provides a safe harbor pursuant to which we will not be required to redetermine the
fair market value of the real property securing a loan for purposes of the gross income and asset tests in connection with a loan modification
that is (i) occasioned by a borrower default or (ii) made at a time when we reasonably believe that the modification to the loan will
substantially reduce a significant risk of default on the original loan. To the extent we significantly modify loans in a manner that
does not qualify for that safe harbor, we will be required to redetermine the value of the real property securing the loan at the time
that it was significantly modified, which could result in a portion of the interest income on the loan being treated as nonqualifying
income for purposes of the 75% gross income test. In determining the value of the real property securing such a loan, we generally will
not obtain third party appraisals but rather will rely on internal valuations.
We
expect that the interest, original issue discount, and market discount income that we receive from any mortgage related assets generally
will be qualifying income for purposes of both gross income tests. We hold certain notes receivable that are not secured by mortgages
on real property. Interest from such instruments generally qualifies for purposes of the 95% gross income test, but not for purposes
of the 75% gross income test. We intend to monitor the amount of such nonqualifying income, along with nonqualifying income from other
sources, in a manner so as to enable us to comply with such REIT qualification requirements.
Dividends.
Our share of any dividends received from any corporation (including any TRS, but excluding any REIT) in which we own an equity interest
will qualify for purposes of the 95% gross income test, but not for purposes of the 75% gross income test. Our share of any dividends
received from any other REIT in which we own an equity interest, if any, will be qualifying income for purposes of both gross income
tests.
Fee
Income. We may receive various fees. Fee income generally will not be treated as qualifying income for purposes of the 75% and
95% gross income tests. Any fees earned by a TRS are not taken into account by us for purposes of the gross income tests. We do
not expect such amounts, if any, to be significant.
Prohibited
Transactions. A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property, other than
foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. Any gain that
we realize on the sale of property held as inventory or otherwise held primarily for sale to customers, in the ordinary course of business,
will generally be treated as income from a prohibited transaction that is subject to a 100% penalty tax. Our gain would include any gain
realized by a “qualified REIT subsidiary” and our share of any gain realized by any of the pass-through entities (i.e.,
entities that are classified for tax purposes as either partnerships or disregarded entities) in which we own an interest.
This prohibited transaction income may also adversely affect our ability to satisfy the 75% Income Test and the 95% Income Test for qualification
as a REIT. We believe that none of our assets will be held primarily for sale to customers and that a sale of any of our assets would
not be in the ordinary course of our business. Whether a REIT holds an asset “primarily for sale to customers in the ordinary course
of a trade or business” depends, however, on the facts and circumstances in effect from time to time, including those related to
a particular asset. A safe harbor to the characterization of the sale of property by a REIT as a prohibited transaction and the 100%
prohibited transaction tax is available if the following requirements are met:
●
the REIT has held the property for not less than two years;
●
the aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of the sale that
are includable in the basis of the property do not exceed 30% of the selling price of the property;
●
either (i) during the year in question, the REIT did not make more than seven sales of property, other than foreclosure property
or tax-deferred sales to which Section 1031 or 1033 of the Code applies, (ii) the aggregate adjusted bases of all such properties
sold by the REIT during the year did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of the year,
(iii) the aggregate fair market value of all such properties sold by the REIT during the year did not exceed 10% of the aggregate fair
market value of all of the assets of the REIT at the beginning of the year, (iv) (a) the aggregate adjusted bases of all such properties
sold by the REIT during the year did not exceed 20% of the aggregate adjusted bases of all property of the REIT at the beginning of the
year and (b) the 3-year average annual percentage of properties sold by the REIT compared to all the REIT’s properties (measured
by adjusted bases), taking into account the current and two prior years, did not exceed 10%, or (v) (a) the aggregate fair
market value of all such properties sold by the REIT during the year did not exceed 20% of the aggregate fair market value of all property
of the REIT at the beginning of the year and (b) the 3-year average annual percentage of properties sold by the REIT compared
to all the REIT’s properties (measured by fair market value), taking into account the current and two prior years,
did not exceed 10%;
●
in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least two years
for the production of rental income; and
●
if the REIT has made more than seven sales of non-foreclosure property during the taxable year, substantially all of the marketing and
development expenditures with respect to the property were made through an independent contractor from whom the REIT derives no income,
or through a TRS.
We
will attempt to comply with the terms of the safe-harbor provisions in the federal income tax laws prescribing when an asset sale will
not be characterized as a prohibited transaction. We cannot assure you, however, that we can comply with the safe-harbor provisions in
all cases, or that we will avoid owning property that may be characterized as property that we hold “primarily for sale to
customers in the ordinary course of a trade or business.” The 100% tax will not apply to gains from the sale of property that is
held through a TRS or other taxable corporation, although such income will be taxed to the corporation at regular corporate income tax
rates.
Foreclosure
Property. We will be subject to tax at the maximum corporate rate on any income from foreclosure property, which includes certain
foreign currency gains and related deductions, other than income that otherwise would be qualifying income for purposes of the 75% gross
income test, less expenses directly connected with the production of that income. However, gross income from foreclosure property will
qualify under the 75% and 95% gross income tests. Foreclosure property is any real property, including interests in real property, and
any personal property incident to such real property:
●
that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property
to ownership or possession by agreement or process of law, after there was a default or default was imminent on a lease of such property
or on indebtedness that such property secured;
●
for which the related loan was acquired by the REIT at a time when the default was not imminent or anticipated; and
●
for which the REIT makes a proper election to treat the property as foreclosure property.
A
REIT will not be considered to have foreclosed on a property where the REIT takes control of the property as a mortgagee-in-possession
and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure
property at the end of the third taxable year (or, with respect to qualified healthcare property, the second taxable year) following
the taxable year in which the REIT acquired the property, or longer if an extension is granted by the Secretary of the Treasury. However,
this grace period terminates and foreclosure property ceases to be foreclosure property on the first day:
●
on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of
the 75% gross income test, or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or after
such day that will give rise to income that does not qualify for purposes of the 75% gross income test;
●
on which any construction takes place on the property, other than completion of a building or any other improvement where more than
10% of the construction was completed before default became imminent; or
●
which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which
is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income,
or a TRS.
We
may have the option to foreclose on mortgage loans or terminate leases when a borrower or lessee is in default. The foregoing
rules could affect a decision by us to foreclose on a particular mortgage loan or terminate a particular lease, and could affect
whether we choose to foreclose with regard to a particular mortgage loan or terminate a particular lease.
Hedging
Transactions. From time to time, we or our Operating Partnership or other subsidiary entities may enter into certain
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 such items, and futures and forward contracts. Income and gain from “hedging
transactions” will be excluded from gross income for purposes of both the 75% and 95% gross income tests provided that we
satisfy the identification requirements discussed below. For purposes of this paragraph, a “hedging transaction” means
(i) any transaction entered into in the normal course of our or our Operating Partnership’s trade or business primarily to manage
the risk of interest rate, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations
incurred or to be incurred, to acquire or carry real estate assets, (ii) any transaction entered into primarily to manage the risk of
currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income test
(or any property which generates such income or gain), or (iii) any transaction entered into to “offset” a transaction described
in (i) or (ii) if a portion of the hedged indebtedness is extinguished or the related property is disposed of. We are required to clearly
identify any such hedging transaction before the close of the day on which it was acquired, originated, or entered into, and to
satisfy other identification requirements. To the extent that we enter into other transactions involving derivative instruments or
hedges that do not comply with the requirements described above in this paragraph, any resultant income from such transactions may be
treated as nonqualifying income for purposes of the 75% and/or 95% gross income tests, and the positive value of our position in such
an arrangement may be treated as a nonqualifying asset for purposes of the gross asset tests applicable to REITs. We intend to structure
any hedging transactions in a manner that does not jeopardize our qualification as a REIT.
Foreign
Currency Gain. Certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income
tests. “Real estate foreign exchange gain” will be excluded from gross income for purposes of the 75% and 95% gross income
tests. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is
qualifying income for purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or
becoming or being the obligor under) obligations secured by mortgages on real property or an interest in real property and certain foreign
currency gains attributable to certain “qualified business units” of a REIT that would satisfy the 75% gross income
test and 75% asset test (discussed below) on a stand-alone basis. “Passive foreign exchange gain” will be excluded from gross
income for purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange gain
as described above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying income for
purposes of the 95% gross income test and foreign currency gain attributable to the acquisition or ownership of (or becoming or being
the obligor under) obligations. These exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply
to foreign currency gain derived from dealing, or engaging in substantial and regular trading, in securities. Such gain is treated as
non-qualifying income for purposes of both the 75% and 95% gross income tests.
Phantom
Income. Due to the nature of the assets in which we may invest, we may be required to recognize taxable income from certain assets
in advance of our receipt of cash flow from or proceeds from disposition of such assets, and may be required to report taxable income
that exceeds the economic income ultimately realized on such assets.
We
may originate loans with original issue discount. In general, we will be required to accrue original issue discount based on the constant
yield to maturity of the loan, and to treat it as taxable income in accordance with applicable federal income tax rules even though such
yield may exceed cash payments, if any, received on such loan.
In
addition, we are generally required to take certain
amounts in income no later than the time such amounts are reflected in our consolidated financial statements. This rule may require the
accrual of income with respect to any loans that we may acquire earlier than would be the case under the general tax rules.
In
addition, in the event that any loan is delinquent as to mandatory principal and interest payments, or in the event payments with respect
to a particular loan are not made when due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income.
Finally,
we may be required under the terms of indebtedness that we incur to use cash received from interest payments or other sources of income
to make principal payments on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash
available for distribution to our stockholders.
Failure
to Satisfy Gross Income Tests. If we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may
qualify as a REIT for that year if we qualify for relief under certain provisions of the federal income tax laws. Those relief provisions
are available if:
●
our failure to meet those tests is due to reasonable cause and not to willful neglect;
●
following such failure for any taxable year, we file a schedule of the sources of our income in accordance with regulations prescribed
by the Secretary of the Treasury; and
●
any incorrect information on the schedule is not due to fraud with intent to evade tax.
We
cannot predict, however, whether in all circumstances we would qualify for the relief provisions. In addition, as discussed above in
“—Taxation of the Company,” even if the relief provisions apply, we would incur a 100% tax on the gross income
attributable to the greater of the amount by which we fail the 75% gross income test or the 95% gross income test multiplied, in either
case, by a fraction intended to reflect our profitability.
Asset
Tests
To
qualify as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year relating to the nature
and diversification of our assets:
First,
at least 75% of the value of our total assets must consist of:
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cash or cash items, including certain receivables and, in certain circumstances, foreign currencies;
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U.S. government securities;
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interests in real property, including leaseholds and options to acquire real property and leaseholds, and personal property to the extent
such personal property is leased in connection with real property and rents attributable to such personal property are treated as “rents
from real property” (i.e., because it comprises not more than 15% of the total rent received from the personal property together
with the real property in connection with which it is leased);
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interests in mortgage loans secured by real property;
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stock in other REITs and debt instruments issued by “publicly offered REITs”; and
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investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity
offerings or public offerings of debt with at least a five-year term.
Second,
of our investments not included in the 75% asset class, the value of our interest in any one issuer’s securities (other than a
TRS) may not exceed 5% of the value of our total assets, known as the 5% asset test.
Third,
of our investments not included in the 75% asset class, we may not own more than 10% of the voting power of any one issuer’s outstanding
securities or 10% of the value of any one issuer’s outstanding securities, known as the 10% vote test and 10% value
test, respectively.
Fourth,
no more than 20% of the value of our total assets may consist of the securities of one or more TRSs.
Fifth,
no more than 25% of the value of our total assets may consist of the securities of TRSs and other non-TRS taxable subsidiaries and other
assets that are not qualifying assets for purposes of the 75% asset test, known as the 25% securities test.
Sixth,
no more than 25% of the value of our total assets may consist of debt instruments issued by “publicly offered REITs” to the
extent that such debt instruments are not secured by real property or interests in real property.
For
purposes of the 5% asset test, the 10% vote test and the 10% value test, the term “securities” does not include shares in
another REIT, debt of “publicly offered REITs,” equity or debt securities of a qualified REIT subsidiary or TRS, mortgage
loans that constitute real estate assets, or equity interests in a partnership. The term “securities,” however, generally
includes debt securities issued by a partnership or another REIT (other than a “publicly offered REIT”), except that for
purposes of the 10% value test, the term “securities” does not include:
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“Straight debt” securities, which is defined as a written unconditional promise to pay on demand or on a specified date a
sum certain in money if (i) the debt is not convertible, directly or indirectly, into equity, and (ii) the interest rate and interest
payment dates are not contingent on profits, the borrower’s discretion, or similar factors. “Straight debt” securities
do not include any securities issued by a partnership or a corporation in which we or any controlled TRS (i.e., a TRS in which we own
directly or indirectly more than 50% of the voting power or value of the stock) hold non-”straight debt” securities that
have an aggregate value of more than 1% of the issuer’s outstanding securities. However, “straight debt” securities
include debt subject to the following contingencies:
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a contingency relating to the time of payment of interest or principal, as long as either (i) there is no change to the effective yield
of the debt obligation, other than a change to the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield,
or (ii) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt obligations held by us exceeds $1
million and no more than 12 months of unaccrued interest on the debt obligations can be required to be prepaid; and
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a contingency relating to the time or amount of payment upon a default or prepayment of a debt obligation, as long as the contingency
is consistent with customary commercial practice;
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Any loan to an individual or an estate;
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Any “section 467 rental agreement,” other than an agreement with a related party tenant;
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Any obligation to pay “rents from real property”;
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Certain securities issued by governmental entities;
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Any security issued by a REIT;
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Any debt instrument issued by an entity treated as a partnership for federal income tax purposes in which we are a partner
to the extent of our proportionate interest in the equity and debt securities of the partnership; and
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Any debt instrument issued by an entity treated as a partnership for federal income tax purposes that is not described in the preceding bullet
points if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for
purposes of the 75% gross income test described above in “—Gross Income Tests.”
For
purposes of the 10% value test, our proportionate share of the assets of a partnership is our proportionate interest in any securities
issued by the partnership, without regard to the securities described in the two preceding bullet points.
In
general, under the applicable Treasury regulations, if a loan is secured by real property and other property and the highest principal
amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of: (1)
the date we agreed to acquire or originate the loan; or (2) in the event of a significant modification, the date we modified the loan,
then a portion of the interest income from such a loan will not be qualifying income for purposes of the 75% gross income test, but will
be qualifying income for purposes of the 95% gross income test. Although the law is not entirely clear, a portion of the loan will also
likely be a non-qualifying asset for purposes of the 75% asset test. The non-qualifying portion of such a loan would be subject to, among
other requirements, the 10% vote or value test. IRS Revenue Procedure 2014-51 provides a safe harbor under which the IRS has stated that
it will not challenge a REIT’s treatment of a loan as being, in part, a qualifying real estate asset in an amount equal to the
lesser of (1) the fair market value of the loan on the relevant quarterly REIT asset testing date or (2) the greater of (a) the fair
market value of the real property securing the loan on the relevant quarterly REIT testing date or (b) the fair market value of the real
property securing the loan on the date the REIT committed to originate or acquire the loan. We intend to invest in mortgage loans, if
any, in a manner that will enable us to continue to satisfy the asset and gross income test requirements.
We
will monitor the status of our assets for purposes of the various asset tests and will manage our portfolio in order to comply at all
times with such tests. However, there is no assurance that we will not inadvertently fail to comply with such tests. If we fail to satisfy
the asset tests at the end of a calendar quarter, we will not lose our REIT qualification if:
●
we satisfied the asset tests at the end of the preceding calendar quarter; and
●
the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets
and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.
If
we did not satisfy the condition described in the second item, above, we still could avoid disqualification by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which it arose.
If
we violate the 5% asset test, the 10% vote test or the 10% value test described above, we will not lose our REIT qualification if (i)
the failure is de minimis (up to the lesser of 1% of our assets or $10 million) and (ii) we dispose of assets causing the failure or
otherwise comply with the asset tests within six months after the last day of the quarter in which we identify such failure. If we fail
any of the asset tests (other than de minimis failures described in the preceding sentence), as long as the failure was due to reasonable
cause and not to willful neglect, we will not lose our REIT qualification if we (i) dispose of assets causing the failure or otherwise
comply with the asset tests within six months after the last day of the quarter in which we identify the failure, (ii) file a description
of each asset causing the failure with the IRS and (iii) pay a tax equal to the greater of $50,000 or the highest corporate tax rate
applicable to the net income from the assets causing the failure during the period in which we failed to satisfy the asset tests.
We
believe that our existing investments comply with the foregoing asset tests, and we intend to monitor compliance on an ongoing basis.
We
believe that the assets that we hold, and that we will acquire in the future, will allow us to satisfy the foregoing asset test requirements.
However, we do not typically obtain independent appraisals to support our conclusions as to the value of our assets, and may not obtain
independent appraisals to support our conclusions as to the value of the real estate collateral for any mortgage loan that
we may hold. Moreover, the values of some assets may not be susceptible to a precise determination. As a result, there can be no assurance
that the IRS will not contend that our ownership of certain assets violates one or more of the asset tests applicable to REITs.
Distribution
Requirements
Each
taxable year, we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain, to our
stockholders in an aggregate amount at least equal to:
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the
sum of |
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90%
of our “REIT taxable income,” computed without regard to the dividends paid deduction and our net capital gain or loss,
and |
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90%
of our after-tax net income, if any, from foreclosure property, minus |
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the
excess of the sum of specified items of non-cash income (including original issue discount on any loans) over 5% of our REIT taxable
income, computed without regard to the dividends paid deduction and our net capital gain. |
We
must make such distributions in the taxable year to which they relate, or in the following taxable year if either (i) we declare the
distribution before we timely file our federal income tax return for the year and pay the distribution on or before the first regular
dividend payment date after such declaration or (ii) we declare the distribution in October, November or December of the taxable year,
payable to stockholders of record on a specified day in any such month, and we actually pay the dividend before the end of January of
the following year. The distributions under clause (i) are taxable to the stockholders in the year in which paid, and the distributions
in clause (ii) are treated as paid on December 31st of the prior taxable year. In both instances, these distributions relate to our prior
taxable year for purposes of the 90% distribution requirement.
Further,
if we were not a “publicly offered REIT,” for our distributions to be counted as satisfying the annual distribution requirement
for REITs and to provide us with the dividends paid deduction, such distributions must not be “preferential dividends.” A
dividend is not a preferential dividend if that distribution is (i) pro rata among all outstanding shares within a particular class of
stock and (ii) in accordance with the preferences among different classes of stock as set forth in our charter. This preferential dividend
rule does not apply to us so long as we qualify and continue to qualify as a “publicly offered REIT.”
We
will pay federal income tax on taxable income, including net capital gain, that we do not distribute to stockholders. Furthermore, if
we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of distributions with
declaration and record dates falling in the last three months of the calendar year, at least the sum of:
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85% of our REIT ordinary income for such year,
●
95% of our REIT capital gain income for such year, and
●
any undistributed taxable income from prior periods
we
will, in such case, incur a 4% nondeductible excise
tax on the excess of such required distribution over the amounts we actually distribute during such year.
We
may elect to retain and pay income tax on the net long-term capital gain we receive in a taxable year. If we so elect, we will be treated
as having distributed any such retained amount for purposes of the 4% nondeductible excise tax described above. We intend to make timely
distributions sufficient to satisfy the annual distribution requirements and to avoid corporate income tax and the 4% nondeductible excise
tax.
It
is possible that, from time to time, we may experience timing differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. For example,
we may not deduct recognized capital losses from our “REIT taxable income.” Further, it is possible that, from time to time,
we may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share of
cash attributable to that sale. As a result of the foregoing, we may have less cash than is necessary to distribute taxable income sufficient
to avoid corporate income tax and the excise tax imposed on certain undistributed income or even to meet the 90% distribution requirement.
In such a situation, we may need to borrow funds or, if possible, pay taxable dividends in the form of our stock or debt securities.
We
may satisfy the REIT annual distribution requirements by making taxable distributions of our stock or debt securities. The IRS has issued
a revenue procedure authorizing publicly offered REITs to treat certain distributions that are paid partly in cash and partly in stock
as dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income
tax purposes. We currently do not intend to pay taxable dividends using our stock.
Under
certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying “deficiency
dividends” to our stockholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for
the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to
pay interest and penalties to the IRS based upon the amount of any deduction we take for deficiency dividends for an earlier year.
We
are required to file an annual federal income tax return, which, like other corporate returns, is subject to examination by the IRS.
Because the tax laws require us to make many judgments regarding the proper treatment of a transaction or an item of income or deduction,
it is possible that the IRS will challenge positions we take in computing our REIT taxable income and our distributions. Issues could
arise, for example, with respect to the allocation of the purchase price of properties between depreciable or amortizable assets and
non-depreciable or non-amortizable assets such as land and the current deductibility of certain fees or other expenses.
If the IRS were to successfully challenge our characterization of a transaction or determination of our REIT taxable income, we could
be found to have failed to satisfy a requirement for qualification as a REIT. If, as a result of a challenge, we are determined to have
failed to satisfy the distribution requirements for a taxable year, we would be disqualified as a REIT unless we were permitted to pay
a deficiency distribution to our stockholders and pay penalties and interest thereon to the IRS, as provided by the Code. A deficiency
distribution cannot be used to satisfy the distribution requirement however, if the failure to meet the requirement is not due to a later
adjustment to our income by the IRS.
Recordkeeping
Requirements
To
avoid a monetary penalty, we must request on an annual basis information from our stockholders designed to disclose the actual ownership
of our outstanding stock. We intend to comply with these requirements.
Failure
to Qualify
If
we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, we could avoid
disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000 for each such failure.
In addition, there are relief provisions for a failure of the gross income tests and asset tests, as described in “—Gross
Income Tests” and “—Asset Tests.”
If
we fail to qualify as a REIT in any taxable year, and no relief provision applies, we would be subject to federal income tax and any
applicable alternative minimum tax on our taxable income at regular corporate rates (currently, 21%). In calculating our taxable income
in a year in which we fail to qualify as a REIT, we would not be able to deduct amounts paid out to stockholders. In fact, we would not
be required to distribute any amounts to stockholders in that year. In such event, to the extent of our current and accumulated earnings
and profits, distributions to stockholders generally would be taxable as dividend income. Subject to certain limitations of the
federal income tax laws, corporate stockholders may be eligible for the dividends received deduction and stockholders taxed at individual
rates may be eligible for the reduced federal income tax rate of up to 20% on such dividends. Unless we qualified for relief under specific
statutory provisions, if our REIT status is terminated, for any reason, we also would be disqualified from taxation as a REIT for the
four taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether in all circumstances we
would qualify for such statutory relief.
Taxation
of Taxable U.S. Stockholders
As
used herein, the term “U.S. stockholder” means a beneficial owner of our capital stock that for federal income tax purposes
is:
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a citizen or resident of the United States;
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a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized in or under the laws
of the United States, any of its states or the District of Columbia;
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an estate whose income is subject to federal income taxation regardless of its source;
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any trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust or (ii) it has a valid election in place to be treated as a U.S.
person; or
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a person or entity otherwise subject to federal income taxation on a net income basis.
If
a partnership, entity or arrangement treated as a partnership for federal income tax purposes holds our capital stock, the federal income
tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership.
If you are a partner in a partnership holding our capital stock, you should consult your tax advisor regarding the consequences of the
ownership and disposition of our capital stock by the partnership.
As
long as we qualify as a REIT, a taxable U.S. stockholder must generally take into account as ordinary income distributions made out of
our current or accumulated earnings and profits that we do not designate as capital gain dividends or retained long-term capital gain.
Our dividends will not qualify for the dividends received deduction generally available to corporations.
Individuals,
trusts and estates may deduct up to 20% of certain pass-through income, including ordinary REIT dividends that are not “capital
gain dividends” or “qualified dividend income,” subject to certain limitations (the “pass-through deduction”).
For taxable years before January 1, 2026, the maximum tax rate for U.S. stockholders taxed at individual rates is 37%. For taxpayers
qualifying for the full pass-through deduction, the effective maximum tax rate on ordinary REIT dividends for taxable years before January
1, 2026 would be 29.6%. In addition, individuals, trusts and estates whose income exceeds certain thresholds are also subject to a 3.8%
Medicare tax on dividends received from us.
Dividends
paid to a U.S. stockholder generally will not qualify for the 20% tax rate for “qualified dividend income.” Qualified dividend
income generally includes dividends paid by domestic C corporations and certain qualified foreign corporations to U.S. stockholders that
are taxed at individual rates. Because we are not generally subject to federal income tax on the portion of our REIT taxable income distributed
to our stockholders (See “— Taxation of the Company” above), our dividends generally will not be eligible for
the 20% rate on qualified dividend income. As a result, our ordinary REIT dividends generally will be taxed at a higher tax rate as described
above. However, the 20% tax rate for qualified dividend income will apply to our ordinary REIT dividends (i) attributable to dividends
received by us from non-REIT corporations during the taxable year, such as a TRS, and (ii) to the extent attributable to income upon
which we have paid corporate income tax (e.g., to the extent that we distribute less than 100% of our taxable income). In general, to
qualify for the reduced tax rate on qualified dividend income, a stockholder must hold our capital stock for more than 60 days during
the 121 day period beginning on the date that is 60 days before the date on which our capital stock becomes ex-dividend.
A
U.S. stockholder generally will take into account as long-term capital gain any distributions that we designate as capital gain dividends
without regard to the period for which the U.S. stockholder has held our stock. We generally will designate our capital gain dividends
as either 20% or 25% rate distributions. See “— Capital Gains and Losses.” A corporate U.S. stockholder, however, may
be required to treat up to 20% of certain capital gain dividends as ordinary income.
We
may elect to retain and pay income tax on the net long-term capital gain that we receive in a taxable year. In that case, to the extent
that we designate such amount in a timely notice to such stockholder, a U.S. stockholder would be taxed on its proportionate share of
our undistributed long-term capital gain. The U.S. stockholder would receive a credit for its proportionate share of the tax that
we paid. The U.S. stockholder would increase the basis in its stock by the amount of its proportionate share of our undistributed
long-term capital gain, minus its share of the tax that we paid.
A
U.S. stockholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the distribution
does not exceed the adjusted basis of the U.S. stockholder in the shares of capital stock on which the distribution was paid. Instead,
the distribution will reduce the adjusted basis of such stock. A U.S. stockholder will recognize a distribution in excess of both our
current and accumulated earnings and profits and the U.S. stockholder’s adjusted basis in his or her stock as long-term capital
gain, or short-term capital gain if the shares of stock have been held for one year or less, assuming the shares of stock are a capital
asset in the hands of the U.S. stockholder. In addition, if we declare a distribution in October, November, or December of any year that
is payable to a U.S. stockholder of record on a specified date in any such month, such distribution will be treated as both paid
by us and received by the U.S. stockholder on December 31 of such year, provided that we actually pay the distribution during January
of the following calendar year.
U.S.
stockholders may not include in their individual income tax returns any of our net operating losses or capital losses. Instead, these
losses are generally carried over by us for potential offset against our future income. Taxable distributions from us and gain from the
disposition of our capital stock will not be treated as passive activity income and, therefore, U.S. stockholders generally will not
be able to apply any “passive activity losses,” such as losses from certain types of limited partnerships in which the U.S.
stockholder is a limited partner, against such income. In addition, taxable distributions from us and gain from the disposition of our
capital stock generally will be treated as investment income for purposes of the investment interest expense limitations.
Taxation
of U.S. Stockholders on the Disposition of Capital Stock
A
U.S. stockholder who is not a dealer in securities must generally treat any gain or loss realized upon a taxable disposition of our stock
as long-term capital gain or loss if the U.S. stockholder has held our stock for more than one year, and otherwise as short-term
capital gain or loss. In general, a U.S. stockholder will realize gain or loss in an amount equal to the difference between the sum of
the fair market value of any property and the amount of cash received in such disposition, and the U.S. stockholder’s adjusted
tax basis. A stockholder’s adjusted tax basis generally will equal the U.S. stockholder’s acquisition cost, increased by
the excess of net capital gains deemed distributed to the U.S. stockholder (discussed above) less tax deemed paid on such gains,
and reduced by any returns of capital. However, a U.S. stockholder must treat any loss upon a sale or exchange of stock held by such
stockholder for six months or less as a long-term capital loss to the extent of capital gain dividends and any other actual or deemed
distributions from us that such U.S. stockholder treats as long-term capital gain. All or a portion of any loss that a U.S. stockholder
realizes upon a taxable disposition of shares of our stock may be disallowed if the U.S. stockholder purchases other shares of
our stock within 30 days before or after the disposition. Also, the IRS is authorized to issue Treasury Regulations that would subject
a portion of the capital gain a U.S. stockholder recognizes from selling his shares or from a capital gain distribution to a tax at a
25% rate, to the extent the capital gain is attributable to depreciation previously deducted.
If
a U.S. stockholder has shares of our common stock redeemed by us, the U.S. stockholder will be treated as if the U.S. stockholder sold
the redeemed shares if all of the U.S. stockholder’s shares of our common stock are redeemed or if the redemption is not essentially
equivalent to a dividend within the meaning of Section 302(b)(1) of the Code or substantially disproportionate within the meaning of
Section 302(b)(2) of the Code. If a redemption distribution is not treated as a sale of the redeemed shares, it will be treated as a
dividend distribution, and will not be entitled to return of capital treatment as in the case of a sale or exchange transaction. U.S.
stockholders should consult with their tax advisors regarding the taxation of any particular redemption of our shares.
Capital
Gains and Losses
A
taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated
as long-term capital gain or loss. For taxable years before January 1, 2026, the highest marginal individual income tax rate currently
is 37%. The maximum tax rate on long-term capital gain applicable to taxpayers taxed at individual rates is 20% for sales and exchanges
of assets held for more than one year. In addition, certain net capital gains attributable to depreciable real property held for more
than 12 months are subject to a 25% maximum federal income tax rate to the extent of previously claimed real property depreciation. The
maximum tax rate on long-term capital gain from the sale or exchange of “Section 1250 property,” or depreciable real property,
is 25%, which applies to the lesser of the total amount of the gain or the accumulated depreciation on the Section 1250 property. In
addition, individuals, trusts and estates whose income exceeds certain thresholds are also subject to a 3.8% Medicare tax on gain from
the sale of our stock.
With
respect to distributions that we designate as capital gain dividends and any retained capital gain that we are deemed to distribute,
we generally may designate whether such a distribution is taxable to U.S. stockholders taxed at individual rates currently at a 20% or
25% rate. Thus, the tax rate differential between capital gain and ordinary income for those taxpayers may be significant. In addition,
the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses. A non-corporate taxpayer
may deduct capital losses not offset by capital gains against its ordinary income only up to a maximum annual amount of $3,000. A non-corporate
taxpayer may carry forward unused capital losses indefinitely. A corporate taxpayer must pay tax on its net capital gain at ordinary
corporate rates. A corporate taxpayer may deduct capital losses only to the extent of capital gains, with unused losses being carried
back three years and forward five years.
FATCA
Withholding
Under
the Foreign Account Tax Compliance Act, or FATCA, a U.S. withholding tax at a 30% rate will be imposed on dividends paid to certain U.S.
stockholders who own our shares through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S.
accounts or ownership are not satisfied. We will not pay any additional amounts in respect of any amounts withheld.
Taxation
of Tax-Exempt Stockholders
Tax-exempt
entities, including qualified employee pension and profit-sharing trusts and individual retirement accounts, generally are exempt from
federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”). Although
many investments in real estate generate UBTI, the IRS has issued a ruling that dividend distributions from a REIT to an exempt employee
pension trust do not constitute UBTI. Based on that ruling, amounts that we distribute to tax-exempt stockholders generally should not
constitute UBTI. However, if a tax-exempt stockholder were to finance (or be deemed to finance) its acquisition of capital stock with
debt, a portion of the income that it receives from us would constitute UBTI pursuant to the “debt-financed property” rules.
Moreover, social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services
plans that are exempt from taxation under special provisions of the federal income tax laws are subject to different UBTI rules, which
generally will require them to characterize distributions that they receive from us as UBTI. Finally, in certain circumstances, a qualified
employee pension or profit-sharing trust that owns more than 10% of our capital stock must treat a percentage of the dividends that it
receives from us as UBTI. Such percentage is equal to the gross income we derive from an unrelated trade or business, determined as if
we were a pension trust, divided by our total gross income for the year in which we pay the dividends. That rule applies to a pension
trust holding more than 10% of our capital stock only if:
●
the percentage of our dividends that the tax-exempt trust must treat as UBTI is at least 5%;
●
we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our capital stock be owned by five
or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our capital stock in proportion to their
actuarial interests in the pension trust; and either
●
one pension trust owns more than 25% of the value of our capital stock; or
●
a group of pension trusts individually holding more than 10% of the value of our capital stock collectively owns more than 50% of the
value of our capital stock.
Taxation
of Non-U.S. Stockholders
The
term “non-U.S. stockholder” means a beneficial owner of our capital stock that is not a U.S. stockholder, a partnership (or
entity treated as a partnership for federal income tax purposes) or a tax-exempt stockholder. The rules governing federal income taxation
of nonresident alien individuals, foreign corporations, foreign partnerships, and other foreign stockholders are highly complex. This
section is only a summary of such rules. We urge non-U.S. stockholders to consult their tax advisors to determine the impact of federal,
state, and local income tax laws on the purchase, ownership and sale of our capital stock, including any reporting requirements.
Distributions
A
non-U.S. stockholder that receives a distribution that is not attributable to gain from our sale or exchange of a “United States
real property interest” (“USRPI”), as defined below, and that we do not designate as a capital gain dividend or retained
capital gain, will recognize ordinary income to the extent that we pay such distribution out of our current or accumulated earnings
and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply to such distribution unless
an applicable tax treaty reduces or eliminates the tax. However, if a distribution is treated as effectively connected with the non-U.S.
stockholder’s conduct of a U.S. trade or business, the non-U.S. stockholder generally will be subject to federal income tax on
the distribution at graduated rates, in the same manner as U.S. stockholders are taxed with respect to such distribution, and will
be required to file a tax return in the U.S. on which such income and tax are reported, and a non-U.S. stockholder that is a corporation
also may be subject to the 30% branch profits tax with respect to that distribution. We plan to withhold U.S. income tax at the rate
of 30% on the gross amount of any such distribution paid to a non-U.S. stockholder except to the extent that:
●
a lower treaty rate applies and the non-U.S. stockholder files an IRS Form W-8BEN or W-8BEN-E, as applicable, evidencing eligibility
for that reduced rate with us;
●
the non-U.S. stockholder files an IRS Form W-8ECI with us claiming that the distribution is effectively connected income; or
●
the distribution is treated as attributable to a sale of a USRPI under FIRPTA (discussed below).
A
non-U.S. stockholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the excess
portion of such distribution does not exceed the adjusted basis of the non-U.S. stockholder in the shares of capital stock on which the
distribution was paid. Instead, the excess portion of such distribution will reduce the adjusted basis of such stock. A non-U.S. stockholder
will be subject to tax on a distribution that exceeds both our current and accumulated earnings and profits and the adjusted basis of
its capital stock, if the non-U.S. stockholder otherwise would be subject to tax on gain from the sale or disposition of its capital
stock, as described below. We may be required to withhold 15% of any distribution that exceeds our current and accumulated earnings and
profits. Consequently, although we intend to withhold at a rate of 30% on the entire amount of any distribution, to the extent that we
do not do so, we may withhold at a rate of 15% on any portion of a distribution not subject to withholding at a rate of 30%. Because
we generally cannot determine at the time we make a distribution whether the distribution will exceed our current and accumulated earnings
and profits, we normally will withhold tax on the entire amount of any distribution at the same rate as we would withhold on a dividend.
However, a non-U.S. stockholder may claim a refund of amounts that we withhold if we later determine that a distribution in fact exceeded
our current and accumulated earnings and profits.
For
any year in which we qualify as a REIT, a non-U.S. stockholder may incur tax on distributions that are attributable to gain from our
sale or exchange of a USRPI under the Foreign Investment in Real Property Act of 1980 (“FIRPTA”). A USRPI includes certain
interests in real property and stock in corporations at least 50% of whose assets consist of interests in real property. Under FIRPTA,
subject to the exceptions discussed below, a non-U.S. stockholder is taxed on distributions attributable to gain from sales of USRPIs
as if such gain were effectively connected with a U.S. business of the non-U.S. stockholder. A non-U.S. stockholder thus would be taxed
on such a distribution at the normal capital gains rates applicable to U.S. stockholders, subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of a nonresident alien individual, and would be required to file a U.S. tax return
on which the income and tax would be reported. A non-U.S. corporate stockholder not entitled to treaty relief or exemption also may
be subject to the 30% branch profits tax on such a distribution.
Capital
gain distributions to the holders of shares of a class of our capital stock that are attributable to our sale of real property will be
treated as ordinary dividends rather than as gain from the sale of a USRPI, as long as (i) (a) such class of capital stock is treated
as being “regularly traded” on an established securities market in the United States, and (b) the non-U.S. stockholder did
not own more than 10% of such class of capital stock at any time during the one-year period preceding the distribution or (ii) the non-U.S.
stockholder was treated as a “qualified shareholder” or “qualified foreign pension fund,” as discussed below.
As a result, non-U.S. stockholders generally will be subject to withholding tax on such capital gain distributions in the same manner
as they are subject to withholding tax on ordinary dividends. We believe that our common stock is regularly traded on an
established securities market in the United States. However, no assurance can be given tax our common stock will continue to be so
traded on an established securities market in the United States. If a class of our capital stock is not regularly traded on an established
securities market in the United States or the non-U.S. stockholder owned more than 10% of the applicable class of our capital stock at
any time during the one-year period preceding the distribution, capital gain distributions that are attributable to our sale of real
property would be subject to tax under FIRPTA, as described in the preceding paragraph. In such case, we must withhold 21% of any distribution
that we could designate as a capital gain dividend. A non-U.S. stockholder may receive a credit against its tax liability for the amount
we withhold. Moreover, if a non-U.S. stockholder disposes of shares of our capital stock during the 30-day period preceding a dividend
payment, and such non-U.S. stockholder (or a person related to such non-U.S. stockholder) acquires or enters into a contract or option
to acquire that capital stock within 61 days of the first day of the 30-day period described above, and any portion of such dividend
payment would, but for the disposition, be treated as a USRPI capital gain to such non-U.S. stockholder, then such non-U.S. stockholder
shall be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain.
Although
the law is not clear on the matter, it appears that amounts that we designate as retained capital gains in respect of our capital
stock held by U.S. stockholders generally should be treated with respect to non-U.S. stockholders in the same manner as actual distributions
by us of capital gain dividends. Under this approach, a non-U.S. stockholder would be able to offset as a credit against its federal
income tax liability resulting from its proportionate share of the tax paid by us on such retained capital gains, and to receive from
the IRS a refund to the extent of the non-U.S. stockholder’s proportionate share of such tax paid by us exceeds its actual federal
income tax liability, provided that the non-U.S. stockholder furnishes required information to the IRS on a timely basis.
Dispositions
Non-U.S.
stockholders could incur tax under FIRPTA with respect to gain realized upon a disposition of our capital stock if we are a United States
real property holding corporation during a specified testing period. If at least 50% of a REIT’s assets are USRPIs, then the REIT
will be a United States real property holding corporation. We believe that we are and will continue to be a United
States real property holding corporation based on our investment strategy. However, despite our status as a United States real property
holding corporation, a non-U.S. stockholder generally would not incur tax under FIRPTA on gain from the sale of our capital stock if
we are a “domestically controlled qualified investment entity.” A domestically controlled qualified investment entity includes
a REIT in which, at all times during a specified testing period, less than 50% in value of its shares are held, directly or indirectly,
by non-U.S. stockholders. We cannot assure you that this test will be met. If a class of our capital stock is regularly traded on
an established securities market, an additional exception to the tax under FIRPTA will be available with respect to that class of our
capital stock, even if we do not qualify as a domestically controlled qualified investment entity at the time the non-U.S. stockholder
sells shares of that class of our capital stock. Under that exception, the gain from such a sale by such a non-U.S. stockholder will
not be subject to tax under FIRPTA if:
●
that class of our capital stock is treated as being regularly traded under applicable Treasury regulations on an established securities
market; and
●
the non-U.S. stockholder owned, actually and constructively, 10% or less of that class of our capital stock at all times during
a specified testing period.
Although
we believe that our common stock has been
regularly traded on an established securities market, no assurance can be given that our common stock will continue to be so traded,
in which case this exemption from application of FIRPTA upon the sale of our common stock by a non-U.S. stockholder would not be available.
If
the gain on the sale of shares of our capital stock were taxed under FIRPTA, a non-U.S. stockholder would be taxed on that gain in the
same manner as U.S. stockholders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals, and such gain and the tax thereon would be required to be reported on a tax return filed in the U.S.
Furthermore, a non-U.S. stockholder generally will incur tax on gain not subject to FIRPTA if:
●
the gain is effectively connected with the non-U.S. stockholder’s U.S. trade or business, in which case the non-U.S. stockholder
will be subject to the same treatment as U.S. stockholders with respect to such gain; or
●
the non-U.S. stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable
year and has a “tax home” in the United States, in which case the non-U.S. stockholder will incur a 30% tax on his or her
capital gains.
Qualified
Shareholders
Subject
to the exception discussed below, any distribution to a “qualified shareholder” who holds REIT stock directly or indirectly
(through one or more partnerships) will not be subject to federal income taxation under FIRPTA and thus will not be subject to the special
withholding rules under FIRPTA. While a “qualified shareholder” will not be subject to FIRPTA withholding on REIT distributions,
the portion of REIT distributions attributable to certain investors in a “qualified shareholder” (i.e., non-U.S. persons
who hold interests in the “qualified shareholder” (other than interests solely as a creditor), and directly or indirectly
hold more than 10% of the stock of such REIT (whether or not by reason of the investor’s ownership in the “qualified stockholder”))
may be subject to FIRPTA withholding. REIT distributions received by a “qualified stockholder” that are exempt from FIRPTA
withholding may still be subject to regular U.S. withholding tax.
In
addition, a sale of our stock by a “qualified shareholder” who holds such stock directly or indirectly (through one or more
partnerships) generally will not be subject to federal income taxation under FIRPTA. As with distributions, the portion of amounts realized
attributable to certain investors in a “qualified shareholder” (i.e., non-U.S. persons who hold interests in the “qualified
shareholder” (other than interests solely as a creditor), and directly or indirectly hold more than 10% of the stock of such REIT
(whether or not by reason of the investor’s ownership in the “qualified shareholder”)) may be subject to federal income
taxation and FIRPTA withholding on a sale of our stock.
A
“qualified shareholder” is a foreign person that (i) either is eligible for the benefits of a comprehensive income tax treaty
which includes an exchange of information program and whose principal class of interests is listed and regularly traded on one or more
recognized stock exchanges (as defined in such comprehensive income tax treaty), or is a foreign partnership that is created or organized
under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of information with respect to taxes
with the United States and has a class of limited partnership units representing greater than 50% of the value of all the partnership
units that is regularly traded on the NYSE American or NASDAQ markets, (ii) is a qualified collective investment vehicle (defined below),
and (iii) maintains records on the identity of each person who, at any time during the foreign person’s taxable year, is the direct
owner of 5% or more of the class of interests or units (as applicable) described in (i), above.
A
qualified collective investment vehicle is a foreign person that (i) would be eligible for a reduced rate of withholding under the comprehensive
income tax treaty described above, even if such entity holds more than 10% of the stock of such REIT, (ii) is publicly traded, is treated
as a partnership under the Code, is a withholding foreign partnership, and would be treated as a “United States real property holding
corporation” if it were a domestic corporation, or (iii) is designated as such by the Secretary of the Treasury and is either (a)
fiscally transparent within the meaning of Section 894 of the Code, or (b) required to include dividends in its gross income, but is
entitled to a deduction for distributions to its investors.
Qualified
Foreign Pension Funds
Any
distribution to a “qualified foreign pension fund” (or an entity all of the interests of which are held by a “qualified
foreign pension fund”) which holds REIT stock directly or indirectly (through one or more partnerships) will not be subject
to federal income taxation under FIRPTA and thus will not be subject to the special withholding rules under FIRPTA. REIT distributions
received by a “qualified foreign pension fund” that are exempt from FIRPTA withholding may nevertheless be subject
to regular U.S. withholding tax (e.g., on ordinary dividends). In addition, a sale of our stock by a “qualified foreign
pension fund” that holds such stock directly or indirectly (through one or more partnerships) will not be subject to federal income
taxation under FIRPTA.
A
qualified foreign pension fund is any trust, corporation, or other organization or arrangement (i) which is created or organized under
the law of a country other than the United States, (ii) which is established to provide retirement or pension benefits to participants
or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers in consideration
for services rendered, (iii) which does not have a single participant or beneficiary with a right to more than 5% of its assets or income,
(iv) which is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax
authorities in the country in which it is established or operates, and (v) with respect to which, under the laws of the country in which
it is established or operates, (a) contributions to such organization or arrangement that would otherwise be subject to tax under such
laws are deductible or excluded from the gross income of such entity or taxed at a reduced rate, or (b) taxation of any investment income
of such organization or arrangement is deferred or such income is taxed at a reduced rate.
FATCA
Withholding
Under
FATCA, a U.S. withholding tax at a 30% rate will be imposed on dividends paid on our capital stock received by certain non-U.S. stockholders
if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. If payment of withholding taxes is required,
non-U.S. stockholders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with respect of such
dividends and proceeds will be required to seek a refund from the IRS to obtain the benefit of such exemption or reduction. We will not
pay any additional amounts in respect of any amounts withheld.
Information
Reporting Requirements and Withholding
We
will report to our stockholders and to the IRS the amount of distributions we pay during each calendar year, and the amount of tax we
withhold, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding, at a rate of 24%, with respect
to distributions unless the stockholder:
●
is a corporation or qualifies for certain other exempt categories and, when required, demonstrates this fact; or
●
provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with
the applicable requirements of the backup withholding rules.
A
stockholder who does not provide us with its correct taxpayer identification number may also be subject to penalties imposed by the IRS.
Any amount paid as backup withholding will be creditable against the stockholder’s income tax liability. In addition, we may be
required to withhold a portion of capital gain distributions to any stockholders who fail to certify their non-foreign status to us.
Backup
withholding will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-U.S.
stockholder provided that the non-U.S. stockholder furnishes to us or our paying agent the required certification as to its non-U.S.
status, such as providing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or certain other requirements are met. Notwithstanding the foregoing,
backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person
that is not an exempt recipient. Payments of the proceeds from a disposition or a redemption effected outside the U.S. by a non-U.S.
stockholder made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding.
However, information reporting (but not backup withholding) generally will apply to such a payment if the broker has certain connections
with the U.S. unless the broker has documentary evidence in its records that the beneficial owner is a non-U.S. stockholder and specified
conditions are met or an exemption is otherwise established. Payment of the proceeds from a disposition by a non-U.S. stockholder of
stock made by or through the U.S. office of a broker is generally subject to information reporting and backup withholding unless the
non-U.S. stockholder certifies under penalties of perjury that it is not a U.S. person and satisfies certain other requirements, or otherwise
establishes an exemption from information reporting and backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the
stockholder’s federal income tax liability if certain required information is furnished to the IRS. Stockholders should consult
their tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining an exemption
from, backup withholding.
Other
Tax Consequences
Tax
Aspects of Our Investments in Our Operating Partnership and Subsidiary Partnerships
The
following discussion summarizes certain federal income tax considerations applicable to our direct or indirect investments in our Operating
Partnership and any subsidiary partnerships or limited liability companies that we form or acquire (each individually a “Partnership”
and, collectively, the “Partnerships”). The discussion does not cover state or local tax laws or any federal tax laws other
than income tax laws.
Substantially
all of the Company’s investments are held indirectly through the Operating Partnership. In general, partnerships are “pass-through”
entities that are not subject to federal income tax at the partnership level. However, a partner is allocated its proportionate share
of the items of income, gain, loss, deduction and credit of a partnership, and is required to include these items in calculating its
tax liability, without regard to whether it receives a distribution from the partnership. The Company includes its proportionate share
of these partnership items in its income for purposes of the various REIT income tests and the computation of its REIT taxable income.
Moreover, for purposes of the REIT asset tests, the Company includes its proportionate share of assets held through the Operating Partnership.
Classification
as Partnerships. We will include in our income our distributive share of each Partnership’s income and to deduct
our distributive share of each Partnership’s losses only if such Partnership is classified for federal income tax purposes as a
partnership (or an entity that is disregarded for federal income tax purposes if the entity is treated as having only one owner for federal
income tax purposes) rather than as a corporation or an association taxable as a corporation. An unincorporated entity with at least
two owners or members will be classified as a partnership, rather than as a corporation, for federal income tax purposes if it:
●
is treated as a partnership under the Treasury regulations relating to entity classification (the “check-the-box regulations”);
and
●
is not a “publicly-traded partnership.”
Under
the check-the-box regulations, an unincorporated entity with at least two owners or members may elect to be classified either as an association
taxable as a corporation or as a partnership. If such an entity is a U.S. entity and fails to make an election, it generally will be
treated as a partnership (or an entity that is disregarded for federal income tax purposes if the entity is treated as having only one
owner for federal income tax purposes) for federal income tax purposes. Our Operating Partnership intends to be classified as a partnership
for federal income tax purposes and will not elect to be treated as an association taxable as a corporation under the check-the-box regulations.
A
publicly-traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on
a secondary market or the substantial equivalent thereof. A publicly-traded partnership will not, however, be treated as a corporation
for any taxable year if, for each taxable year in which it was classified as a publicly-traded partnership, 90% or more of the partnership’s
gross income for such year consists of certain passive-type income, including real property rents, gains from the sale or other disposition
of real property, interest, and dividends (the “90% passive income exception”). We believe our Operating Partnership should
not be treated as a corporation because we expect it would be eligible for the 90% passive income exception. Treasury regulations
(the “PTP regulations”) also provide limited safe harbors from the definition of a publicly-traded partnership. Pursuant
to one of those safe harbors (the “private placement exclusion”), interests in a partnership will not be treated as readily
tradable on a secondary market or the substantial equivalent thereof if (i) all interests in the partnership were issued in a transaction
or transactions that were not required to be registered under the Securities Act and (ii) the partnership does not have more than 100
partners at any time during the partnership’s taxable year. In determining the number of partners in a partnership, a person owning
an interest in a partnership, grantor trust, or S corporation that owns an interest in the partnership is treated as a partner in such
partnership only if (i) substantially all of the value of the owner’s interest in the entity is attributable to the entity’s
direct or indirect interest in the partnership and (ii) a principal purpose of the use of the entity is to permit the partnership to
satisfy the 100-partner limitation.
We
have not requested, and do not intend to request, a ruling from the IRS that our Operating Partnership will be classified as a partnership
for federal income tax purposes. If for any reason our Operating Partnership were taxable as a corporation, rather than as a partnership,
for federal income tax purposes, we may not be able to qualify as a REIT unless we qualified for certain relief provisions. See “—
Gross Income Tests” and “— Asset Tests.” In addition, any change in a Partnership’s status for tax purposes
might be treated as a taxable event, in which case we might incur tax liability without any related cash distribution. See “—
Distribution Requirements.” Further, items of income and deduction of such Partnership would not pass through to its partners,
and its partners would be treated as stockholders for tax purposes. Consequently, such Partnership would be required to pay income tax
at corporate rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing
such Partnership’s taxable income.
Income
Taxation of the Partnerships and their Partners
Partners,
Not the Partnerships, Subject to Tax. In general, a partnership is not a taxable entity for federal income tax purposes. Rather, we are
required to take into account our allocable share of each Partnership’s income, gains, losses, deductions, and credits for any
taxable year of such Partnership ending within or with our taxable year, without regard to whether we have received or will receive any
distribution from such Partnership. However, the tax liability for adjustments to a Partnership’s tax returns made as a result
of an audit by the IRS will be imposed on the Partnership itself in certain circumstances absent an election to the contrary.
Partnership
Allocations. Although a partnership agreement generally will determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions of the federal income tax laws governing partnership allocations.
If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in accordance
with the partners’ interests in the partnership, which 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. Our Operating Partnership’s allocations
of taxable income, gain, and loss are intended to comply with the requirements of the federal income tax laws governing partnership allocations.
Tax
Allocations With Respect to Partnership Properties. Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction attributable
to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated
in a manner such that the contributing partner is charged with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. In the case of a contribution of property, the amount of the unrealized
gain or unrealized loss (“built-in gain” or “built-in loss”) is generally equal to the difference between the
fair market value of the contributed property at the time of contribution and the adjusted tax basis of such property at the time of
contribution (a “book-tax difference”). Any property purchased for cash initially will have an adjusted tax basis equal to
its fair market value, resulting in no book-tax difference. Our Operating Partnership may admit partners in the future in exchange for
a contribution of property, which will result in book-tax differences.
Allocations
with respect to book-tax differences are solely for federal income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The U.S. Treasury Department has issued regulations requiring partnerships to use
a “reasonable method” for allocating items with respect to which there is a book-tax difference and outlining several reasonable
allocation methods. Under certain available methods, the carryover basis in the hands of our Operating Partnership of properties contributed
to us would cause us to be allocated lower amounts of depreciation deductions for tax purposes than would be allocated to us if all our
properties were to have a tax basis equal to their fair market value at the time of contribution.
Under
the partnership agreement for our Operating Partnership, depreciation or amortization deductions of our Operating Partnership generally
will be allocated among the partners in accordance with their respective interests in our Operating Partnership, except to the extent
that our Operating Partnership is required under Section 704(c) of the Code to use a method for allocating depreciation deductions attributable
to contributed properties that results in the contributing partner receiving a disproportionately large share of such deductions when
compared to the tax basis of such property. In this case, the contributing partner may be allocated (1) lower amounts of depreciation
deductions for tax purposes with respect to contributed properties than would be allocated to such contributing partner if each such
property were to have a tax basis equal to its fair market value at the time of contribution, and/or (2) taxable gain in the event of
a sale of such contributed properties in excess of the economic profit allocated to such contributing partner as a result of such sale.
These allocations may cause the contributing partner to recognize taxable income in excess of cash proceeds received by the contributing
partner, which might require such partner to utilize cash from other sources to satisfy his or her tax liability or, if the REIT happens
to be the contributing partner, adversely affect our ability to comply with the REIT distribution requirements.
We
anticipate that the REIT primarily will be contributing cash to the Operating Partnership, in which case we do not anticipate that these
rules will adversely impact the allocations of income and gain from the Operating Partnership to the REIT. However, we (us and the Operating
Partnership) have entered into a contribution agreement with certain affiliates pursuant to which the Operating Partnership acquired
real properties having a lower basis than the fair market value of these properties. Accordingly, the tax principles discussed in this
section could require lower allocations of depreciation expense and, in the event of a sale of one or more of these properties, higher
allocations of income or gain to those contributing partners. While the application of these tax principles would not ordinarily have
an adverse impact on any allocations of income, deduction, and/or gain to us as a REIT, the Operating Partnership also has entered into
a tax protection agreement with the contributing partners that generally limit the Operating Partnership’s ability to dispose of
these properties. Further, if the Operating Partnership were to dispose of one (or more) of these properties, the Operating Partnership
could be obligated to make certain payments to the contributing partners to compensate them for the additional taxes payable as a result
of the gains that are recognized and allocated to the contributing partners under these tax principles. As a result, the net proceeds
available for distribution to us by the Operating Partnership after making any such tax payments to the contributing partners would be
reduced.
The
foregoing principles also could affect the calculation of our earnings and profits for purposes of determining which portion of our distributions
is taxable as a dividend. The allocations described in the above paragraphs may result in a higher portion of our distributions being
taxed as a dividend if we acquire properties in exchange for units of our Operating Partnership than would have occurred had we purchased
such properties for cash.
In
general, if any asset contributed to or revalued by the Operating Partnership is determined to have a fair market value that is greater
than its adjusted tax basis, partners who have contributed those assets, including the Company, will be allocated lower amounts of depreciation
deductions as to specific properties for tax purposes by the Operating Partnership and increased taxable income and gain on sale. Thus,
the Company may be allocated lower depreciation and other deductions, and possibly greater amounts of taxable income in the event of
a sale of contributed assets. These amounts may be in excess of the economic or book income allocated to it as a result of the sale.
In this regard, it should be noted that as the general partner of the Operating Partnership, the Company will determine, taking into
account the tax consequences to it, when and whether to sell any given property.
The
Company will be allocated its share of the Operating Partnership’s taxable income or loss for each year regardless of the amount
of cash that may be distributed to it by the Operating Partnership. As a result, the Company could be allocated taxable income for a
year in excess of the amount of cash distributed to it. This excess taxable income is sometimes referred to as “phantom income.”
Because the Company relies on cash distributions from the Operating Partnership to meet its REIT distribution requirements, which are
specified percentages of its REIT taxable income, the recognition of this phantom income might adversely affect the Company’s ability
to comply with those requirements.
Basis
in Operating Partnership Interest
The
adjusted tax basis of a partner’s interest in the Operating Partnership generally is equal to (1) the amount of cash and the basis
of any other property contributed to the Operating Partnership by the partner, (2) increased by the partner’s (a) allocable share
of the Operating Partnership’s income and (b) allocable share of indebtedness of the Operating Partnership, and (3) reduced, but
not below zero, by (a) the partner’s allocable share of the Operating Partnership’s loss and (b) the amount of cash distributed
to the partner, including constructive cash distributions resulting from a reduction in the partner’s share of indebtedness of
the Operating Partnership.
If
the allocation of a partner’s distributive share of the Operating Partnership’s loss would reduce the adjusted tax basis
of such partner’s partnership interest in the Operating Partnership below zero, the recognition of such loss will be deferred until
such time as the recognition of such loss would not reduce an adjusted tax basis below zero. If a distribution from the Operating Partnership
or a reduction in a partner’s share of the Operating Partnership’s liabilities (which is treated as a constructive distribution
for tax purposes) would reduce such partner’s adjusted tax basis below zero, any such distribution, including a constructive distribution,
would constitute taxable income to such partner. The gain realized by the partner upon the receipt of any such distribution or constructive
distribution would normally be characterized as capital gain, and if the partner’s partnership interest in the Operating Partnership
has been held for longer than the long-term capital gain holding period (currently one year), the distribution would constitute long-term
capital gain.
Sale
of a Partnership’s Property
Generally,
any gain realized by a Partnership on the sale of property held by the Partnership for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost recovery recapture. Under Section 704(c) of the Code, any
gain or loss recognized by a Partnership on the disposition of contributed properties will be allocated first to the partners of the
Partnership who contributed such properties to the extent of their built-in gain or loss on those properties for federal income tax purposes.
The partners’ built-in gain or loss on such contributed properties will equal the difference between the partners’ proportionate
share of the book value of those properties and the partners’ tax basis allocable to those properties at the time of the contribution
as reduced for any decrease in the “book-tax difference.” See “— Income Taxation of the Partnerships and Their
Partners — Tax Allocations With Respect to Partnership Properties.” Any remaining gain or loss recognized by the Partnership
on the disposition of the contributed properties, and any gain or loss recognized by the Partnership on the disposition of the other
properties, will be allocated among the partners in accordance with their respective percentage interests in the Partnership.
Our
share of any gain realized by a Partnership on the sale of any property held by the Partnership as inventory or other property held primarily
for sale to customers in the ordinary course of the Partnership’s trade or business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction income also may have an adverse effect upon our ability
to satisfy the income tests for REIT status. See “—Gross Income Tests.” We do not presently intend to acquire or hold
or to allow any Partnership to acquire or hold any property that represents inventory or other property held primarily for sale to customers
in the ordinary course of our or such Partnership’s trade or business.
Legislative
or Other Actions Affecting REITs
The present federal income tax treatment of REITs may be modified, possibly
with retroactive effect, by legislative, judicial, or administrative action at any time. The REIT rules are constantly under review by
persons involved in the legislative process and by the IRS and the U.S. Treasury Department which may result in statutory changes as well
as revisions to regulations and interpretations. We cannot predict any future law changes on REITs and their stockholders. Prospective
investors are urged to consult with their tax advisors regarding the effect of potential changes to the federal tax laws on an investment
in our stock.
State
and Local Taxes
The
Company and its stockholders are subject to state or local taxation in various state or local jurisdictions, including those in which
it or they transact business or reside. The state and local tax treatment of the Company and its stockholders may not conform to the
federal income tax consequences discussed above. Consequently, prospective stockholders of the Company should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the Company.
To
the extent that the Company and any TRSs are required to pay federal, state or local taxes, the Company will have less cash available
for distribution to stockholders.
Statement
of Stock Ownership
We
are required to demand annual written statements from the record holders of designated percentages of our shares disclosing the actual
owners of the shares. Any record stockholder who, upon our request, does not provide us with required information concerning actual ownership
of the shares is required to include specified information relating to his or her shares in his or her federal income tax return. We
also must maintain, within the Internal Revenue District in which we are required to file, our federal income tax return, permanent records
showing the information we have received about the actual ownership of shares and a list of those persons failing or refusing to comply
with our demand.
Tax
Shelter Reporting
Under
applicable Treasury regulations, if a stockholder recognizes a loss with respect to the shares of $2 million or more for an individual
stockholder or $10 million or more for a corporate stockholder, the stockholder may be required to file a disclosure statement with the
IRS on Form 8886. Direct stockholders of portfolio securities are in many cases exempt from this reporting requirement, but stockholders
of a REIT currently are not excepted. The fact that a loss is reportable under these regulations does not affect the legal determination
of whether the taxpayer’s treatment of the loss is proper. Stockholders should consult their tax advisors to determine the applicability
of these regulations in light of their individual circumstances.
PLAN
OF DISTRIBUTION
These
securities may be offered and sold directly by us, through dealers or agents designated from time to time, or to or through underwriters
or may be offered and sold directly by us for consideration consisting of goods and property, including real property directly by us
or through a specific bidding or auction process, a rights offering or through a combination of these methods. The prospectus supplement
with respect to the securities being offered will set forth the terms of the offering, including the names of the underwriters, dealers
or agents, if any, the purchase price of the securities, our net proceeds, any underwriting discounts and other items constituting underwriters’
compensation, public offering price and any discounts or concessions allowed or reallowed or paid to dealers and any securities exchanges
on which such securities may be listed. These securities may also be offered by us to our shareholders in lieu of dividends.
The
distribution of securities may be affected, from time to time, in one or more transactions, including:
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block
transactions (which may involve crosses) and transactions on the NYSE American or any other organized market where the securities
may be traded; |
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its own account pursuant to a prospectus supplement; |
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ordinary
brokerage transactions and transactions in which a broker-dealer solicits purchasers; |
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sales
“at the market” to or through a market maker or into an existing trading market, on an exchange or otherwise; and |
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sales
in other ways not involving market makers or established trading markets, including direct sales to purchasers. |
The
securities may be sold at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices
relating to the prevailing market prices or at negotiated prices. The consideration may be cash or another form negotiated by the parties.
Agents, underwriters or broker-dealers may be paid compensation for offering and selling the securities. That compensation may be in
the form of discounts, concessions or commissions to be received from us or from the purchasers of the securities. Dealers and agents
participating in the distribution of the securities may be deemed to be underwriters, and compensation received by them on resale of
the securities may be deemed to be underwriting discounts and commissions under the Securities Act. If such dealers or agents were deemed
to be underwriters, they may be subject to statutory liabilities under the Securities Act.
We
may also make direct sales through subscription rights distributed to our existing stockholders on a pro rata basis, which may or may
not be transferable. In any distribution of subscription rights to our stockholders, if all of the underlying securities are not subscribed
for, we may then sell the unsubscribed securities directly to third parties or may engage the services of one or more underwriters, dealers
or agents, including standby underwriters, to sell the unsubscribed securities to third parties.
If
underwriters are used in an offering, we will execute an underwriting agreement with such underwriters and will specify the name of each
underwriter and the terms of the transaction (including any underwriting discounts and other terms constituting compensation of the underwriters
and any dealers) in a prospectus supplement. If an underwriting syndicate is used, the managing underwriter(s) will be specified on the
cover of the prospectus supplement. If underwriters are used in the sale, the offered securities will be acquired by the underwriters
for their own accounts and may be resold 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. Any public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time. Unless otherwise set forth in the prospectus supplement, the
obligations of the underwriters to purchase the offered securities will be subject to conditions precedent and the underwriters will
be obligated to purchase all of the offered securities if any are purchased.
If
dealers are used in an offering, we will sell the securities to the dealers as principals. The dealers may resell the securities to the
public at varying prices, which they determine at the time of resale. The names of the dealers and the terms of the transaction will
be specified in a prospectus supplement.
The
securities may be sold directly by us or through agents we designate. If agents are used in an offering, the names of the agents and
the terms of the agency will be specified in a prospectus supplement. Unless otherwise indicated in a prospectus supplement, the agents
will act on a best-efforts basis for the period of their appointment.
Dealers
and agents named in a prospectus supplement may be deemed to be underwriters (within the meaning of the Securities Act) of the securities
described therein. In addition, we may sell the securities directly to institutional investors or others who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resales thereof.
In
compliance with the guidelines of the Financial Industry Regulatory Authority (“FINRA”), the aggregate value of all compensation
to be received by participating FINRA members in any offering will not exceed 8% of the offering proceeds.
Underwriters,
dealers and agents, may be entitled to indemnification by us against specific civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which the underwriters or agents may be required to make in respect thereof, under underwriting
or other agreements. The terms of any indemnification provisions will be set forth in a prospectus supplement. Certain underwriters,
dealers or agents and their associates may engage in transactions with and perform services for us in the ordinary course of business.
If
so indicated in a prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit offers by institutional
investors to purchase securities pursuant to contracts providing for payment and delivery on a future date. We may enter into contracts
with commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions
and other institutional investors. The obligations of any institutional investor will be subject to the condition that its purchase of
the offered securities will not be illegal at the time of delivery. The underwriters and other agents will not be responsible for the
validity or performance of contracts.
Each
prospectus supplement will indicate if the securities offered thereby will be listed on any securities exchange; however, we anticipate
that any shares of common stock sold pursuant to a prospectus supplement will be eligible for trading on the NYSE American, subject to
official notice of issuance. Any underwriters to whom securities are sold by us for public offering and sale may make a market in the
securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice.
LEGAL
MATTERS
The
validity of the securities being offered hereby and certain other Maryland law matters will be passed upon by Shapiro Sher Guinot &
Sandler, P.A. Certain other legal matters will be passed upon for us by Igler and Pearlman, P.A. Greenberg Traurig, LLP has provided
an opinion as to certain U.S. federal income tax matters. If legal matters in connection with offerings made pursuant to this prospectus
are passed upon by counsel for the underwriters, dealers or agents, if any, such counsel will be named in the prospectus supplement relating
to such offering.
EXPERTS
Our
consolidated financial statements appearing in our 2023 Form 10-K have been audited by Hacker, Johnson & Smith P.A., an independent
registered public accounting firm, as stated in their report, which is incorporated herein by reference. Such consolidated financial
statements have been so incorporated in reliance upon the reports of such firm given its authority as experts in accounting and auditing.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED JULY 25, 2024
PROSPECTUS
$24,000,000
Common
Stock
STRAWBERRY
FIELDS REIT, INC.
We
have entered into an At Market Issuance Sales Agreement dated July 11, 2024 (the “Sales Agreement”), with B. Riley
Securities, Inc. and A.G.P. / Alliance Global Partners (the “Agents”) relating to the sale of shares of our common stock
offered by this prospectus and the accompanying base prospectus. In accordance with the terms of the Sales Agreement and by use of this
prospectus, we may offer and sell up to an aggregate
of up to $24.0 million from time to time through or to the Agents, as agent or principal.
Sales
of our common stock under this prospectus will be made by the Agents using any method considered an “at the market offering”
as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”).
Each
Agent will be entitled to compensation at a commission rate up to 3.0% of the gross sales price per share sold by such Agent under the
Sales Agreement. The Agents are not required to sell or buy any specific number or dollar amount of shares of our common stock but will
use their commercially reasonable efforts to sell our stock, subject to the terms of the Sales Agreement, to sell the shares offered
by this prospectus, as instructed by us. In connection with the sale of our common stock on our behalf, the Agents will be deemed “underwriters”
within the meaning of the Securities Act and the compensation of the Agents will be deemed to be underwriting compensation or discounts.
There is no arrangement for funds to be held in an escrow or similar account.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” on page 6 for a discussion of information
that should be considered in connection with an investment in our common stock.
Our
common stock is listed on The NYSE American under the symbol “STRW.” On July 23, 2024, the last reported sale price
of our common stock on The NYSE American was $10.31 per share.
We
may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire
prospectus, accompanying base prospectus and any amendments or supplements carefully before you make an investment decision.
Our
common stock is subject to restrictions on ownership and transfer designed, among other things, to preserve our qualification as a real
estate investment trust, or REIT, for federal income tax purposes. See “Description of Registrant’s Securities Registered
Pursuant to Section 12 of the Securities Exchange Act of 1934” included as Exhibit 4.1.
None
of the Securities and Exchange Commission (the “SEC”), any state securities commission, or any other federal or state regulatory
agency has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus and the accompanying
base prospectus. Any representation to the contrary is a criminal offense.
| B. Riley Securities |
A.G.P. |
The
date of this prospectus is ________, 2024
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
You
should carefully read this entire prospectus and the accompanying base prospectus, including the information included and referred to
under “Risk Factors” below, the information incorporated by reference in this prospectus and in the accompanying base prospectus,
and the financial statements and the other information incorporated by reference in the accompanying base prospectus, before making an
investment decision.
This
prospectus is a part of a registration statement that we filed with the SEC using a “shelf” registration process. Under this
shelf registration process, we may sell, from time to time, any of the securities described in this prospectus in one or more offerings.
You should carefully read both this prospectus and any supplement, together with the additional information described under the heading
“Where You Can Find More Information” below.
This
prospectus describes the specific terms of the common stock we are offering and also adds to and updates information contained in the
documents incorporated by reference into this prospectus. To the extent there is a conflict between the information contained in this
prospectus, on the one hand, and the information contained in any document incorporated by reference into this prospectus that was filed
with the SEC before the date of this prospectus, on the other hand, you should rely on the information in this prospectus. The accompanying
prospectus gives more general information, some of which may not apply to this offering. Generally, when we refer to this “prospectus,”
we are referring to both documents combined. If any statement in one of these documents is inconsistent with a statement in another document
having a later date — for example, a document incorporated by reference into this prospectus — the statement in the document
having the later date modifies or supersedes the earlier statement.
You
should rely only on the information contained in, or incorporated by reference into this prospectus and in any free writing prospectus
that we may authorize for use in connection with this offering. We have not, and neither Agent has, authorized any other person to provide
you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are
not, neither Agent is, making an offer to sell or soliciting an offer to buy our common stock in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making that offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make an offer or solicitation. You should assume that the information appearing in this prospectus supplement, the
documents incorporated by reference into this prospectus supplement, and in any free writing prospectus that we may authorize for use
in connection with this offering, is accurate only as of the date of those respective documents. Our business, financial condition, results
of operations and prospects may have changed since those dates.
Unless
the context requires otherwise, references to “Strawberry”, the “Company”, “we”, “our”,
“ours” and “us” are to Strawberry Fields REIT, Inc. and its subsidiaries.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed a registration statement with the SEC, of which this prospectus is a part, with respect to the securities being offered hereby.
This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto.
We refer you to the registration statement and the exhibits and schedules thereto for further information. Statements contained in this
prospectus as to the contents of any contract or other document filed as an exhibit are qualified in all respects by reference to the
actual text of the exhibit.
Our
common stock is listed on The NYSE American under the symbol “STRW”. We are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) and file annual, quarterly and current reports, proxy and
information statements, and other information with the SEC. Our SEC filings, the registration statement, including the exhibits and schedules
to the registration statement, as well as the documents incorporated herein by reference, are available to the public over the Internet
at the SEC’s website at www.sec.gov.
We
also maintain an Internet site where you can find additional information. The address of our Internet site is https://www.strawberryfieldsreit.com/.
All internet addresses provided in this prospectus or in any accompanying prospectus supplement are for informational purposes only and
are not intended to be hyperlinks. In addition, the information on our Internet website, or any other Internet site described herein,
is not a part of, and is not incorporated or deemed to be incorporated by reference in, this prospectus or any accompanying prospectus
supplement or other offering materials.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC’s rules allow us to incorporate by reference information into this prospectus. This means that we can disclose important information
to you by referring you to another document. Any information referred to in this way is considered part of this prospectus from the date
we file that document. Any reports filed by us with the SEC after the date of this prospectus will automatically update and, where applicable,
supersede any information contained in this prospectus or incorporated by reference in this prospectus. We incorporate by reference the
following documents (other than information “furnished” and not “filed”):
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Our
Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 19, 2024, (the “2023 Form 10-K”); |
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Our
definitive proxy statement on Schedule 14A, filed with the SEC on April 16, 2024; |
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Our
Current Report on Form 8-K filed on June 3, 2024; and |
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The
description of our securities registered with the SEC pursuant to Section 12 of the Exchange Act included as Exhibit 4.1 to the 2023
Form 10-K. |
All
documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this prospectus and prior
to the termination of the offering of the securities to which this prospectus relates (other than information in such documents that
is furnished and not deemed to be filed) shall also be deemed to be incorporated by reference into this prospectus and to be part hereof
from the date of filing of those documents.
We
will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon his or her written
or oral request, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus,
excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. You may request a
copy of these filings, at no cost, by writing or telephoning us at our principal executive office:
Strawberry
Fields REIT, Inc.
Attn:
David Gross
6101
Nimtz Parkway,
South
Bend, IN 46628
(574)
807-0800
You
should rely only on the information contained or incorporated by reference in this prospectus and the applicable prospectus supplement.
Neither we nor any Agent have authorized anyone else to provide you with additional or different information. Neither we nor any Agent
are making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in
this prospectus or the applicable prospectus supplement or any document incorporated by reference is accurate as of any date other than
the dates of the applicable documents.
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in this prospectus are “forward-looking statements” within the meaning of the U.S. federal securities laws. Forward-looking
statements provide our current expectations or forecasts of future events and are not statements of historical fact. This prospectus
also contains forward-looking statements by third parties relating to market and industry data and forecasts; forecasts and other forward-looking
information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements
contained in this prospectus. These forward-looking statements include information about possible or assumed future events, including,
among other things, discussion and analysis of our future financial condition, results of operations, Funds From Operations (“FFO”),
our strategic plans and objectives, cost management, potential property acquisitions, anticipated capital expenditures (and access to
capital), amounts of anticipated cash distributions to our stockholders in the future and other matters. Words such as “anticipates,”
“expects,” “intends,” “plans,” “believes,” “seeks,” “estimates”
and variations of these words and other similar expressions are intended to identify forward-looking statements. These statements are
not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking
statements.
Forward-looking
statements involve inherent uncertainty and may ultimately prove to be incorrect or false. Readers are cautioned to not place undue reliance
on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could
differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited
to:
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risks
and uncertainties related to the national, state and local economies, particularly the economies of Arkansas, Illinois, Indiana,
Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas, and the real estate and healthcare industries in general; |
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availability
and terms of capital and financing; |
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the
impact of existing and future healthcare reform legislation on our tenants, borrowers and guarantors; |
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adverse
trends in the healthcare industry, including, but not limited to, changes relating to reimbursements available to our tenants by
government or private payors; |
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competition
in long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including skilled nursing
facilities; |
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the
impact of COVID-19 on our business and the business of our tenants and operators, including without limitation, increased costs and
decreased occupancy levels experienced by operators of skilled nursing facilities; |
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our
tenants’ ability to make rent payments; |
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our
dependence upon key personnel whose continued service is not guaranteed; |
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availability
of appropriate acquisition opportunities and the failure to integrate successfully; |
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ability
to source target-marketed deal flow; |
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ability
to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to deploy the proceeds therefrom on favorable
terms; |
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fluctuations
in mortgage and interest rates; |
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changes
in the ratings of our debt securities; |
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risks
and uncertainties associated with property ownership and development; |
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the
potential need to fund improvements or other capital expenditures out of operating cash flow; |
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potential
liability for uninsured losses and environmental liabilities; |
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the
outcome of pending or future legal proceedings; |
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changes
in tax laws and regulations affecting REITs; |
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our
ability to maintain our qualification as a REIT; and |
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the
effect of other factors affecting our business or the businesses of our operators that are beyond our or their control, including
natural disasters, other health crises or pandemics and governmental action; particularly in the healthcare industry. |
This
list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive.
New risks and uncertainties may also emerge from time to time that could materially and adversely affect us.
PROSPECTUS
SUMMARY
This
summary may not contain all of the information that is important to you. Before making a decision to purchase our common stock, you should
carefully read this entire prospectus supplement and the accompanying prospectus, especially the “Risk Factors” section on
page 6 of this prospectus and the other documents incorporated by reference in this prospectus.
Overview
of our Company
We
are a self-managed and self-administered real estate company that specializes in the acquisition, ownership and triple-net leasing of
skilled nursing facilities and other post-acute healthcare properties. We generate substantially all of our revenues by leasing our properties
to tenants under long-term leases primarily on a triple-net basis, under which the tenant pays the cost of real estate taxes, insurance
and other operating costs of the facility and capital expenditures.
We
elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2022. We believe
that we have been organized and have operated, and we intend to continue to operate, in a manner to qualify for taxation as a REIT. We
operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and
assets are held through Strawberry Fields Realty, L.P. (the “Operating Partnership”). We are the general partner of the Operating
Partnership. To maintain REIT status, we must meet certain organizational and operational requirements, including a requirement that
we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction
and excluding any net capital gains.
The
Company’s common stock is registered with the SEC under the Exchange Act, and files periodic reports with the SEC. The Company’s
common stock trades on The NYSE American under the symbol “STRW.”
The
Offering
The
following is a brief summary of certain terms of this offering and is not intended to be complete. It does not contain all of the
information that will be important to a purchaser of common stock. For a more complete description of our common stock, and any
related restrictions see “Risk Factors” beginning on page 6 of this prospectus, and “Description of
Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934” included as Exhibit
4.1.
| Issuer |
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Strawberry
Fields REIT, Inc. |
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| Securities
offered |
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Shares
of our common stock, par value $0.0001 per share, having an aggregate sales price of up to $24,000,000. |
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| Manner
of Offering |
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“At
the market offering” that may be made from time to time through or to the Agents, as agent or principal. See “Plan of
Distribution” on page 10 of this prospectus. |
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|
| Use
of proceeds |
|
We
intend to contribute the net proceeds of this offering to our Operating Partnership in exchange for OP units. Our Operating Partnership
intends to use the funds received from us for general working capital purposes, including investments in additional properties. The
net proceeds received by us will be invested in short- and intermediate-term, interest-bearing obligations, investment grade instruments,
certificates of deposit or direct or guaranteed obligations of the U.S. government, in a manner that is consistent with our intention
to qualify for taxation as a REIT and maintain our exclusion from registration under the Investment Company Act of 1940 Act. See
“Use of Proceeds” on page 9 of this prospectus. |
| |
|
|
| NYSE
American symbol |
|
“STRW” |
| |
|
|
| Restrictions
on ownership and transfer |
|
To
assist us in complying with certain federal income tax requirements applicable to REITs, among other purposes, our Charter imposes
certain restrictions on ownership and transfer of our common stock including provisions, with certain exceptions, that restrict any
person from owning, or being deemed to own by virtue of the attribution provisions of the Code, more than 6.0%, in number of shares
or value of the issued and outstanding shares of our common stock. See “Risk Factors” on page 6 of this prospectus, and
“Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934”
included as Exhibit 4.1. |
| |
|
|
| Tax
consequences |
|
For
a discussion of certain material U.S. federal income tax consequences regarding us and the purchase, sale and ownership of the shares
of our common stock, please see the information appearing under the heading “Material U.S. Federal Income Tax Considerations”
beginning on page 59 of the base prospectus. Prospective investors in the shares of our common stock should
consult their tax advisors regarding the U.S. federal income and other tax considerations to them of the acquisition, ownership and
disposition of the shares offered by this prospectus supplement. |
| |
|
|
| Transfer
agent |
|
The
transfer agent for our common stock is Continental Stock Transfer & Trust Company. |
| |
|
|
| Risk
Factors |
|
See
the “Risk Factors” section on page 6 of this prospectus and similar headings in the documents incorporated herein by
reference for important information you should consider before buying shares of our common stock. |
RISK
FACTORS
An
investment in our common stock involves risks. Before making an investment decision, you should carefully consider the following risk
factors, which address the material risks concerning our business and an investment in our common stock, as updated by our subsequent
filings under the Exchange Act, together with the other information contained in this prospectus and incorporated by reference into this
prospectus. If any of the risks discussed in this prospectus were to occur, our business, prospects, financial condition, liquidity,
and results of operations and our ability make distributions to our stockholders and achieve our goals could be materially and adversely
affected, the value of our common stock could decline significantly and you could lose all or a part of your investment. Some statements
in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section
entitled “Cautionary Note Regarding Forward-Looking Statements.”
Capitalized
terms or acronyms used below which are undefined herein are defined in our 2023 Form 10-K, which is incorporated by reference herein.
Risks
Related to Purchasing Stock in this Offering
Although
the shares of our common stock are currently listed on the NYSE American, there has been limited trading of our shares. Following the
offering, an active trading market may not develop or continue to be liquid and the market price of shares of our common stock may be
volatile.
To
date, there has been only limited trading of our shares on the NYSE American. Following the offering, there can no assurance that an
active market for shares of our common stock would develop or be sustained. In the absence of an active public trading market, shareholders
may not be able to sell their shares of our common stock. The lack of an active market for our shares may also impair our ability to
raise capital by selling shares, our ability to motivate our employees through equity incentive awards and our ability to acquire other
companies, products or technologies by using shares as consideration.
We
are required to satisfy NYSE American’s continued qualification standards. If we fail to do so, our shares would no longer be eligible
for trading on the NYSE American.
The
market price and trading volume of our common stock may be volatile following this offering.
Even
if an active trading market develops for our common stock, the trading price of the common stock may be volatile. In addition, the trading
volume in our common stock may fluctuate and cause significant price variations to occur. If the trading price of our common stock declines
significantly, you may be unable to resell your shares at or above the public offering price. Some of the factors that could negatively
affect our share price or result in fluctuations in the price or trading volume of our common stock include:
| |
● |
the
number of shares of our common stock publicly owned and available for trading; |
| |
|
|
| |
● |
overall
performance of the equity markets and/or publicly listed healthcare REITs; |
| |
● |
actual
or anticipated fluctuations in our revenue or other operating metrics; |
| |
|
|
| |
● |
our
actual or anticipated operating performance and the operating performance of our competitors; |
| |
|
|
| |
● |
changes
in the financial projections we provide to the public or our failure to meet these projections; |
| |
|
|
| |
● |
failure
of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow
our company, or our failure to meet the estimates or the expectations of investors; |
| |
|
|
| |
● |
any
major change in our Board, management, or key personnel; |
| |
|
|
| |
● |
the
economy as a whole and market conditions in our industry; |
| |
|
|
| |
● |
rumors
and market speculation involving us or other companies in our industry; |
| |
|
|
| |
● |
announcements
by us or our competitors of significant innovations, new products, services, features, integrations or capabilities, acquisitions,
strategic investments, partnerships, joint ventures, or capital commitments; |
| |
|
|
| |
● |
new
laws or regulations or new interpretations of existing laws or regulations applicable to our business, including those related to
data privacy and cyber-security in the U.S. or globally; |
| |
|
|
| |
● |
lawsuits
threatened or filed against us; |
| |
|
|
| |
● |
other
events or factors, including those resulting from war, incidents of terrorism, or responses to these events; and |
| |
|
|
| |
● |
sales
or expected sales of our common stock by us and our officers, directors and principal stockholders. |
In
addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of
equity securities of many companies. Stock prices of many companies have fluctuated in a manner often unrelated to the operating performance
of those companies. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources
and the attention of management from our business and harm our business, results of operations and financial condition.
Investors in this offering may suffer immediate
and substantial dilution in the net tangible book value per share of our common stock.
The shares sold in this offering, if any, will be sold from time to
time at various prices. However, the offering price of our common stock in this offering could be higher than the net tangible book value
per share of our outstanding common stock. Therefore, if you purchase shares of our common stock in this offering, you may pay a price
per share that substantially exceeds our net tangible book value per share after this offering. To the extent outstanding options or
warrants are exercised, you may incur further dilution.
We
have broad discretion in how we use the net proceeds of this offering, and we may not use these proceeds effectively or in ways with
which you agree.
Our
management will have broad discretion as to the application of the net proceeds from this offering, including for any of the purposes
described in the section of this prospectus entitled “Use of Proceeds.” You will be relying on the judgment of our management
regarding the application of any such proceeds. The results and effectiveness of the use of proceeds are uncertain, and we could spend
the proceeds in ways that you do not agree with or that do not improve our results of operations or enhance the value of our common stock.
Our failure to apply these funds effectively could have a material adverse effect on our business and cause the price of our common stock
to decline.
Sales
of substantial amounts of our common stock in the public market following the offering or the perception that sales might occur, could
cause the market price of our common stock to decline.
In
addition to the supply and demand and volatility factors discussed above, sales of a substantial number of shares of our common stock
into any public market for our shares, particularly sales by our directors, executive officers and principal stockholders, or the perception
that these sales might occur in large quantities, could cause the market price of our common stock to decline.
Increases
in market interest rates may have an adverse effect on the trading prices of our common stock as prospective purchasers of our common
stock may expect a higher dividend yield.
One
of the factors that will influence the trading prices of our common stock will be the dividend yield on the common stock (as a percentage
of the price of our common 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 our common stock to expect a higher dividend yield (with a resulting
decline in the trading prices of our common stock) and higher interest rates would likely increase our borrowing costs and potentially
decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decrease.
Sales
of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock
to decline, even if our business is doing well.
Sales
of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock
to decline, even if our business is doing well. Sales of substantial amounts of our common stock or other securities in the public market,
or the perception that these sales could occur, could materially and adversely affect the price of our common stock and could impair
our ability to raise capital through the sale of additional shares.
Historically,
we have used our shares of common stock to fund our operating partnership and satisfy our outstanding debt obligations, and, in the future,
we expect to continue to issue our securities to raise additional capital, fund our operating partnership, or satisfy outstanding debt
obligations. The number of new shares of our common stock issued in connection with raising additional capital could constitute a material
portion of the then-outstanding shares of our common stock.
USE
OF PROCEEDS
We
may issue and sell shares of our common stock having aggregate sales proceeds of up to $24,000,000 from time-to-time. Because
there is no minimum offering amount required as a condition to close this offering, the actual total public offering amount, commissions
and proceeds to us, if any, are not determinable at this time. There can be no assurance that we will sell any shares under or fully
utilize the Sales Agreement with the Agents as a source of financing.
We
intend to contribute the net proceeds of this offering to our Operating Partnership in exchange for OP units.
Our
Operating Partnership intends to use the net proceeds received from us for general working capital purposes, including investments in
additional properties.
The
net proceeds received by us will be invested in short- and intermediate-term, interest-bearing obligations, investment-grade instruments,
certificates of deposit or direct or guaranteed obligations of the U.S. government, in a manner that is consistent with our intention
to qualify for taxation as a REIT and maintain our exclusion from registration under the Investment Company Act.
PLAN
OF DISTRIBUTION
On
July 11, 2024, we entered into the Sales Agreement with the Agents, relating to the offer and sale shares of our common stock from
time-to-time. The sales, if any, of the common stock made under the Sales Agreement will be made by any method permitted by law deemed
to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act.
From
time to time during the term of the Sales Agreement, in connection with the Agents acting as agent or principal, the Agents will offer
or buy our common stock subject to the terms and conditions of the Sales Agreement on a daily basis or as otherwise agreed upon by us
and the designated Agent. We may designate the maximum amount or dollar value of shares of common stock to be sold through or to an Agent
on a daily basis or otherwise as we and the Agents agree and the minimum price per share at which such shares may be sold. Subject to
the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell on our behalf the
shares of our common stock so designated by us. We may instruct the Agents not to sell shares of common stock if the sales cannot be
affected at or above the price designated by us in any such instruction. We or the Agents may suspend the offering of our common stock
at any time upon proper notice to the others, and subject to the other conditions contained in the Sales Agreement, upon which the selling
period will immediately terminate.
Each
Agent will provide written confirmation to us following the close of trading on the NYSE American but no later than the opening of the
trading day following the day in which shares of our common stock are sold under the Sales Agreement. Each confirmation will include
the number of shares sold on that day, the aggregate gross sales proceeds of such shares and the net proceeds to us. We will report at
least quarterly the number of shares of common stock sold through or to the Agents under the Sales Agreement, the net proceeds to us
and the compensation paid by us to the Agents in connection with such sales of our common stock.
Settlement
for sales of our common stock will occur on the first trading day following the date on which any sales were made in return for payment
of the net proceeds to us unless we agree otherwise with an Agent in connection with a particular transaction. There is no arrangement
for funds to be received in an escrow, trust or similar arrangement.
Sales
of our common stock as contemplated by this prospectus supplement will be settled through the facilities of The Depository Trust Company
or by such other means as we and the Agents may agree upon.
We
will pay each Agent a commission for its services in acting as agent or principal in the sale of common stock of up to 3.0% of the gross
sales price per share of any shares sold by it under Sales Agreement. We have agreed to reimburse the Agents for certain expenses incurred
in connection with this offering, not to exceed an aggregate of $75,000 in connection with the filing of the Sales Agreement, and not
to exceed $5,000 per calendar quarter thereafter in connection with updates. We estimate that the total expenses of the offering payable
by us, excluding commissions or discounts payable or provided to the Agents under the Sales Agreement and our reimbursement of certain
expenses of the Agents in connection with this offering, will be approximately $200,000.
In
connection with the sale of our common stock on our behalf, the Agents will be deemed to be “underwriters” within the meaning
of the Securities Act and the compensation paid to the Agents will be deemed to be underwriting commissions or discounts. We have agreed
to indemnify the Agents against certain civil liabilities, including certain liabilities under the Securities Act, or to contribute to
payments that the Agents may be required to make because of those liabilities.
The
offering of our common stock pursuant to the Sales Agreement will terminate upon the termination of the Sales Agreement as permitted
therein.
In
the ordinary course of their business, the Agents and/or their respective affiliates have in the past provided, and may continue to provide,
certain commercial banking, financial advisory, investment banking and other services for us or our affiliates, for which an Agent and/or
its affiliates have received and may continue to receive customary fees and commissions. In addition, the Agents have advised that from
time to time, they and/or their respective affiliates have in the past effected, and may continue to effect, transactions for their own
account or the account of customers, and have held, and may continue to hold, on behalf of themselves or their customers, long or short
positions in our securities.
The
Agents have also agreed that during the term of the Sales Agreement, the Agents will not engage in any market making, bidding, stabilization
or other trading activity with regard to our common stock if such activity would be prohibited under Regulation M or other anti-manipulation
rules under the Securities Act.
LEGAL
MATTERS
The
validity of the securities being offered hereby and other certain other Maryland law matters will be passed upon by Shapiro Sher Guinot
& Sandler, P.A. Certain other legal matters will be passed upon for us by Igler and Pearlman, P.A. Greenberg Traurig, LLP has provided
an opinion as to certain U.S. federal income tax matters. The Agents are represented in connection with this offering by Duane Morris
LLP.
EXPERTS
Our
consolidated financial statements appearing in our 2023 Form 10-K have been audited by Hacker, Johnson & Smith P.A., an independent
registered public accounting firm, as stated in their report, which is incorporated herein by reference. Such consolidated financial
statements have been so incorporated in reliance upon the reports of such firm given its authority as experts in accounting and auditing.
$24,000,000
STRAWBERRY
FIELDS REIT, INC.
COMMON
STOCK
PROSPECTUS
| B.RILEY SECURITIES |
A.G.P. |
The
date of this prospectus is , 2024
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth all expenses to be paid by us in connection with this registration statement and the listing of our common
stock. All amounts shown are estimates except for the SEC registration fee and the listing fee.
| SEC Registration Fee | |
$ | 7,380.00 | |
| FINRA Filing Fee | |
$ | 15,500.00 | |
| Accounting Fees and Expenses | |
$ | * | |
| Sales Agent Expenses | |
| * | |
| Legal Fees and Expenses | |
$ | * | |
| Printing Fees | |
$ | * | |
| Miscellaneous Expenses | |
$ | * | |
| Total | |
| * | |
*
These fees and expenses are based on the amount and nature of the securities offered, the number and timing of issuances, and the parties
involved in such offerings. Therefore, we cannot now estimate such amounts. An estimate of all such expenses will be included in any
applicable prospectus supplement.
ITEM
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland
law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit
in money, property or services or active and deliberate dishonesty that is established by a final judgment as being material to the cause
of action. Our charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.
The
MGCL requires a Maryland corporation (unless its 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 a Maryland corporation to indemnify its 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 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, a Maryland corporation may not indemnify a director or officer for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that a 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 the right of the corporation, or for a judgment of liability on the basis
that personal benefit was improperly received, is limited to expenses.
In
addition, the MGCL permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt
of:
| |
● |
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 by the corporation; and |
| |
|
|
| |
● |
a
written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid or reimbursed
by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct. |
Our
charter obligates 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 of ours who is made or threatened to be made a party to, or witness in a proceeding by reason
of his or her service in such capacity; and |
| |
|
|
| |
● |
any
individual who, while a director or officer of ours and at our request, serves or has served as a director, officer, trustee, member,
manager, or partner 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 a proceeding
by reason of his or her service in such capacity; |
| |
|
|
| |
● |
in
either case, from and against any claim or liability to which such person may become subject or which such person may incur by reason
of his or her service in such capacity. |
Our
charter also requires us to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities described
above and any employee or agent of ours or a predecessor of ours.
We
entered into customary indemnification agreements with our directors and executive officers that will require us, among other things,
to indemnify our directors and executive officers against certain liabilities that may arise by reason of their status as directors or
officers to the maximum extent permitted by Maryland law and provide for the advancement of expenses in connection therewith.
We
maintain directors’ and officers’ liability insurance which will indemnify our directors and officers against damages (including
legal fees and expenses), arising out of certain kinds of claims which might be made against them based on acts and things done (or not
done) by them while acting in their capacity as directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act may be provided to directors, officers or persons controlling us
pursuant to the foregoing provisions, in the opinion of the SEC such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
ITEM
16. EXHIBITS.
| Exhibit |
|
Description |
| |
|
|
| 1.1 |
|
At Market Issuance Sales Agreement by and among Strawberry Fields REIT, Inc., B. Riley Securities, Inc. and A.G.P. Alliance Global Partners, dated July 11, 2024, filed with the Securities and Exchange Commission on July 12, 2024. |
| |
|
|
| 3.1 |
|
Articles of Amendment and Restatement of Strawberry Fields REIT, Inc., incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 3.2 |
|
Amended and Restated Bylaws of Strawberry Fields REIT, Inc., incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 4.1 |
|
Description of Capital Stock, incorporated herein by reference to Exhibit 4.1 to the 2023 Form 10-K. |
| |
|
|
| 5.1 |
|
Opinion
of Shapiro Sher Guinot & Sandler, P.A. regarding the validity of the securities being registered. |
| |
|
|
| 5.2 |
|
Opinion
of Shapiro Sher Guinot & Sandler, P.A. regarding the validity of the securities being offered. |
| |
|
|
| 5.3 |
|
Opinion of Igler and Pearlman, P.A. regarding the validity and binding obligations of the Company with respect to warrants, subscription rights, and units. |
| |
|
|
| 8.1 |
|
Opinion of Greenberg Traurig, LLP regarding tax matters. |
| |
|
|
| 10.1 |
|
Deed of Trust dated April 23, 2018, between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd. .incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.2 |
|
Deed of Trust dated November 24, 2015, between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd., incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.3 |
|
Deed of Trust dated July 27, 2021 between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd., incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.4 |
|
First Amended and Restated Agreement of Limited Partnership dated June 1, 2021 of Strawberry Fields Realty LP, incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.5 |
|
Contribution Agreement dated June 8, 2021 between Strawberry Fields REIT, Inc., Strawberry Fields REIT, LLC and of Strawberry Fields Realty LP., incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.6 |
|
Tax Protection Agreement effective as of June 8, 2021 among Strawberry Fields Realty LP, Strawberry Fields REIT, Inc. and Strawberry Fields REIT, LLC., incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.7 |
|
Strawberry Fields REIT, Inc. 2021 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.8 |
|
Term Loan and Security Agreement dated March 18, 2022, by and among Strawberry Fields Realty LP and certain subsidiaries thereof named as Borrowers, and Popular Bank, as Agent and Lender., incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022. |
| |
|
|
| 10.9 |
|
Indemnification Agreement effective January 13, 2020 between the Company and Essel Bailey incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022. |
| |
|
|
| 10.10 |
|
Indemnification Agreement effective January 13, 2020 between the Company and Jack Levine Bailey incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022. |
| |
|
|
| 10.11 |
|
Indemnification Agreement effective January 13, 2020 between the Company and Michael Blisko incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022. |
| |
|
|
| 10.12 |
|
Indemnification Agreement effective January 13, 2020 between the Company and Moishe Gubin incorporated herein by reference to Exhibit 10.4 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022. |
| |
|
|
| 10.13 |
|
Indemnification Agreement effective January 13, 2020 between the Company and Reid Shapiro incorporated herein by reference to Exhibit 10.5 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022. |
| |
|
|
| 10.14 |
|
Deed
of Trust dated June 19, 2023, between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd., incorporated herein by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission as of August 14,
2023 |
| |
|
|
| 21.1 |
|
List
of Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21.1 to the 2023 Form 10-K. |
| |
|
|
| 23.1 |
|
Consent of Hacker Johnson and Smith P.A. |
| |
|
|
| 23.3 |
|
Consent
of Shapiro Sher Guinot & Sandler, P.A. (included in Exhibits 5.1 and 5.2). |
| |
|
|
| 23.4 |
|
Consent of Igler and Pearlman, P.A. (included in Exhibit 5.3) |
| |
|
|
| 23.5 |
|
Consent of Greenberg Traurig, LLP (included in Exhibit 8.1) |
| |
|
|
| 24.1 |
|
Power of Attorney (included in signature page to Registration Statement on Form S-3 filed with the Securities and Exchange Commission on July 12, 2024). |
| |
|
|
| 107 |
|
Filing
Fee Table. |
*
To be filed by amendment.
ITEM
17. UNDERTAKINGS.
| (A) |
The undersigned Registrant hereby undertakes: |
| |
(1) |
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| |
(i) |
To
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| |
|
|
| |
(ii) |
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; |
| |
|
|
| |
(iii) |
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement; |
provided,
however, that paragraphs (A)(1)(i), (A)(1)(ii) and (A)(1)(iii) do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained
in a form of prospectus filed pursuant to Rule 424(b) (§ 230.424(b) of this chapter) that is part of the registration statement.
| |
(2) |
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. |
| |
|
|
| |
(3) |
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering. |
| |
|
|
| |
(4) |
That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| |
(i) |
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) (§ 230.424(b)(3) of this chapter) shall be deemed to be part of
the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| |
|
|
| |
(ii) |
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§ 230.424(b)(2), (b)(5), or (b)(7) of this chapter)
as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or
(x) (§ 230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a)
of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date
such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering
described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date. |
| |
(5) |
That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution
of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant
to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| |
(i) |
Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule
424 (§ 230.424 of this chapter); |
| |
|
|
| |
(ii) |
Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by
the undersigned registrant; |
| |
|
|
| |
(iii) |
The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and |
| |
|
|
| |
(iv) |
Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (B) |
The
undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing
of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934, as amended) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. |
| |
|
| (C) |
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue. |
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, on July 25, 2024.
| |
STRAWBERRY
FIELDS REIT, INC. |
| |
|
|
| |
By: |
/s/
Moishe Gubin |
| |
|
Moishe
Gubin |
| |
|
Chairman
and Chief Executive Officer |
| |
|
Principal
Executive Officer |
Pursuant
to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following
persons on July 25, 2024 in the capacities indicated.
| Signature |
|
Title |
| |
|
|
| /s/
Moishe Gubin |
|
Chairman
and Chief Executive Officer |
| Moishe
Gubin |
|
(Principal
Executive Officer) |
| |
|
|
| /s/
Greg Flamion* |
|
Chief
Financial Officer |
| Greg
Flamion |
|
(Principal
Financial Officer and Principal Accounting Officer) |
| |
|
|
| /s/
Michael Blisko* |
|
|
| Michael
Blisko |
|
Director |
| |
|
|
| /s/
Essel Bailey* |
|
|
| Essel
Bailey |
|
Director |
| |
|
|
| /s/
Jack Levine* |
|
|
| Jack
Levine |
|
Director |
| |
|
|
| /s/
Reid Shapiro* |
|
|
| Reid
Shapiro |
|
Director |
*By Moishe Gubin, pursuant to power of attorney dated July 11, 2024
Exhibit
5.1
July
25, 2024
Strawberry
Fields REIT, Inc.
6101
Nimtz Parkway
South
Bend, Indiana 46628
| |
Re: |
Registration Statement on Form S-3 |
Ladies
and Gentlemen:
We
have served as Maryland counsel to Strawberry Fields REIT, Inc., a Maryland corporation (the “Company”), in connection with
certain matters of Maryland law relating to the registration by the Company of the following securities of the Company having an aggregate
maximum offering price of $100,000,000 (collectively, the “Securities”): (i) shares of Common Stock, $0.0001 par value per
share (the “Common Stock”); (ii) shares of preferred stock, $0.0001 par value per share (the “Preferred Stock”);
(iii) warrants (“Warrants”) to purchase shares of Common Stock, Preferred Stock or other Securities that may be registered
thereunder and sold from time to time; (iv) subscription rights (the “Rights”) to purchase shares of Common Stock, Preferred
Stock or other Securities that may be registered thereunder and sold from time to time; and (v) units (the “Units”) consisting
of any combination of the foregoing, each covered by the Registration Statement on Form S-3, and all amendments thereto (the “Registration
Statement”), filed with the United States Securities and Exchange Commission (the “Commission”) by the Company on or
about the date hereof under the Securities Act of 1933, as amended (the “1933 Act”).
In
connection with our representation of the Company, and as a basis for the opinions hereinafter set forth, we have examined originals,
or copies certified or otherwise identified to our satisfaction, of the following documents (hereinafter collectively referred to as
the “Documents”):
(i) The
Registration Statement and the related form of prospectus included therein in the form in which it was filed with the Commission under
the 1933 Act;
Strawberry
Fields REIT, Inc. Page
2 July
25, 2024 |
(ii) The
charter of the Company (the “Charter”), certified by the State Department of Assessments and Taxation of Maryland (the “SDAT”);
(iii) The
Amended and Restated Bylaws of the Company (the “Bylaws”), certified as of the date hereof by an officer of the Company;
(iv) Resolutions
(the “Resolutions”) adopted by the Board of Directors of the Company (the “Board”), relating to the registration
and issuance of the Securities, certified as of the date hereof by an officer of the Company;
(v) A
certificate of the SDAT as to the good standing of the Company, dated as of a recent date;
(vi) A
certificate executed by an officer of the Company, dated as of the date hereof; and
(vii) Such
other documents and matters as we have deemed necessary or appropriate to express the opinions set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In
expressing the opinions set forth below, we have assumed the following:
(a) Each
individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so.
(b) Each
individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.
(c) Each
of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents
to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding and are enforceable
in accordance with all stated terms.
(d) All
Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted drafts do not
differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted
to us as certified or photostatic copies conform to the original documents. All signatures on all Documents are genuine. All public records
reviewed or relied upon by us or on our behalf are true and complete. All representations, warranties, statements and information contained
in the Documents are true and complete. There has been no oral or written modification of or amendment to any of the Documents, and there
has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise.
Strawberry
Fields REIT, Inc. Page
3 July
25, 2024 |
(e) Upon
the issuance of any Securities that are shares of Common Stock (“Common Securities”), including Common Securities which may
be issued upon conversion or exercise of any other Securities convertible into or exercisable for Common Securities, the total number
of shares of Common Stock issued and outstanding will not exceed the total number of shares of Common Stock that the Company is then
authorized to issue under the Charter.
(f) Upon
the issuance of any Securities that are shares of Preferred Stock (“Preferred Securities”), including Preferred Securities
which may be issued upon conversion or exercise of any other Securities convertible into or exercisable for Preferred Securities, the
total number of shares of Preferred Stock issued and outstanding, and the total number of issued and outstanding shares of the applicable
class or series of Preferred Stock designated pursuant to the Charter, will not exceed the total number of shares of Preferred Stock
or the number of shares of such class or series of Preferred Stock that the Company is then authorized to issue under the Charter.
(g) Any
Securities convertible into or exercisable for any other Securities will be duly converted or exercised in accordance with their terms.
(h) The
issuance, and certain terms, of the Securities to be issued by the Company from time to time will be authorized and approved by the Board,
or a duly authorized committee thereof, in accordance with the Maryland General Corporation Law, the Charter, the Bylaws, the Registration
Statement and the Resolutions and, with respect to any Preferred Securities, Articles Supplementary setting forth the number of shares
and the terms of any class or series of Preferred Stock to be issued by the Company will be filed with and accepted for record by the
SDAT prior to their issuance (such approvals and, if applicable, acceptance for record, referred to herein as the “Corporate Proceedings”).
(i) None
of the Securities will be issued, sold or transferred in violation of the restrictions on ownership and transfer set forth in Article
VI of the Charter or any comparable provision in the Articles Supplementary designating any other class or series of Preferred Stock.
Based
upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that:
1. The
Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.
Strawberry
Fields REIT, Inc. Page
4 July
25, 2024 |
2. Upon
the completion of all Corporate Proceedings relating to the Common Securities, the issuance of the Common Securities will be duly authorized
and, when and if issued and delivered against payment therefor in accordance with the Registration Statement, the Resolutions and the
Corporate Proceedings, the Common Securities will be validly issued, fully paid and nonassessable.
3. Upon
the completion of all Corporate Proceedings relating to the Preferred Securities, the issuance of the Preferred Securities will be duly
authorized and, when and if issued and delivered against payment therefor in accordance with the Registration Statement, the Resolutions
and the Corporate Proceedings, the Preferred Securities will be validly issued, fully paid and nonassessable.
4. Upon
the completion of all Corporate Proceedings relating to the Warrants, the issuance of the Warrants will be duly authorized.
5. Upon
the completion of all Corporate Proceedings relating to the Rights, the issuance of the Rights will be duly authorized.
6. Upon
the completion of all Corporate Proceedings relating to the Units, the issuance of the Units will be duly authorized.
The
foregoing opinions are limited to the laws of the State of Maryland and we do not express any opinion herein concerning federal law or
any other state law. We express no opinion as to the applicability or effect of any federal or state securities laws, including the securities
laws of the State of Maryland, federal or state laws regarding fraudulent transfers or the laws, codes or regulations of any municipality
or other jurisdiction. To the extent that any matter as to which our opinion is expressed herein would be governed by the laws of any
jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinions expressed herein are subject
to the effect of any judicial decision which may permit the introduction of parol evidence to modify the terms or the interpretation
of agreements.
The
opinions expressed herein are limited to the matters specifically set forth herein and no other opinion shall be inferred beyond the
matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if
we become aware of any fact that might change the opinions expressed herein after the date hereof.
This
opinion is being furnished to you for submission to the Commission as an exhibit to the Registration Statement. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and to the use of the name of our firm therein. In giving this
consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act.
| |
Very
truly yours, |
| |
|
| |
/s/
SHAPIRO SHER GUINOT & SANDLER, P.A. |
Exhibit
5.2
July
25, 2024
Strawberry
Fields REIT, Inc.
6101
Nimtz Parkway
South
Bend, Indiana 46628
| |
Re: |
Registration
Statement on Form S-3 |
Ladies
and Gentlemen:
We
have served as Maryland counsel to Strawberry Fields REIT, Inc., a Maryland corporation (the “Company”), in connection with
certain matters of Maryland law arising out of the sale and issuance by the Company from time to time of shares (the “Shares”)
of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), having an aggregate offering price
of up to $24,000,000, in at-the-market offerings, pursuant to (i) the At Market Issuance Sales Agreement by and among the Company, Strawberry
Fields Realty LP, B. Riley Securities, Inc. and A.G.P./Alliance Global Partners, dated July 11, 2024 (the “Sales Agreement”)
and (ii) the Registration Statement on Form S-3, and all amendments thereto (the “Registration Statement”), the base prospectus
filed as part of the Registration Statement (the “Base Prospectus”) and the prospectus contained in the Registration Statement
relating to the potential issuance and sale by the Company, from time to time, of the Shares (together with the Base Prospectus, the
“Prospectus”), filed with the United States Securities and Exchange Commission (the “Commission”) by the Company
on or about the date hereof under the Securities Act of 1933, as amended (the “1933 Act”).
In
connection with our representation of the Company, and as a basis for the opinions hereinafter set forth, we have examined originals,
or copies certified or otherwise identified to our satisfaction, of the following documents (hereinafter collectively referred to as
the “Documents”):
(i) The
Registration Statement;
(ii) The
Prospectus;
Strawberry
Fields REIT, Inc. Page
2 July
25, 2024 |
(iii) The
Sales Agreement;
(iv) The
charter of the Company (the “Charter”), certified by the State Department of Assessments and Taxation of Maryland (the “SDAT”);
(v) The
Amended and Restated Bylaws of the Company (the “Bylaws”), certified as of the date hereof by an officer of the Company;
(vi) Resolutions
adopted by the Board of Directors of the Company (the “Board”), relating to, among other matters, the registration, sale
and issuance of the Shares and the delegation to a special offering committee (the “ATM Offering Committee”) of all powers
that may be delegated in connection with the issuance of the Shares (the “Resolutions”), certified as of the date hereof
by an officer of the Company;
(vii) A
certificate of the SDAT as to the good standing of the Company, dated as of a recent date;
(viii) A
certificate executed by an officer of the Company, dated as of the date hereof; and
(ix) Such
other documents and matters as we have deemed necessary or appropriate to express the opinions set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In
expressing the opinions set forth below, we have assumed the following:
(a) Each
individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so.
(b) Each
individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.
(c) Each
of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents
to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding and are enforceable
in accordance with all stated terms.
Strawberry
Fields REIT, Inc. Page
3 July
25, 2024 |
(d) All
Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted drafts do not
differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted
to us as certified or photostatic copies conform to the original documents. All signatures on all Documents are genuine. All public records
reviewed or relied upon by us or on our behalf are true and complete. All representations, warranties, statements and information contained
in the Documents are true and complete. There has been no oral or written modification of or amendment to any of the Documents, and there
has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise.
(e) The
Shares will not be issued or transferred in violation of any restriction or limitation contained in Article VI of the Charter.
(f) Upon
the issuance of any Shares, the total number of shares of Common Stock issued and outstanding will not exceed the total number of shares
of Common Stock that the Company is then authorized to issue under the Charter.
(g) Certain
terms of the offering of the Shares will be authorized and approved by the Board or the ATM Offering Committee in accordance with the
Maryland General Corporation Law, the Charter, the Bylaws and the Resolutions (such approved referred to herein as the “Corporate
Proceedings”) prior to the issuance thereof.
Based
upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that:
1. The
Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.
2. Upon
the completion of all Corporate Proceedings relating to the Shares, the issuance of the Shares will be duly authorized and, when and
if delivered against payment therefor in accordance with the Sales Agreement, the Prospectus, the Registration Statement, the Resolutions,
the Corporate Proceedings and any other resolutions adopted by the Board or a duly authorized committee thereof relating thereto, the
Shares will be validly issued, fully paid and nonassessable.
The
foregoing opinions are limited to the laws of the State of Maryland and we do not express any opinion herein concerning federal law or
any other state law. We express no opinion as to the applicability or effect of any federal or state securities laws, including the securities
laws of the State of Maryland, federal or state laws regarding fraudulent transfers or the laws, codes or regulations of any municipality
or other jurisdiction. To the extent that any matter as to which our opinion is expressed herein would be governed by the laws of any
jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinions expressed herein are subject
to the effect of any judicial decision which may permit the introduction of parol evidence to modify the terms or the interpretation
of agreements.
The
opinions expressed herein are limited to the matters specifically set forth herein and no other opinion shall be inferred beyond the
matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if
we become aware of any fact that might change the opinions expressed herein after the date hereof.
This
opinion is being furnished to you for submission to the Commission as an exhibit to the Registration Statement. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and to the use of the name of our firm therein. In giving this
consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act.
| |
Very
truly yours, |
| |
|
| |
/s/
SHAPIRO SHER GUINOT & SANDLER, P.A. |
Exhibit
5.3
July
25, 2024
Strawberry
Fields REIT, Inc.
5683
North Lincoln Ave.
Chicago
IL 60659
Ladies
and Gentlemen:
We
are acting as counsel to Strawberry Fields REIT, Inc., a Maryland corporation (the “Company”), in connection with its filing
of a registration statement on Form S-3 (the “Registration Statement”) under the Securities Act of 1933. Such registration
statement registers Company securities, specifically: (i) shares of common stock; (ii) shares of preferred stock; (iii) warrants to purchase
equity securities; (iv) subscription rights; and (v) units consisting of two or more of the foregoing, up to a maximum aggregate offering
price of $100,000,000.
In
connection with the filing of the registration statement, we have examined such corporate records, certificates and other documents,
and such matters of law, as we have considered necessary or appropriate for the purposes of this opinion.
Upon
the basis of such examination, it is our opinion that:
1. When,
as, and if: (a) any particular series of warrants has been duly authorized and duly established in accordance with any applicable warrant
agreement and applicable law; (b) the appropriate corporate action has been taken by the Company to authorize the form, terms, execution,
and delivery of such warrants (and any required amendment or supplement to any applicable warrant agreement); and (c) the warrants have
been duly executed, attested, issued, and delivered by duly authorized officers against payment therefor in accordance with such authorization,
any applicable warrant agreement, any applicable purchase agreement and applicable law and authenticated by any warrant agent, such warrants
(including any warrants duly executed and delivered upon the exchange or conversion of warrants that are exchangeable or convertible
into another series of warrants) will constitute valid and binding obligations of the Company enforceable against the Company in accordance
with their terms.
2. When,
as, and if: (a) any subscription rights have been duly authorized and duly established in accordance with any applicable subscription
rights agreement and applicable law; (b) the appropriate corporate action has been taken by the Company to authorize the form, terms,
execution, and delivery of such subscription rights (and any required amendment or supplement to any applicable subscription rights agreement);
and (c) any subscription rights agreements have been duly executed, attested, issued, and delivered by duly authorized officers against
payment therefore, if applicable, in accordance with such authorization, any applicable subscription rights agreement, any applicable
purchase agreement and applicable law and authenticated by any subscription rights agent and the rights certificates evidencing the subscription
rights have been authenticated by a rights agent, such subscription rights will constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
3. When,
as, and if: (a) any units have been duly authorized and duly established in accordance with applicable law; (b) the appropriate corporate
action has been taken by the Company to authorize the form, terms, execution and delivery of such units; and (c) the units have been
duly executed, attested, issued and delivered by duly authorized officers, such units will constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms.
The
foregoing opinion is limited to United States Federal laws and the laws of the State of Florida, and we are expressing no opinion as
to the effect of the laws of any other jurisdiction. With respect to all matters of Maryland law, we note that you have received an opinion,
dated on or about the date hereof, of Shapiro Sher Guinot & Sandler, P.A.
In
rendering the foregoing opinion, we are not passing upon, and assume no responsibility for, any disclosure in the Registration Statement,
the prospectus contained therein or any related prospectus supplement or other offering material relating to the offer and sale of the
securities offered thereby.
We
have relied as to certain factual matters on information obtained from public officials, officers of the Company and other sources believed
by us to be responsible. We have assumed that all governing documents under which any securities are to be issued will have been duly
authorized, executed, and delivered by all parties thereto. We have further assumed that the issuance or delivery by the Company of any
other securities, or of any other property, upon exercise or otherwise pursuant to the terms of the offered securities, will be effected
pursuant to authority granted in resolutions duly adopted by the Board of Directors, or a duly authorized committee thereof, so as not
to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Company and so as
to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company. We have
further assumed that the authority granted in resolutions duly adopted by the Board of Directors, or a duly authorized committee thereof,
will remain in effect at all relevant times and that no securities will be issued, or other action taken, in contravention of any applicable
limit as may be established pursuant to such resolutions from time to time.
We
hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading
“Legal Matters” in any prospectus contained therein. In giving such consent, we do not thereby admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
/s/
Igler and Pearlman, P.A.
Igler
and Pearlman, P.A.
Exhibit
8.1
Strawberry
Fields REIT, Inc.
6101
Nimtz Parkway
South
Bend, IN 46628
| Re: | Certain
U.S. Federal Income Tax Matters |
Ladies
and Gentlemen:
You
have requested our opinion in connection with the registration statement on Form S-3 (Registration No. 333-280766) as filed with the
Securities and Exchange Commission by Strawberry Fields REIT, Inc., a Maryland corporation (the “Company”), on or
about July 25, 2024 (the “Registration Statement”). All capitalized terms used but not otherwise defined herein
shall have the respective meanings given them in the Registration Statement.
In
rendering our opinion, we have examined such statutes, regulations, records, agreements, certificates and other documents as we have
considered necessary or appropriate as a basis for such opinion, including the following: (1) the Registration Statement (including all
exhibits thereto), (2) the Articles of Amendment and Restatement of the Company, together with all amendments thereto (the “Charter”),
(3) certain written representations of the Company, contained in a letter to us dated on or about the date hereof (the “Representation
Letter”), and statements made by independent public accountants of the Company, and (4) such other documents or information
as we have deemed necessary to render the opinion set forth in this letter. In our review, we have assumed with your consent that any
documents listed above which we reviewed in proposed form have been or will be duly executed without material changes from the documents
reviewed by us, all of the representations and statements set forth in such documents are true, accurate and complete, and all of the
obligations imposed by any such documents on the parties thereto, including obligations imposed under the Charter of the Company, have
been and will continue to be performed or satisfied in accordance with their terms. We also have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the proper execution of all documents, the authenticity of all documents submitted to us
as originals, the conformity to originals of documents submitted to us as copies, and the authenticity of the originals from which any
copies were made.
We
have not made an independent investigation or audit of the facts set forth in the above referenced documents or statements, including,
without limitation, factual matters contained in the Representation Letter and in the Registration Statement. We have consequently assumed
with your consent (i) the accuracy of the representations as to factual matters contained in the Representation Letter; (ii) that any
representation or statement on which we are relying is true without regard to any qualification as to knowledge, belief, intent or materiality;
(iii) that the information presented in all documents or otherwise furnished to us is accurate and complete in all material respects;
and (iv) that from and after the date hereof, the Company will continue to operate in a manner which meets the applicable asset composition,
source of income, shareholder diversification, distribution and other requirements of the Internal Revenue Code of 1986, as amended (the
“Code”) as necessary to qualify, and remain qualified, as a real estate investment trust within the meaning of the
Code (a “REIT”).
Strawberry
Fields REIT, Inc.
July
25, 2024
Page
2
Based
upon, subject to, and limited by the assumptions and qualifications set forth herein, including those set forth below, we are of the
opinion that:
1. Beginning
with its taxable year ending December 31, 2022, the Company has been organized and operated in conformity with the requirements for qualification
and taxation as a REIT under the Code, and its current organization and proposed method of operation will enable it to continue to meet
the requirements for qualification as a REIT under the Code.
2. Statements
contained in the Registration Statement under the heading “Material U.S. Federal Income Tax Considerations” that describe
applicable U.S. federal income tax law, and conclusions with respect thereto, are correct in all material respects as of the date hereof,
and constitute, in all material respects, a fair and accurate summary of the material U.S. federal income tax consequences of the purchase,
ownership, and disposition of shares of the Company’s common stock, subject to the qualifications set forth therein.
No
assurance can be given that the actual results of the Company’s operations for any given taxable year will satisfy the requirements
for qualification and taxation as a REIT under the Code. The Company’s ability to achieve and maintain qualification as a REIT
depends upon its ability to satisfy certain diversity of stock ownership requirements and, through actual ongoing operating results,
certain requirements under the Code regarding the nature of its gross income and assets, distribution levels and certain other requirements
of the Code and Treasury Regulations. No assurance can be given that the actual ownership of the Company’s stock and its actual
operating results and distributions for any taxable year will satisfy the tests necessary to achieve and maintain its status as a REIT.
The
opinions expressed herein are based upon the Code, the Treasury Regulations promulgated thereunder (including temporary and proposed
regulations) and existing administrative and judicial interpretations thereof (including private letter rulings issued by the Internal
Revenue Service (the “IRS”), which are not binding on the IRS except with respect to a taxpayer receiving such a ruling),
all as they exist at the date of this letter. All of the foregoing statutes, regulations and interpretations are subject to change, in
some circumstances with retroactive effect. Any changes to the foregoing authorities might result in modifications of our opinions contained
herein. This opinion is rendered as of the date hereof, and we disclaim any obligation to advise you of any change in any of the foregoing
sources of law or subsequent developments in law or changes in facts or circumstances which might affect any matters or the opinion set
forth herein. Our opinion is not binding on the IRS or the courts, and is not a guarantee that the IRS will not assert a position contrary
to our opinion or that a court will not sustain such a position if asserted by the IRS.
The
foregoing opinion is limited to the specific matters covered thereby and should not be interpreted to imply that the undersigned has
offered its opinion on any other matter. Except as set forth herein, we express no opinion to any party as to the tax consequences, whether
federal, state, local or foreign, of the transactions described in the Registration Statement, any transaction related thereto, or any
investment in the Company.
This
opinion has been prepared for you in connection with the filing of the Registration Statement. We hereby consent to the use and filing
of this opinion letter as Exhibit 8.1 to the Registration Statement and to the use of the name of the firm under the captions “Material
U.S. Federal Income Tax Considerations” and “Legal Matters” in the Registration Statement. In giving this consent,
however, we do not admit that we are in the category of persons whose consent is required by Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations promulgated thereunder by the Securities and Exchange Commission.
| |
Very truly yours, |
| |
|
| |
Greenberg Traurig, LLP |
Exhibit
23.1
Consent
of Independent Registered Public Accounting Firm
We
hereby consent to the incorporation by reference in this Amendment #1 to Registration Statement on Form S-3 and related Prospectus
of Strawberry Fields REIT, Inc. and Subsidiaries (the “Company”) of our report dated March 19, 2024, relating to the consolidated
financial statements of the Company appearing in the Annual Report on Form 10-K of the Company for the years ended December 31, 2023
and 2022. We also consent to the reference to our firm under the heading “Experts” in such Prospectus.
| /s/
Hacker, Johnson & Smith PA |
|
| |
|
| HACKER, JOHNSON & SMITH PA |
|
| Tampa,
Florida |
|
| July 25, 2024 |
|
Exhibit
107
Calculation
of Filing Fee.
| | |
Security
Type | |
Security
Class Title | |
Fee
Calculation Rule | | |
Amount
Registered | | |
Proposed Maximum Offering Price
Per Unit | | |
Maximum Aggregate Offering Price | | |
Fee
Rate | | |
Amount
of Registration Fee | |
| Newly
Registered Securities | | |
| Fees to Be Paid | |
- | |
- | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Fees
Previously Paid | |
Equity | |
Common
Stock, Preferred Stock, Warrants, Subscription Rights, Units | |
| Rule
457(o) | | |
$ | 100,000,000 | | |
| Unknown | | |
$ | 100,000,000 | | |
$ | 0.0001476 | | |
$ | 14,760 | |
Strawberry Fields REIT (QX) (USOTC:STRW)
過去 株価チャート
から 6 2024 まで 7 2024
Strawberry Fields REIT (QX) (USOTC:STRW)
過去 株価チャート
から 7 2023 まで 7 2024
