UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A10-K
Amendment No. 1
(Mark One)
☒ |
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orFor the fiscal year ended December 31, 2021
OR
☐ |
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Commission File Number 001-09043
Commission file number: 1-09043
BROAD STREET REALTY, INC.
(Exact name of registrant as specified in its charter)
| 36-3361229 |
( |
| (I.R.S. Employer |
|
Bethesda, Maryland |
|
|
(Address of principal executive offices) |
|
( |
Registrant’s telephone number, including area code: (301) 828-1200
Securities registered pursuant to Section 12(b) of the Exchange Act:None
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Exchange Act: Common stock,Stock, $0.01 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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 | ☐ | |||
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Non-accelerated filer | ☒ | Smaller | ☒ | |||
Emerging growth | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmarkcheck mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
StateAs of June 30, 2021, the aggregate market value of the voting and non-voting common equitystock held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business dayRegistrant was $101,727,891, based on the closing sales price per share of $4.35 as reported on the OTC Markets, Inc.
The number of shares of the registrant’s most recently completed second quarter: $5,663,163common stock outstanding as of June 30, 2018.April 8, 2022 was 32,247,204.
DOCUMENTS INCORPORATED BY REFERENCE
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 2,610,568 shares of common stock, $0.01 par value per share, as of March 29, 2019.
Explanation of Amendment
The purposeinformation required by Part III of this Amendment No. 1 (this “Amendment”) to MedAmerica Properties Inc.’s Annual Report on Form 10-K is incorporated by reference herein from the registrant's definitive proxy statement for its 2022 annual meeting of stockholders or, in the event that the registrant does not file such proxy statement within 120 days after the end of the registrant's fiscal year, such information will be provided instead by an amendment to this Annual Report on Form 10-K no later than 120 days after the end of the registrant's fiscal year.
BROAD STREET REALTY, INC.
TABLE OF CONTENTS
4 | |||
ITEM 1. | 4 | ||
ITEM 1A. | 19 | ||
ITEM 1B. | 34 | ||
ITEM 2. | 34 | ||
ITEM 3. | 34 | ||
ITEM 4. | 34 | ||
34 | |||
ITEM 5. | 34 | ||
ITEM 6. | 35 | ||
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 36 | |
ITEM 7A. | 51 | ||
ITEM 8. | 52 | ||
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 93 | |
ITEM 9A. | 93 | ||
ITEM 9B. | 95 | ||
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 95 | |
96 | |||
ITEM 10. | 96 | ||
ITEM 11. | 96 | ||
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 96 | |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE | 96 | |
ITEM 14. | 96 | ||
97 | |||
ITEM 15. | 97 | ||
ITEM 16. | 97 | ||
105 | |||
FORWARD-LOOKING STATEMENTS
We make statements in this Annual Report on Form 10‑K (this "report") that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). These forward-looking statements include, without limitation, statements about our estimates, expectations, predictions and forecasts of our future business plans and financial and operating performance and/or results, as well as statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” "project," "seek," or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance, and our actual financial and operating results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such differences are described in the section entitled “Risk Factors” in this report and in other documents that we file from time to time with the Securities and Exchange Commission (the “SEC”), which factors include, without limitation, the following:
Given these uncertainties, undue reliance should not be placed on our forward-looking statements. We assume no duty or responsibility to publicly update or revise any forward-looking statement that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. We urge you to review the disclosures concerning risks in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and in other filings we make with the SEC from time to time.
Summary Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. These risks are discussed more fully in Item 1A. Risk Factors herein. These risks include, but are not limited to, the following:
2
3
PART I
Unless the context indicates otherwise, references to "Broad Street," "we," "the Company," "our," and "us" refer to Broad Street Realty, Inc., together with its consolidated subsidiaries, including Broad Street Operating Partnership, LP (the or our "Operating Partnership"), of which we are the sole member of the sole general partner.
ITEM 1. BUSINESS
Overview
We are focused on owning and managing essential grocery-anchored and mixed-use assets located in densely populated technology employment hubs and higher education centers within the Mid-Atlantic, Southeast and Colorado markets. As of December 31, 2021, we owned 15 properties with an additional three properties under contract to be acquired. The properties in our portfolio and the properties we have under contract are dispersed in sub-markets that we believe generally have high population densities, high traffic counts, good visibility and accessibility, which provide our tenants with attractive locations to serve the necessity-based needs of the surrounding communities. We intend to focus on acquiring additional strategically positioned properties in established and developing neighborhoods primarily leased to necessity-based tenants that meet the needs of the surrounding communities in our existing markets, as well as acquiring properties in new markets that meet our investment criteria, including the Southeastern United States. In addition, we provide commercial real estate brokerage services for our own portfolio and third-party office, industrial and retail operators and tenants.
The table below provides certain information regarding our portfolio as of December 31, 2021. For additional information, see "—Our Portfolio."
|
| As of |
| |
|
| December 31, 2021 |
| |
Number of properties |
|
| 15 |
|
Number of states |
|
| 5 |
|
Total square feet (in thousands) |
|
| 1,737 |
|
Anchor spaces |
|
| 917 |
|
Inline spaces |
|
| 820 |
|
Leased % of rentable square feet (1): |
|
|
| |
Total portfolio |
|
| 88.1 | % |
Anchor spaces |
|
| 94.3 | % |
Inline spaces |
|
| 81.3 | % |
Occupied % of rentable square feet (1): |
|
|
| |
Total portfolio |
|
| 84.7 | % |
Anchor spaces |
|
| 91.9 | % |
Inline spaces |
|
| 76.7 | % |
Average remaining lease term (in years) (2) |
|
| 4.7 |
|
Annualized base rent per leased square feet (3) |
| $ | 13.83 |
|
We are structured as an “Up-C” corporation with substantially all of our operations conducted through our Operating Partnership and its direct and indirect subsidiaries. As of December 31, 2021, we owned 91.9% of the units of limited partnership interest in the Operating Partnership, and we are the sole member of the sole general partner of the Operating Partnership. We began operating in our current structure on December 27, 2019 upon the completion of certain Mergers (as defined below) on such date, and we operate as a single reporting segment.
2021 Highlights
Below are some of our significant activities during 2021:
4
Impact of COVID-19
For information regarding the impact of COVID-19 on our business and measures we have taken in response, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19” and “Risk Factors—Risks Related to Our Business and Properties—The ongoing COVID-19 pandemic and measures intended to mitigate its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition."
2021 Acquisitions
In 2021 we acquired Highlandtown Village Shopping Center, Cromwell Field Shopping Center, Spotswood Valley Square Shopping Center and The Shops at Greenwood Village on May 21, 2021, May 26, 2021, June 4, 2021 and October 6, 2021, respectively, which were part of the previously announced series of mergers (collectively, the "Mergers") pursuant to which we previously acquired our other properties. For additional information regarding the Mergers, see "Merger with MedAmerica Properties Inc." in Note 1 to our Consolidated Financial Statements included in this report.
5
Our Portfolio
As of December 31, 2021, we owned 15 retail properties, of which 13 are located in the Mid-Atlantic region and two are located in Colorado, consisting of 1,736,657 total square feet of gross leasable area (“GLA”). The following table provides additional information about the properties in our portfolio as of December 31, 2021.
Property Name |
| City/State |
| Year |
|
| GLA |
|
| Percent Leased(2) |
|
| Total Annualized Base Rent(3) |
|
| Annualized Base Rent per Leased SF(4) |
|
| Percentage of Total Annualized Base Rent |
|
| Anchor/ | ||||||
Avondale Shops |
| Washington, D.C. |
|
| 2010 |
|
|
| 28,308 |
|
|
| 85.3 | % |
| $ | 561,431 |
|
| $ | 23.25 |
|
|
| 2.7 | % |
| Dollar Tree |
Brookhill Azalea Shopping Center |
| Richmond, VA |
|
| 2012 |
|
|
| 163,363 |
|
|
| 78.7 | % |
|
| 1,308,247 |
|
|
| 10.17 |
|
|
| 6.2 | % |
| Food Lion |
Coral Hills Shopping Center |
| Capitol Heights, MD |
|
| 2012 |
|
|
| 85,928 |
|
|
| 100.0 | % |
|
| 1,363,225 |
|
|
| 15.86 |
|
|
| 6.4 | % |
| Compare Foods |
Crestview Square Shopping Center |
| Landover Hills, MD |
|
| 2012 |
|
|
| 74,694 |
|
|
| 100.0 | % |
|
| 1,455,636 |
|
|
| 19.49 |
|
|
| 6.9 | % |
| Value Village |
Cromwell Field Shopping Center |
| Glen Burnie, MD |
|
| 2020 |
|
|
| 233,486 |
|
|
| 65.2 | % |
|
| 1,560,402 |
|
|
| 10.25 |
|
|
| 7.4 | % |
| Rose's |
Dekalb Plaza |
| East Norriton, PA |
|
| 2017 |
|
|
| 178,356 |
|
|
| 97.8 | % |
|
| 2,016,411 |
|
|
| 11.56 |
|
|
| 9.5 | % |
| Big Lots |
The Shops at Greenwood Village |
| Greenwood Village, CO |
|
| 2019 |
|
|
| 199,336 |
|
|
| 94.2 | % |
|
| 3,121,886 |
|
|
| 16.62 |
|
|
| 14.8 | % |
| United States Postal Service |
Highlandtown Village Shopping Center |
| Baltimore, MD |
|
| 1987 |
|
|
| 57,513 |
|
|
| 100.0 | % |
|
| 1,029,534 |
|
|
| 17.90 |
|
|
| 4.9 | % |
| Hazlo Market |
Hollinswood Shopping Center |
| Baltimore, MD |
|
| 2020 |
|
|
| 112,698 |
|
|
| 91.9 | % |
|
| 1,671,839 |
|
|
| 16.14 |
|
|
| 7.9 | % |
| LA Mart |
Lamar Station Plaza East |
| Lakewood, CO |
|
| 1984 |
|
|
| 42,700 |
|
|
| 64.6 | % |
|
| 455,179 |
|
|
| 16.49 |
|
|
| 2.2 | % |
| Hopebridge |
Midtown Colonial |
| Williamsburg, VA |
|
| 2018 |
|
|
| 98,043 |
|
|
| 85.7 | % |
|
| 932,718 |
|
|
| 11.10 |
|
|
| 4.4 | % |
| Food Lion |
Midtown Lamonticello |
| Williamsburg, VA |
|
| 2019 |
|
|
| 63,173 |
|
|
| 92.5 | % |
|
| 949,609 |
|
|
| 16.24 |
|
|
| 4.5 | % |
| Earth Fare |
Spotswood Valley Square Shopping Center |
| Harrisonburg, VA |
|
| 1997 |
|
|
| 190,650 |
|
|
| 100.0 | % |
|
| 1,889,423 |
|
|
| 9.91 |
|
|
| 8.9 | % |
| Kroger |
Vista Shops at Golden Mile |
| Frederick, MD |
|
| 2009 |
|
|
| 98,858 |
|
|
| 96.8 | % |
|
| 1,699,309 |
|
|
| 17.76 |
|
|
| 8.0 | % |
| Aldi |
West Broad Commons Shopping Center |
| Richmond, VA |
|
| 2017 |
|
|
| 109,551 |
|
|
| 77.6 | % |
|
| 1,145,103 |
|
|
| 13.47 |
|
|
| 5.4 | % |
| New Grand Mart |
Total/Weighted Average |
|
|
|
|
|
|
| 1,736,657 |
|
|
| 88.1 | % |
| $ | 21,159,952 |
|
| $ | 13.83 |
|
|
| 100.0 | % |
|
| |
6
Tenant Diversification
The following table sets forth information about the 20 largest tenants in our portfolio, based upon annualized base rent, as of December 31, 2021.
Tenant Name |
| Number of Leased Stores |
|
| Total Leased |
|
| Percentage of |
|
| Total |
|
| Annualized Base Rent Per Sq. Ft. |
|
| Percentage |
| ||||||
Planet Fitness (2) |
|
| 3 |
|
|
| 58,741 |
|
|
| 3.4 | % |
|
| 786,624 |
|
| $ | 13.39 |
|
|
| 3.7 | % |
Food Lion |
|
| 2 |
|
|
| 71,759 |
|
|
| 4.1 | % |
|
| 491,604 |
|
|
| 6.85 |
|
|
| 2.3 | % |
Dollar Tree Store |
|
| 3 |
|
|
| 30,431 |
|
|
| 1.8 | % |
|
| 445,920 |
|
|
| 14.65 |
|
|
| 2.1 | % |
New Grand Mart |
|
| 1 |
|
|
| 39,386 |
|
|
| 2.3 | % |
|
| 443,293 |
|
|
| 11.26 |
|
|
| 2.1 | % |
Hazlo Market |
|
| 1 |
|
|
| 26,904 |
|
|
| 1.5 | % |
|
| 401,007 |
|
|
| 14.91 |
|
|
| 1.9 | % |
Urban Air |
|
| 1 |
|
|
| 34,075 |
|
|
| 2.0 | % |
|
| 381,640 |
|
|
| 11.20 |
|
|
| 1.8 | % |
Earth Fare |
|
| 1 |
|
|
| 24,016 |
|
|
| 1.4 | % |
|
| 360,240 |
|
|
| 15.00 |
|
|
| 1.7 | % |
Dollar General |
|
| 3 |
|
|
| 34,673 |
|
|
| 2.0 | % |
|
| 354,706 |
|
|
| 10.23 |
|
|
| 1.7 | % |
Compare Foods |
|
| 1 |
|
|
| 35,000 |
|
|
| 2.0 | % |
|
| 350,000 |
|
|
| 10.00 |
|
|
| 1.7 | % |
Kroger |
|
| 1 |
|
|
| 49,319 |
|
|
| 2.8 | % |
|
| 315,642 |
|
|
| 6.40 |
|
|
| 1.5 | % |
LA Mart |
|
| 1 |
|
|
| 30,030 |
|
|
| 1.7 | % |
|
| 302,683 |
|
|
| 10.08 |
|
|
| 1.4 | % |
United States Post Office |
|
| 1 |
|
|
| 24,395 |
|
|
| 1.4 | % |
|
| 285,064 |
|
|
| 11.69 |
|
|
| 1.3 | % |
Value Village |
|
| 1 |
|
|
| 23,400 |
|
|
| 1.3 | % |
|
| 263,250 |
|
|
| 11.25 |
|
|
| 1.2 | % |
Celebree School |
|
| 1 |
|
|
| 10,000 |
|
|
| 0.6 | % |
|
| 262,500 |
|
|
| 26.25 |
|
|
| 1.2 | % |
Crossroads Animal Referral & Emergency |
|
| 1 |
|
|
| 9,852 |
|
|
| 0.6 | % |
|
| 245,866 |
|
|
| 24.96 |
|
|
| 1.2 | % |
Big Lots |
|
| 1 |
|
|
| 32,788 |
|
|
| 1.9 | % |
|
| 229,516 |
|
|
| 7.00 |
|
|
| 1.1 | % |
QED Inc dba Galleria Lighting & Design |
|
| 1 |
|
|
| 13,520 |
|
|
| 0.8 | % |
|
| 227,271 |
|
|
| 16.81 |
|
|
| 1.1 | % |
Riverside Healthcare Association, Inc. |
|
| 1 |
|
|
| 11,548 |
|
|
| 0.7 | % |
|
| 219,412 |
|
|
| 19.00 |
|
|
| 1.0 | % |
Aldi |
|
| 1 |
|
|
| 18,000 |
|
|
| 1.0 | % |
|
| 216,000 |
|
|
| 12.00 |
|
|
| 1.0 | % |
CSL Plasma Inc. |
|
| 1 |
|
|
| 14,700 |
|
|
| 0.8 | % |
|
| 210,651 |
|
|
| 14.33 |
|
|
| 1.0 | % |
Sub-total top twenty tenants |
|
| 27 |
|
|
| 592,537 |
|
|
| 34.1 | % |
|
| 6,792,889 |
|
|
| 11.46 |
|
|
| 32.1 | % |
Remaining tenants |
|
| 273 |
|
|
| 937,888 |
|
|
| 54.0 | % |
|
| 14,367,063 |
|
|
| 15.32 |
|
|
| 67.9 | % |
Sub-total Average all tenants |
|
| 300 |
|
|
| 1,530,425 |
|
|
| 88.1 | % |
|
| 21,159,952 |
|
| $ | 13.83 |
|
|
| 100.0 | % |
Vacant space |
|
| 64 |
|
|
| 206,232 |
|
|
| 11.9 | % |
|
|
|
|
|
|
|
|
| |||
Total |
|
| 364 |
|
|
| 1,736,657 |
|
|
| 100.0 | % |
|
|
|
|
|
|
|
|
| |||
Lease Distribution
The following table sets forth information relating to the distribution of leases in our portfolio, based on GLA, as of December 31, 2021.
Square Feet Under Lease |
| Number |
|
| Leased GLA |
|
| Percentage |
|
| Total |
|
| Annualized |
|
| Percentage |
| ||||||
Less than 1,000 |
|
| 41 |
|
|
| 22,513 |
|
|
| 1.5 | % |
| $ | 814,128 |
|
| $ | 36.16 |
|
|
| 3.8 | % |
1,000 - 2,499 |
|
| 129 |
|
|
| 207,372 |
|
|
| 13.5 | % |
|
| 4,402,565 |
|
|
| 21.23 |
|
|
| 20.8 | % |
2,500 - 9,999 |
|
| 92 |
|
|
| 436,204 |
|
|
| 28.5 | % |
|
| 7,515,207 |
|
|
| 17.23 |
|
|
| 35.5 | % |
10,000 - 39,999 |
|
| 36 |
|
|
| 739,127 |
|
|
| 48.3 | % |
|
| 7,912,410 |
|
|
| 10.71 |
|
|
| 37.4 | % |
40,000 or Greater |
|
| 2 |
|
|
| 125,209 |
|
|
| 8.2 | % |
|
| 515,642 |
|
|
| 4.12 |
|
|
| 2.4 | % |
Total/Weighted Average |
|
| 300 |
|
|
| 1,530,425 |
|
|
| 100.0 | % |
|
| 21,159,952 |
|
| $ | 13.83 |
|
|
| 100.0 | % |
7
Geographic Concentration
The following table sets forth information regarding the geographic concentration of our portfolio as of December 31, 2021.
Metropolitan |
| MSA |
|
| Number |
|
| GLA |
|
| Percentage |
|
| Percent |
|
| Total |
|
| Annualized |
|
| Percentage |
| ||||||||
Washington-Baltimore-Arlington |
|
| 6 |
|
|
| 7 |
|
|
| 691,485 |
|
|
| 39.8 | % |
|
| 85.9 | % |
| $ | 9,341,376 |
|
| $ | 15.76 |
|
|
| 44.2 | % |
Richmond, VA |
|
| 44 |
|
|
| 2 |
|
|
| 272,914 |
|
|
| 15.7 | % |
|
| 78.3 | % |
|
| 2,453,350 |
|
|
| 11.35 |
|
|
| 11.6 | % |
Virginia Beach-Norfolk-Newport News |
|
| 37 |
|
|
| 2 |
|
|
| 161,216 |
|
|
| 9.3 | % |
|
| 88.4 | % |
|
| 1,882,327 |
|
|
| 13.27 |
|
|
| 8.9 | % |
Philadelphia-Camden- Wilmington |
|
| 7 |
|
|
| 1 |
|
|
| 178,356 |
|
|
| 10.3 | % |
|
| 97.8 | % |
|
| 2,016,411 |
|
|
| 11.58 |
|
|
| 9.5 | % |
Denver-Aurora-Lakewood |
|
| 19 |
|
|
| 2 |
|
|
| 242,036 |
|
|
| 13.9 | % |
|
| 89.0 | % |
|
| 3,577,065 |
|
|
| 16.60 |
|
|
| 16.9 | % |
Harrisonburg, VA |
|
| 303 |
|
|
| 1 |
|
|
| 190,650 |
|
|
| 11.0 | % |
|
| 100.0 | % |
|
| 1,889,423 |
|
|
| 9.91 |
|
|
| 8.9 | % |
Total/Weighted Average |
|
|
|
|
| 15 |
|
|
| 1,736,657 |
|
|
| 100.0 | % |
|
| 88.1 | % |
| $ | 21,159,952 |
|
| $ | 13.83 |
|
|
| 100.0 | % | |
Lease Expirations
The following table sets forth a summary schedule of the lease expirations in our portfolio for leases in place as of December 31, 2021, for the ten calendar years from 2022 to 2031 and thereafter, assuming no exercise of renewal options or early termination rights.
Year of Lease Expirations |
| Number of |
|
| GLA of |
|
| Percentage |
|
| Total |
|
| Annualized |
|
| Percentage |
| ||||||
Month-To-Month (3) |
|
| 1 |
|
|
| — |
|
|
| — |
|
| $ | 14,400 |
|
| $ | — |
|
|
| 0.1 | % |
2022 |
|
| 23 |
|
|
| 97,434 |
|
|
| 5.6 | % |
|
| 1,126,059 |
|
|
| 11.56 |
|
|
| 5.3 | % |
2023 |
|
| 50 |
|
|
| 271,351 |
|
|
| 15.6 | % |
|
| 3,023,193 |
|
|
| 11.14 |
|
|
| 14.3 | % |
2024 |
|
| 52 |
|
|
| 162,022 |
|
|
| 9.3 | % |
|
| 2,880,462 |
|
|
| 17.78 |
|
|
| 13.6 | % |
2025 |
|
| 54 |
|
|
| 254,106 |
|
|
| 14.6 | % |
|
| 3,585,231 |
|
|
| 14.11 |
|
|
| 16.9 | % |
2026 |
|
| 40 |
|
|
| 157,097 |
|
|
| 9.0 | % |
|
| 2,438,912 |
|
|
| 15.52 |
|
|
| 11.5 | % |
2027 |
|
| 31 |
|
|
| 221,479 |
|
|
| 12.8 | % |
|
| 2,785,881 |
|
|
| 12.58 |
|
|
| 13.2 | % |
2028 |
|
| 14 |
|
|
| 78,073 |
|
|
| 4.5 | % |
|
| 1,080,811 |
|
|
| 13.84 |
|
|
| 5.1 | % |
2029 |
|
| 8 |
|
|
| 40,085 |
|
|
| 2.3 | % |
|
| 595,425 |
|
|
| 14.85 |
|
|
| 2.8 | % |
2030 |
|
| 11 |
|
|
| 150,366 |
|
|
| 8.7 | % |
|
| 1,940,542 |
|
|
| 12.91 |
|
|
| 9.2 | % |
2031 |
|
| 5 |
|
|
| 24,437 |
|
|
| 1.4 | % |
|
| 379,468 |
|
|
| 15.53 |
|
|
| 1.8 | % |
Thereafter |
|
| 11 |
|
|
| 73,975 |
|
|
| 4.3 | % |
|
| 1,309,568 |
|
|
| 17.70 |
|
|
| 6.2 | % |
Vacant |
|
| 64 |
|
|
| 206,232 |
|
|
| 11.9 | % |
|
| — |
|
|
| — |
|
|
| — |
|
Total/Weighted Average |
|
| 364 |
|
|
| 1,736,657 |
|
|
| 100.0 | % |
| $ | 21,159,952 |
|
| $ | 13.83 |
|
|
| 100.0 | % |
8
Description of Properties
Avondale Shops, Washington D.C.
Avondale is a strip retail property located in the northeast region of Washington, D.C. at the signalized intersection of Michigan Avenue and Eastern Avenue. The property has 28,308 square feet of GLA and, as of December 31, 2021, was 85.3% leased and occupied by eight tenants and accounted for 2.7% of our total annualized base rent. The anchor tenant, Dollar Tree, represents approximately 28.6% of Avondale’s total annualized base rent as of December 31, 2021 and its lease expires in May 2027.
Brookhill Azalea Shopping Center, Richmond, Virginia
Brookhill is a retail center located on the border of the City of Richmond and its northern suburbs in close proximity to major transportation corridors Interstate 95, U.S. Route 1 and U.S. Route 301. The property is located adjacent to major retail demand drivers Walmart and CVS Pharmacy. The property has 163,363 square feet of GLA and, as of December 31, 2021, was 78.7%leased and occupied by 24 tenants and accounted for 6.2% of our total annualized base rent. The anchor tenant, Food Lion, represented 23.6% of Brookhill’s total annualized base rent as of December 31, 2021, and its lease expires in January 2025. Other notable national tenants include Dollar General and CitiTrends. Until December 31, 2021, the property management for Brookhill was performed by a third-party manager that was responsible for the day-to-day aspects of managing Brookhill, including collecting rents, maintaining the property in good working order and providing us with periodic property condition reports and leasing pipeline updates. As of January 1, 2022, we are performing all property management functions for the property internally.
Coral Hills Shopping Center, Capitol Heights, Maryland
Coral Hills is a retail center located in the densely populated Capitol Heights neighborhood, which is blocks from the Washington, D.C. metro line and has excellent visibility along Marlboro Pike with large pylons. The property is anchored by Compare Foods and is adjacent to McDonalds and across the street from a CVS Pharmacy. The property has 85,928 square feet of GLA and, as of December 31, 2021, was 100.0% leased and occupied by 16 tenants and accounted for 6.4% of our total annualized base rent. Compare Foods represented 25.7% of Coral Hill’s total annualized base rent as of December 31, 2021, and its lease expires in February 2026. Other notable national tenants include Family Dollar and AutoZone.
Crestview Square Shopping Center, Landover Hills, Maryland
Crestview is located in a densely populated suburban market near the Hyattsville Arts District and University of Maryland College Park campus. The property is located less than a mile from major regional transportation corridors, including Interstate 295 and U.S. Route 50. The property has prominent pylon signage at the signalized intersection for Annapolis Road and Cooper Lane and is in close proximity to national retailers Walmart and McDonalds. The property has 74,694 square feet of GLA and, as of December 31, 2021, was 100.0% leased and occupied by 20 tenants and accounted for 6.9% of our total annualized base rent. The anchor tenant, Value Village, represented 18.1% of Crestview’s total annualized base rent as of December 31, 2021, and its lease expires in January 2030.
Cromwell Field Shopping Center, Glen Burnie, Maryland
Cromwell is a retail center located near Baltimore/Washington International Thurgood Marshall Airport and the MARC train and light rail station. The property has 233,486 square feet of GLA and, as of December 31, 2021, was 65.2% leased to 19 tenants and accounted for 7.4% of our total annualized base rent. The percent occupied, which excludes leases that have been signed but not commenced, was 63.3% as of December 31, 2021. The anchor tenant, Rose's, represented 12.8% of Cromwell's total annualized base rent as of December 31, 2021, and its lease expires in January 2023.
Dekalb Plaza, East Norriton, Pennsylvania
Dekalb is a retail center located in a Philadelphia suburb. The property is located at a major signalized intersection of Dekalb Pike and West Germantown Pike and is positioned in close proximity to Walmart and T.J. Maxx and across the street from Suburban Community Hospital, part of the national Prime Healthcare system. The property has 178,356 square feet of GLA and, as of December 31, 2021, was 97.8% leased to 17 tenants and accounted for 9.5% of our total annualized base rent. The percent occupied, which excludes leases that have been signed but not commenced, was 81.7% as of December 31, 2021. Three of the signed leases will commence in the first quarter of 2022 and the fourth lease will commence in the fourth quarter of 2022. The anchor tenant, Big Lots, represented 11.4% of Dekalb’s total annualized base rent as of December 31, 2021, and its lease expires in January 2025. Other notable tenants include Urban Air, Crunch Fitness, Goodwill and Enchanted Child Care of Dekalb.
9
The following tables set forth certain information with respect to Dekalb Plaza as of December 31, 2021.
Significant Tenants
Tenant |
| Lease Expiration |
| Renewal Options |
| Total Leased GLA |
|
| % of Property GLA |
|
| Annualized |
|
| Annualized |
|
| % of Property |
| |||||
Urban Air |
| 10/31/2030 |
| — |
|
| 34,075 |
|
|
| 19.1 | % |
| $ | 381,640 |
|
| $ | 11.20 |
|
|
| 18.9 | % |
Big Lots |
| 1/31/2025 |
| 2 x 5 year Term |
|
| 32,788 |
|
|
| 18.4 | % |
|
| 229,516 |
|
|
| 7.00 |
|
|
| 11.4 | % |
Goodwill |
| 10/31/2023 |
| 3 x 5 year Term |
|
| 25,460 |
|
|
| 14.3 | % |
|
| 190,950 |
|
|
| 7.50 |
|
|
| 9.5 | % |
Crunch Fitness |
| 12/31/2025 |
| 2 x 5 year Term |
|
| 25,320 |
|
|
| 14.2 | % |
|
| 180,000 |
|
|
| 7.11 |
|
|
| 8.9 | % |
Enchanted Child Care of Dekalb |
| 11/30/2032 |
| — |
|
| 10,000 |
|
|
| 5.6 | % |
|
| 262,500 |
|
|
| 26.25 |
|
|
| 13.0 | % |
Lease Expirations
Year of Lease Expirations |
| Number of |
|
| GLA of |
|
| Percentage |
|
| Total |
|
| Annualized |
|
| Percentage |
| ||||||
2022 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2023 |
|
| 1 |
|
|
| 25,460 |
|
|
| 14.6 | % |
|
| 190,950 |
|
|
| 7.50 |
|
|
| 9.5 | % |
2024 |
|
| 3 |
|
|
| 11,600 |
|
|
| 6.6 | % |
|
| 217,546 |
|
|
| 18.75 |
|
|
| 10.8 | % |
2025 |
|
| 3 |
|
|
| 58,108 |
|
|
| 33.3 | % |
|
| 431,516 |
|
|
| 7.43 |
|
|
| 21.4 | % |
2026 |
|
| 1 |
|
|
| 750 |
|
|
| 0.5 | % |
|
| 13,113 |
|
|
| 17.48 |
|
|
| 0.6 | % |
2027 |
|
| 5 |
|
|
| 18,214 |
|
|
| 10.5 | % |
|
| 315,711 |
|
|
| 17.33 |
|
|
| 15.7 | % |
2028 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2029 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2030 |
|
| 1 |
|
|
| 34,075 |
|
|
| 19.5 | % |
|
| 381,640 |
|
|
| 11.20 |
|
|
| 18.9 | % |
2031 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Thereafter |
|
| 3 |
|
|
| 26,249 |
|
|
| 15.0 | % |
|
| 465,935 |
|
|
| 17.75 |
|
|
| 23.1 | % |
Vacant |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total/Weighted Average |
|
| 17 |
|
|
| 174,456 |
|
|
| 100.0 | % |
| $ | 2,016,411 |
|
| $ | 11.56 |
|
|
| 100.0 | % |
Percent Occupied and Base Rent
As of December 31, |
| Percent Occupied (1) |
|
| Average Annual Rent |
| ||
2021 |
|
| 81.7 | % |
| $ | 11.55 |
|
2020 |
|
| 81.5 | % |
| $ | 10.48 |
|
2019 |
|
| 81.5 | % |
| $ | 10.34 |
|
2018 |
|
| 83.8 | % |
| $ | 10.11 |
|
2017 |
|
| 74.1 | % |
| $ | 10.29 |
|
The Shops at Greenwood Village, Greenwood Village, Colorado
Greenwood Village is a retail center located in Greenwood Village, Colorado. The property is conveniently located off Interstate 25 and in close proximity to Denver Tech Center. The property has 199,336 square feet of GLA and, as of December 31, 2021, was 94.2% leased to 66 tenants and accounted for 14.8% of our total annualized base rent. The percent occupied, which excludes leases that have been signed but not commenced, was 91.2% as of December 31, 2021. The anchor tenant, the United States Postal Service, accounted for 9.1% of Greenwood Village's total annualized base rent as of December 31, 2021, and its lease expires in August 2026.
10
The following tables set forth certain information with respect to The Shops at Greenwood Village as of December 31, 2021.
Significant Tenants
Tenant |
| Lease Expiration |
| Renewal Options |
| Total Leased GLA |
|
| % of Property GLA |
|
| Annualized |
|
| Annualized |
|
| % of Property |
| |||||
United States Post Office |
| 8/31/2026 |
| 2 x 5 year Term |
|
| 24,395 |
|
|
| 12.2 | % |
| $ | 285,064 |
|
| $ | 11.69 |
|
|
| 9.1 | % |
QED Inc. |
| 11/30/2026 |
| 2 x 5 year Term |
|
| 13,520 |
|
|
| 6.8 | % |
|
| 227,271 |
|
|
| 16.81 |
|
|
| 7.3 | % |
Lease Expirations
Year of Lease Expirations |
| Number of |
|
| GLA of |
|
| Percentage |
|
| Total |
|
| Annualized |
|
| Percentage |
| ||||||
2022 |
|
| 5 |
|
|
| 12,260 |
|
|
| 6.5 | % |
| $ | 198,799 |
|
| $ | 16.22 |
|
|
| 6.4 | % |
2023 |
|
| 15 |
|
|
| 34,676 |
|
|
| 18.5 | % |
|
| 581,601 |
|
|
| 16.77 |
|
|
| 18.6 | % |
2024 |
|
| 14 |
|
|
| 27,496 |
|
|
| 14.6 | % |
|
| 435,992 |
|
|
| 15.86 |
|
|
| 14.0 | % |
2025 |
|
| 12 |
|
|
| 30,765 |
|
|
| 16.4 | % |
|
| 559,633 |
|
|
| 18.19 |
|
|
| 17.9 | % |
2026 |
|
| 15 |
|
|
| 64,361 |
|
|
| 34.2 | % |
|
| 1,025,676 |
|
|
| 15.94 |
|
|
| 32.8 | % |
2027 |
|
| 2 |
|
|
| 5,797 |
|
|
| 3.1 | % |
|
| 93,245 |
|
|
| 16.09 |
|
|
| 3.0 | % |
2028 |
|
| 1 |
|
|
| 2,627 |
|
|
| 1.4 | % |
|
| 43,398 |
|
|
| 16.52 |
|
|
| 1.4 | % |
2029 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2030 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2031 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Thereafter |
|
| 2 |
|
|
| 9,873 |
|
|
| 5.3 | % |
|
| 183,542 |
|
|
| 18.59 |
|
|
| 5.9 | % |
Vacant |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total/Weighted Average |
|
| 66 |
|
|
| 187,855 |
|
|
| 100.0 | % |
| $ | 3,121,886 |
|
| $ | 16.62 |
|
|
| 100.0 | % |
Percent Occupied and Base Rent
As of December 31, |
| Percent Occupied (1) |
|
| Average Annual Rent |
| ||
2021 |
|
| 91.2 | % |
| $ | 16.59 |
|
2020 |
|
| 87.8 | % |
| $ | 16.36 |
|
2019 |
|
| 85.6 | % |
| $ | 16.16 |
|
2018 |
|
| 74.5 | % |
| $ | 16.13 |
|
2017 |
|
| 85.1 | % |
| $ | 15.79 |
|
Highlandtown Village Shopping Center, Baltimore, Maryland
Highlandtown is a retail center located in Baltimore, Maryland. The property is located along a busy street with prominent visibility. The property has 57,513 of GLA and, as of December 31, 2021, was 100% leased to 16 tenants and accounted for 4.9% of our total annualized base rent. The percent occupied, which excludes leases that have been signed but not commenced, was 95.7% as of December 31, 2021. The anchor tenant, Hazlo Market, represented 40.0% of Highlandtown's total annualized base rent as of December 31, 2021, and its lease expires in May 2024.
Hollinswood Shopping Center, Baltimore, Maryland
Hollinswood is a retail center located in suburban Baltimore, Maryland. The property has 112,698 of GLA and, as of December 31, 2021, was 91.9% leased and occupied by 22 tenants and accounted for 7.9% of our total annualized base rent. The anchor tenant,
11
LA Mart, represented 18.1% of Hollinswood’s total annualized base rent as of December 31, 2021, and its lease expires in October 2030. Other notable tenants include Planet Fitness, Dollar Tree, Advance Auto, Dollar General, Walgreens and a Royal Farms convenience and gas center.
The following tables set forth certain information with respect to Hollinswood Shopping Center as of December 31, 2021.
Significant Tenants
Tenant |
| Lease Expiration |
| Renewal Options |
| Total Leased GLA |
|
| % of Property GLA |
|
| Annualized |
|
| Annualized |
|
| % of Property |
| |||||
LA Mart |
| 10/31/2030 |
| 2 x 5 year Term |
|
| 25,224 |
|
|
| 22.4 | % |
| $ | 302,683 |
|
| $ | 12.00 |
|
|
| 18.1 | % |
Planet Fitness |
| 1/31/2031 |
| 2 x 5 year Term |
|
| 16,378 |
|
|
| 14.5 | % |
| $ | 196,534 |
|
|
| 12.00 |
|
|
| 11.8 | % |
Dollar General |
| 7/31/2027 |
| 2 x 5 year Term |
|
| 13,527 |
|
|
| 12.0 | % |
|
| 162,326 |
|
|
| 12.00 |
|
|
| 9.7 | % |
Lease Expirations
Year of Lease Expirations |
| Number of |
|
| GLA of |
|
| Percentage |
|
| Total |
|
| Annualized |
|
| Percentage |
| ||||||
2022 |
|
| 1 |
|
|
| 2,458 |
|
|
| 2.4 | % |
| $ | 43,260 |
|
|
| 17.60 |
|
|
| 2.6 | % |
2023 |
|
| 1 |
|
|
| 2,880 |
|
|
| 2.8 | % |
|
| 58,363 |
|
|
| 20.26 |
|
|
| 3.5 | % |
2024 |
|
| 2 |
|
|
| 4,725 |
|
|
| 4.6 | % |
|
| 101,611 |
|
|
| 21.50 |
|
|
| 6.1 | % |
2025 |
|
| 2 |
|
|
| 3,188 |
|
|
| 3.1 | % |
|
| 54,936 |
|
|
| 17.23 |
|
|
| 3.3 | % |
2026 |
|
| 5 |
|
|
| 14,205 |
|
|
| 13.7 | % |
|
| 252,260 |
|
|
| 17.76 |
|
|
| 15.1 | % |
2027 |
|
| 2 |
|
|
| 14,206 |
|
|
| 13.7 | % |
|
| 212,204 |
|
|
| 14.94 |
|
|
| 12.7 | % |
2028 |
|
| 1 |
|
|
| 1,125 |
|
|
| 1.1 | % |
|
| 29,919 |
|
|
| 26.59 |
|
|
| 1.8 | % |
2029 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2030 |
|
| 4 |
|
|
| 38,875 |
|
|
| 37.4 | % |
|
| 515,874 |
|
|
| 13.27 |
|
|
| 30.8 | % |
2031 |
|
| 3 |
|
|
| 21,909 |
|
|
| 21.2 | % |
|
| 303,412 |
|
|
| 13.85 |
|
|
| 18.1 | % |
Thereafter |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 100,000 |
|
|
| — |
|
|
| 6.0 | % |
Vacant |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total/Weighted Average |
|
| 22 |
|
|
| 103,571 |
|
|
| 100.0 | % |
| $ | 1,671,839 |
|
| $ | 16.14 |
|
|
| 100.0 | % |
Percent Occupied and Base Rent
As of December 31, |
| Percent Occupied (1) |
|
| Average Annual Rent |
| ||
2021 |
|
| 91.9 | % |
| $ | 16.21 |
|
2020 |
|
| 78.5 | % |
| $ | 16.40 |
|
2019 |
|
| 84.3 | % |
| $ | 15.31 |
|
2018 |
|
| 84.4 | % |
| $ | 15.18 |
|
2017 |
|
| 85.0 | % |
| $ | 14.94 |
|
Lamar Station Plaza East, Lakewood, Colorado
Lamar Station Plaza East is a retail center located in Lakewood, Colorado. The property has 42,700 square feet of GLA and, as of December 31, 2021, was 64.6% leased to 12 tenants and accounted for 2.2% of our total annualized base rent. The percent occupied, which excludes leases that have been signed but not commenced, was 59.8% as of December 31, 2021. The anchor tenant, Hopebridge, accounted for 33.5% of Lamar Station Plaza East's total annualized base rent as of December 31, 2021, and its lease expires in March 2028.
12
On February 8, 2022, we entered into a purchase and sale agreement to acquire a parcel that is bounded by the Lamar Station Plaza East property for a purchase price of $2.6 million in cash. We expect to close the acquisition by the end of the second quarter of 2022, subject to customary closing conditions. There can be no assurances that these conditions will be satisfied or that we will complete the acquisition on the terms described herein or at all.
Midtown Colonial, Williamsburg, Virginia
Midtown Colonial is a retail center located in Williamsburg, Virginia. The property is part of the Midtown Row redevelopment, which created a mixed-use town center in Williamsburg, Virginia. The property is located adjacent to The College of William & Mary, within minutes of the campus center, and is situated at signalized intersections along Monticello Avenue. The property has 98,043 square feet of GLA and, as of December 31, 2021, was 85.7% leased to eight tenants and accounted for 4.4% of our total annualized base rent. The percent occupied, which excludes a lease that has been signed but not commenced, was 73.9% as of December 31, 2021. The signed lease commenced in the first quarter of 2022. The anchor tenant, Food Lion, accounted for 19.6% of Midtown Colonial’s total annualized base rent as of December 31, 2021 and its lease expires in November 2028. See “Risk Factors—Risks Related to Our Organizational Structure—Certain of our director, officers and employees have outside business interests that present conflicts of interest with us and may adversely affect our business.”
Midtown Lamonticello, Williamsburg, Virginia
Midtown Lamonticello is a retail center located in Williamsburg, Virginia. The property is located directly across the street from The College of William & Mary, within minutes of the campus center. It is situated at a signalized intersection along Monticello Avenue that is shared with our Midtown Colonial property. The property has 63,173 square feet of GLA and, as of December 31, 2021, was 92.5% leased to 11 tenants and accounted for 4.5% of our total annualized base rent. The percent occupied, which excludes leases that have been signed but not commenced, was 90.6% as of December 31, 2021. The anchor tenant, Earth Fare, accounted for 37.9% of Midtown Lamonticello’s total annualized base rent as of December 31, 2021, and its lease expires in October 2030. Ace Hardware is another notable tenant.
Spotswood Valley Square Shopping Center, Harrisonburg, Virginia
Spotswood is a retail center located in Harrisonburg, Virginia. The property is less than one mile from James Madison University. The property has 190,650 square feet of GLA and, as of December 31, 2021, was 100% leased and occupied by 26 tenants and accounted for 8.9% of our total annualized base rent. The anchor tenant, Kroger, accounted for 16.7% of Spotswood's total annualized base rent as of December 31, 2021, and its lease expires in October 2022. We expect Kroger's lease to be renewed in the coming weeks. Other notable tenants include Planet Fitness, T.J. Maxx and Party City.
Vista Shops at Golden Mile, Frederick, Maryland
Vista Shops is a retail center located in Frederick, Maryland. The property is accessible from the main retail thoroughfare West Patrick Street, also known as “The Golden Mile,” and in close proximity to Interstate 270. The property has 98,858 square feet of GLA and, as of December 31, 2021, was 96.8% leased and occupied by 23 tenants and accounted for 8.0% of our total annualized base rent. The anchor tenant, Aldi, has been on site for over 10 years. Aldi accounted for 12.7% of Vista Shops’ total annualized base rent as of December 31, 2021, and its lease expires in December 2023. Other notable tenants include Planet Fitness, Dollar Tree and Care Veterinary Center, owned by Pathway Vet Alliance, which operates over 150 locations.
The following tables set forth certain information with respect to Vista Shops as of December 31, 2021.
Significant Tenants
Tenant |
| Lease Expiration |
| Renewal Options |
| Total Leased GLA |
|
| % of Property GLA |
|
| Annualized |
|
| Annualized |
|
| % of Property |
| |||||
Planet Fitness |
| 3/31/2024 |
| 1 x 5 year Term |
|
| 20,123 |
|
|
| 20.4 | % |
| $ | 352,153 |
|
| $ | 17.50 |
|
|
| 20.7 | % |
Aldi Inc. |
| 12/31/2023 |
| — |
|
| 18,000 |
|
|
| 18.2 | % |
|
| 216,000 |
|
|
| 12.00 |
|
|
| 12.7 | % |
Dollar Tree Stores, Inc. |
| 2/29/2024 |
| 1 x 5 year Term |
|
| 10,666 |
|
|
| 10.8 | % |
|
| 117,326 |
|
|
| 11.00 |
|
|
| 6.9 | % |
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Lease Expirations
Year of Lease Expirations |
| Number of |
|
| GLA of |
|
| Percentage |
|
| Total |
|
| Annualized |
|
| Percentage |
| ||||||
2022 |
|
| 4 |
|
|
| 6,370 |
|
|
| 6.7 | % |
| $ | 134,205 |
|
| $ | 21.07 |
|
|
| 7.9 | % |
2023 |
|
| 5 |
|
|
| 22,938 |
|
|
| 24.0 | % |
|
| 313,878 |
|
|
| 13.68 |
|
|
| 18.4 | % |
2024 |
|
| 6 |
|
|
| 36,336 |
|
|
| 38.0 | % |
|
| 585,074 |
|
|
| 16.10 |
|
|
| 34.4 | % |
2025 |
|
| 4 |
|
|
| 18,447 |
|
|
| 19.3 | % |
|
| 404,434 |
|
|
| 21.92 |
|
|
| 23.8 | % |
2026 |
|
| 2 |
|
|
| 5,286 |
|
|
| 5.4 | % |
|
| 102,926 |
|
|
| 19.47 |
|
|
| 6.1 | % |
2027 |
|
| 1 |
|
|
| 4,805 |
|
|
| 5.0 | % |
|
| 125,027 |
|
|
| 26.02 |
|
|
| 7.4 | % |
2028 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2029 |
|
| 1 |
|
|
| 1,500 |
|
|
| 1.6 | % |
|
| 33,765 |
|
|
| 22.51 |
|
|
| 2.0 | % |
2030 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2031 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Vacant |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total/Weighted Average |
|
| 23 |
|
|
| 95,682 |
|
|
| 100.0 | % |
| $ | 1,699,309 |
|
| $ | 17.76 |
|
|
| 100.0 | % |
Percent Occupied and Base Rent
As of December 31, |
| Percent Occupied (1) |
|
| Average Annual Rent |
| ||
2021 |
|
| 96.8 | % |
| $ | 17.68 |
|
2020 |
|
| 93.1 | % |
| $ | 17.37 |
|
2019 |
|
| 93.1 | % |
| $ | 16.95 |
|
2018 |
|
| 90.6 | % |
| $ | 15.23 |
|
2017 |
|
| 90.6 | % |
| $ | 15.00 |
|
West Broad Commons Shopping Center, Richmond, Virginia
West Broad is a retail center located in the suburbs of Richmond, Virginia. The property is located at a signalized intersection along West Broad Street and in close proximity to Costco, McDonalds, Sam’s Club and Guitar Center. The property has 109,551 square feet of GLA and, as of December 31, 2021, was 77.6% leased to 12 tenants and accounted for 5.4% of our total annualized base rent. The percent occupied was 75.4% as of December 31, 2021. The anchor tenant, New Grand Mart, is a specialty grocery store with four locations in the metro Washington D.C. region and two in Richmond, Virginia. New Grand Mart accounted for 38.7% of West Broad’s total annualized base rent as of December 31, 2021, and its lease expires in December 2027.
Pending Mergers
The following table provides certain information as of December 31, 2021 with respect to the two properties that are under contract to be acquired pursuant to the two Mergers that have not closed as of the date of this report. We will continue to serve as the third-party manager of each of these properties until the applicable Merger closes. We are under no obligation to close on the pending Mergers.
Property Name |
| City/State |
| Year Built/ |
| GLA |
|
| Percent |
|
| Total |
|
| Annualized |
|
| Percentage |
|
| Anchor/ | |||||
Cypress Point |
| Virginia Beach, VA |
| 2012 |
|
| 118,200 |
|
|
| 41.9 | % |
|
| 716,047 |
|
|
| 14.47 |
|
|
| 35.5 | % |
| Dollar Tree |
Lamar Station Plaza |
| Lakewood, CO |
| 2015 |
|
| 186,793 |
|
|
| 91.6 | % |
|
| 1,299,771 |
|
|
| 7.59 |
|
|
| 64.5 | % |
| Casa Bonita |
Total/Weighted Average |
|
|
|
|
|
| 304,993 |
|
|
| 72.3 | % |
| $ | 2,015,818 |
|
| $ | 10.26 |
|
|
| 100.0 | % |
|
|
14
Pending Midtown Row Acquisition
On December 21, 2021, we entered into a purchase and sale agreement (the “Midtown Row Agreement”) with BBL Current Owner, LLC (“BBL Current”) to acquire a mixed-use property in Williamsburg, Virginia known as Midtown Row for a purchase price of $122.0 million in cash (the “Midtown Row Acquisition”). Midtown Row is a recently completed development comprised of 240 student housing units with 620 beds and a retail component consisting of 63,573 square feet of GLA.
The Midtown Row Acquisition is subject to customary closing conditions, and we expect to close the Midtown Row Acquisition by the end of the second quarter of 2022. There can be no assurances that these conditions will be satisfied or that we will complete the Midtown Row Acquisition on the terms described herein or at all. We are currently looking into various alternatives to be able to fund the acquisition in cash. There can be no assurances that we will be successful and we may need to incur additional indebtedness to fund the acquisition. If we are unable to complete the acquisition, we will remain the third-party manager on the retail space.
Michael Jacoby, our Chief Executive Officer, Alexander Topchy, our Chief Financial Officer, Aras Holden, our Vice President of Asset Management and Acquisitions, and Thomas Yockey, Daniel J.W. Neal and Jeffrey H. Foster, members of our board of directors, have indirect ownership interests in BBL Current, and Mr. Jacoby serves as the chief executive officer and a director of BBL Current. As a result of their indirect ownership interests in BBL Current, these individuals are expected to receive estimated aggregate consideration of approximately $1.4 million at closing.
We served as the development manager for Midtown Row and serve as the property manager and the leasing broker for the retail portion of Midtown Row.
Investment Criteria
When evaluating potential property acquisitions or development opportunities, we consider, among other things, the following:
ProjectedRisk and Returns: We evaluate the projected investment returns in relation to our cost of capital as well as the anticipated risk to achieve these returns, in order to provide our stockholders and OP unit holders with appropriate risk-adjusted rates of return.
Value Creation: We evaluate the projected value creation at each property through repositioning, refurbishing and redevelopment. Our goal is to create long-term value and achieve the projected returns we underwrite at each property.
Tenants and Tenant Mix: We assess the quality of tenants at each location including their sales performance and creditworthiness in order to provide our stockholders and OP unit holders with appropriate risk-adjusted rates of return. We evaluate each property to ensure a complementary mix of tenants that drive overall sales at each location.
Demographics: We assess certain demographic information at each property location, including daytime population, households, household incomes, education levels, population and income trends for the market, as well as local economic drivers.
Competition: We assess the competitive retail environment at each location, including GLA per capita, competition for existing and potential tenants, the number of existing competing properties and the potential for additional competing properties through development or the repositioning or redevelopment of existing properties.
Access and Visibility: We evaluate each property’s accessibility from main thoroughfares and the potential for new, widened or realigned roadways within the property trade area, which may affect consumer accessibility and shopping patterns. We generally seek to acquire properties that have signalized ingress and egress, which we believe increases the ability of consumers to safely access our properties. We also assess the existing signage and the ability to renovate or add new signage to ensure appropriate sight lines for consumers to view the tenants at each of our property locations.
Owned Property Performance: In markets where we own retail properties, we assess the performance of those properties in order to evaluate the potential performance of to-be-acquired or developed properties. We seek to acquire or develop properties in our existing markets that are complementary to our existing properties.
15
Physical Condition: We assess the physical condition of each property in order to determine the useful remaining life, required capital expenditures and the property cost relative to replacement cost. We often seek to acquire properties at below replacement cost, which we believe allows us to reposition, refurbish or redevelop a property and command higher rents relative to the market and deliver attractive risk-adjusted returns for our stockholders.
Property Management and Brokerage Business
We manage or co-manage the properties in our portfolio, the two properties that are under contract to be acquired pursuant to the Mergers that have not closed as of the date of this report and two other properties. We also lease all of our owned and managed properties but utilize third-party leasing companies to augment our staff on a limited basis. Our asset and property management teams directly oversee the properties in our portfolio and our third-party managed properties and seek to increase our operating cash flows through the success of our leasing, property management and asset management functions. Our property management functions include the oversight of all day-to-day operations of our properties as well as the coordination and oversight of tenant improvements and building services. Our internal leasing team identifies prospective tenants, assists in the negotiation of leases, provides statements as to the income and expenses applicable to each such property, monitors monthly lease payments, periodically verifies tenant payment of real estate taxes and insurance coverage and periodically inspects each such property and tenants’ sales records, where applicable. We do not pay property management fees other than for the on-site property management of the Brookhill property through December 31, 2021. As of January 1, 2022, we are performing all property management functions.
We receive fees for any third-party property management, brokerage or leasing services. Our third-party brokerage business represents primarily commercial tenants for their office and retail real estate needs, either for lease transactions or purchase and sale transactions. We will continue to receive property management fees for the two properties that are under contract to be acquired pursuant to the Mergers that have not closed as of the date of this report. These fees will cease once the Mergers are closed.
We intend to increase cash flows through cost efficient property operations and leasing strategies designed to capture market rental growth from the renewal of below-market leases at higher rates and/or recruitment of new quality tenants. We carefully monitor property expenses and manage how we incur and bill expenses to our tenants. We aggressively seek to renegotiate and extend any existing leases that are below market at market rates. Although we maintain ongoing dialogue with our tenants, we generally raise the issue of renewal at least 12 months prior to lease renewal often providing concessions for early renewal. We also aggressively pursue new tenants for any vacant space. As necessary, we may use third-party leasing agents in attracting tenants. Our use of third-party brokerage firms is based on their demonstrated track record and knowledge of the sub-markets in which our properties are located.
We define small tenants as those leasing less than 10,000 square feet and we have tailored our management and leasing approach to deal with the unique needs of these smaller tenants. As of December 31, 2021, of the 300 leases on our owned properties, 262 are leased to small tenants representing 43.5% of our portfolio leased GLA and 60.2% of our total annualized base rent. We believe that our ability to act quickly allows us to capture those tenants that are unable or unwilling to wait a substantial period of time for a lease to be approved. We are able to examine the credit of a potential tenant during the lease negotiation process and efficiently finalize the terms of the lease. Smaller tenants generally pay a premium per square foot to occupy smaller spaces. As of December 31, 2021, this base rent premium averaged 96.0% over what larger tenants in our portfolio pay on a weighted average per square foot basis.
Terms of Leases
We typically lease our properties to tenants on either a triple-net or modified gross basis. Our triple net leases provide that the tenant is generally responsible for reimbursing us for the cost of all maintenance and minor repairs, property taxes and insurance relating to its leased space and most other operating expenses. We perform common area maintenance, and the related cost is reimbursed by the tenant. Utilities and other premises-specific costs are typically paid directly by the tenant. Our modified gross leases provide that the tenant pays us a base rent and we are responsible for the payment of all property expenses. In our modified gross leases, we typically negotiate that a proportional share of increases in expenses such as real estate taxes, sales and use taxes, special assessments, utilities, insurance and building repairs, and other building operation and management costs that exceed a base rate, are reimbursed to us by the tenant. The leases for the properties in our portfolio have remaining lease terms that range from month-to-month to over 10 years, with a weighted average remaining lease term of 4.7 years as of December 31, 2021 based on GLA.Anchor tenant leases are typically for 10 to 20 years, with one or more renewal options available to the lessee upon expiration of the initial lease term. By contrast, smaller store leases are typically negotiated for five-year terms. The longer terms of major tenant leases serve to protect us against significant vacancies and to ensure the presence of strong tenants that draw consumers to our centers. The shorter terms of smaller store leases allow us under appropriate circumstances to adjust rental rates periodically and, where possible, upgrade or adjust the overall tenant mix.
Tenant Underwriting
We use a number of industry credit rating services to determine the creditworthiness of potential tenants and any personal guarantor or corporate guarantor of each potential tenant. In addition, we review the prospective tenants’ business plans and financial models. We have established leasing guidelines to use in evaluating prospective tenants and proposed lease terms and conditions. For existing tenants looking to extend with us, we look at their past payment record.
16
Competition
We believe that the market for retail properties and financially stable tenants has historically been extremely competitive and has become even more competitive as a result of the current retail environment. We compete with a number of other real estate investors, including domestic and foreign corporations and financial institutions, publicly traded and privately held real estate investment trusts ("REITs") and other real estate companies, private institutional investment funds, investment banking firms, life insurance companies and pension funds, some of which have greater financial resources than we do.
In operating and managing our properties, we compete for tenants based upon a number of factors including, but not limited to, location, rental rates, security, flexibility, expertise to design space to meet prospective tenants’ needs and the manner in which the property is operated, maintained and marketed. As leases at our properties expire, we may encounter significant competition to renew or re-lease space in light of the large number of competing properties within the markets in which we operate. As a result, we may be required to provide rent concessions, incur costs for tenant improvements and other inducements or we may not be able to timely lease vacant space, all of which would adversely impact our results of operations. In light of the current economic conditions, we have had to utilize rent concessions and undertake tenant improvements to a greater extent than we historically have.
We also face competition when pursuing acquisition, development and redevelopment opportunities. Our competitors may be able to pay more for acquisitions, have more funds for development and redevelopment, may have private access to opportunities not available to us and otherwise be in a better position to acquire, develop or redevelop a commercial property. Competition may also have the effect of reducing the number of suitable acquisition, development or redevelopment opportunities available to us, increasing the price required to consummate an acquisition, development or redevelopment opportunity and generally reducing the demand for commercial space in our geographic markets. Similarly, should we decide to dispose of a property, we may compete with third-party sellers of similar types of commercial properties for suitable purchasers, which may result in our receiving lower net proceeds from a sale or in our not being able to dispose of such property at a time of our choosing.
Regulatory Matters
General
The properties in our portfolio are, and any properties we acquire in the future will be, subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe that each of the properties in our portfolio has the necessary permits and approvals to operate our business.
Environmental Regulations
Under various federal, state and local environmental laws, ordinances and regulations, a current or former owner or operator of real property may be liable for the cost to remove or remediate hazardous or toxic substances, waste or petroleum products at, on, under, from or in such property. These costs could be substantial, and liability under these laws may attach whether or not the owner or operator knew of, or was responsible for, the presence of such contamination. Even if more than one person may have been responsible for the contamination, each liable party may be held entirely responsible for all of the clean-up costs incurred (i.e., the liability may be joint and several). In addition, third parties may sue the current or former owner or operator of a property for damages based on personal injury, natural resources or property damage and/or for other costs, including investigation and clean-up costs, resulting from the environmental contamination. The presence of contamination on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to redevelop, sell or lease the property or borrow using the property as collateral. In addition, 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 or prevent us from entering into leases with prospective tenants. We also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances at such facilities, without regard to whether we comply with environmental laws in doing so.
Some of our properties may be adjacent to or near other properties used for industrial or commercial purposes or that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. Releases from these properties could impact our properties. In addition, certain of our properties are currently used, have been used and may be used in the future by others, including former owners or tenants of our properties, for commercial or industrial activities, e.g., gas stations and dry cleaners, that may release petroleum products or other hazardous or toxic substances at our properties or to surrounding properties.
We have previously obtained Phase I Environmental Site Assessments or similar environmental audits from an independent environmental consultant for all the properties in our portfolio and the properties under contract to be acquired. A Phase I Environmental Site Assessment is a written report that identifies existing or potential environmental conditions associated with a particular property. These environmental site assessments generally involve a review of records, interviews and visual inspection of the property; however, they have a limited scope (e.g., they do not include soil sampling or ground water analysis) and may not reveal all potential environmental liabilities. Further, material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose additional material environmental liability beyond what was known at the time the
17
site assessment was conducted. While environmental assessments conducted prior to acquiring our properties have not revealed, nor are we aware of, any environmental liability that we believe will have a material adverse effect on our operations, certain properties that we have acquired contain, or contained, uses that could have impacted our properties, including dry-cleaning establishments utilizing solvents or gas stations. Where we believed it was warranted, subsurface investigations or samplings of building materials were undertaken with respect to these and other properties. To date, the costs associated with these investigations and any subsequent remedial measures taken to address any identified impacts have not resulted in material costs. Prior to purchasing property in the future, we plan on conducting Phase I Environmental Site Assessments and other environmental investigations, if warranted.
Our properties and the tenants of our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of waste, underground and aboveground storage tanks, local fire safety requirements and local land use and zoning regulations. For example, some of our tenants handle regulated substances or waste as part of their operations on our properties. Noncompliance with these environmental, health and safety laws could subject us or our tenants to liability. These environmental liabilities could affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of compliance with environmental, health and/or safety laws, including increasing liability for noncompliance or requiring significant unanticipated expenditures. We are not presently aware of any instances of material non-compliance with environmental, health and safety laws at our properties, and we believe that we have all permits and approvals necessary under current law to operate our properties.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain or may have contained asbestos-containing material (“ACM”). Environmental, health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment. We are not presently aware of any material liabilities related to building conditions, including any instances of material non-compliance with asbestos requirements or any material liabilities related to asbestos.
In addition, our properties may contain or develop harmful mold or suffer from other indoor air quality issues, which could lead to liability for adverse health effects or property damage or costs for 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 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 or to increase ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our properties.
Americans with Disabilities Act of 1990
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. Compliance with the ADA might require removal of structural barriers to handicapped access in certain public areas where such removal is “readily achievable.” We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. Noncompliance with the ADA, however, could result in the imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.
Insurance
We believe that each of our properties is covered by adequate fire, flood, earthquake, wind (as deemed necessary or as required by our lenders) and property insurance, as well as commercial liability insurance. We also carry terrorism insurance at levels we believe are commercially reasonable. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of coverage and industry practice, and in the opinion of our management, the properties in our portfolio are adequately insured. Furthermore, we believe that our businesses and assets are likewise adequately insured against casualty loss and third-party liabilities. The cost of such insurance is passed through to tenants to the extent possible. We expect to maintain this type of insurance coverage and to obtain similar coverage with respect to any additional properties that we acquire in the future, including the properties in our acquisition portfolio. We will not carry insurance for generally uninsured losses such as loss from riots, war or acts of God.
Employees
We have a company-wide commitment to a set of core principles—Teamwork, Respect, Integrity, Balance, Accountability and Leadership, or TRIBAL. We believe our TRIBAL principles lead to greater employee retention, collaboration and efficiency, which increases our ability to provide high quality service to our tenants and deliver attractive risk-adjusted returns to our stockholders.
18
As of December 31, 2021, we have 44 employees, all of which are full time employees.
Corporate Information
Our principal executive office is located at 7250 Woodmont Avenue, Suite 350, Bethesda, Maryland 20814. The telephone number for our principal executive office is (301) 828-1200. We maintain a website located at broadstreetrealty.com. The information on, or accessible through, our website is not incorporated into and does not constitute a part of this report or any other report or document we file with or furnish to the SEC.
Available Information
We file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports with the SEC. You may obtain copies of these documents by accessing the SEC’s website at www.sec.gov. In addition, as soon as reasonably practicable after such materials are furnished to the SEC, we make copies of these documents available to the public free of charge through our website or by contacting our Corporate Secretary at the address set forth above under “—Corporate Information.”
Our Code of Business Conduct and Ethics, and the charters of our audit committee, compensation committee and nominating and corporate governance committee are all available in the Corporate Governance section of the Investor Relations section of our website. Any amendment to or waiver of our Code of Business Conduct and Ethics will be disclosed in the Corporate Governance section of the Investor Relations section of our website within four business data of the amendment or waiver.
ITEM 1A. RISK FACTORS
Set forth below are the risks that we believe are material to our stockholders. You should carefully consider the following risks in evaluating our Company and our business. The occurrence of any of the following risks could materially adversely impact our financial condition, results of operations, cash flows, the market price of shares of our common stock and our ability to, among other things, satisfy our debt service obligations and to make distributions to our stockholders, which in turn could cause our stockholders to lose all or a part of their investment. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements” included elsewhere in this report.
Risks Related to Our Business and Properties
The ongoing COVID-19 pandemic and measures intended to mitigate its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business, including the impact on our tenants and rental revenue. We have observed the impact of COVID-19 manifest in the form of limited operations among our tenants, which has resulted, and may in the future result in, a decline in on-time rental payments and requests from tenants for temporary rental relief. The extent of the COVID-19 pandemic’s effect on our future operational and financial performance, financial condition and liquidity will depend on future developments, including the duration and intensity of the pandemic, the effectiveness, including the deployment, of COVID-19 vaccines and treatments, the duration of government measures to mitigate the pandemic and how quickly and to what extent normal economic and operating conditions can resume, all of which are uncertain and difficult to predict. Given this uncertainty, we cannot accurately predict the effect on future periods.
While the overall economy is showing signs of recovery from the initial impacts of COVID-19, workforce shortages, global supply chain bottlenecks and shortages, and inflation, as well as COVID-19 variants, are impacting the pace of the recovery. Even as governmental restrictions are lifted, our tenants may continue to be impacted by economic conditions resulting from COVID-19 or public perception of the risk of COVID-19, which could adversely affect foot traffic to our tenants' businesses and our tenants' ability to adequately staff their businesses. If the impacts of the pandemic continue, we expect that certain tenants will experience greater financial distress, which could result in additional tenants being unable to pay contractual rent (including deferred rent) on a timely basis, or at all, additional requests for rent relief, early lease terminations, tenant bankruptcies, decrease in occupancy, reductions in rent, or increases in rent concessions or other accommodations. In some cases, we may have to restructure tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. These factors also may adversely affect the value of our properties. The extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.
We primarily rely upon external sources of capital to fund acquisitions, development opportunities and repayment of significant maturities of principal debt, and, if we encounter difficulties in obtaining capital, we may not be able to repay maturing obligations or make future investments necessary to grow our business.
We primarily rely upon external sources of capital, including debt and equity financing, to fund our capital needs, including acquisitions, development opportunities and repayment of debt maturities. We have encountered, and may continue to encounter, difficulties obtaining the necessary capital to finance the pending Midtown Row Acquisition and service and refinance our existing
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indebtedness, including approximately $17.3 million of debt that matures in 2022 and approximately $75.4 million of debt that matures in January 2023, subject to two one-year extension options that are subject to certain conditions. Our access to capital depends upon a number of factors over which we have little or no control, including general market conditions, the market’s perception of our current and potential future earnings and cash distributions, our current debt levels and the market price of the shares of our common stock, and our access to capital is currently constrained by our existing debt and the lack of an active trading market for our common stock. Economic, market and other disruptions worldwide, including in the bank lending, capital and other financial markets, could exacerbate the issues we have encountered obtaining financing.
We may not have access to capital in order to be able to refinance debt as it comes due, make debt service payments, acquire additional properties or pay dividends to our stockholders. In addition, although our common stock is quoted on the OTCQX Best Market (the "OTCQX"), an over-the-counter stock market, there is a very limited trading market for our common stock, and if a more active trading market is not developed and sustained, we will be limited in our ability to issue equity to fund our capital needs. If we cannot obtain capital from third-party sources, we may not be able to meet the capital and operating needs of our existing properties, satisfy our debt service obligations, acquire or develop properties when strategic opportunities exist, or make cash distributions to our stockholders.
Substantially all of the properties in our portfolio are located in the greater Mid-Atlantic and Colorado regions. Adverse economic or regulatory developments in this area could materially and adversely affect our business.
Thirteen of the 15 properties currently in our portfolio are located in the Mid-Atlantic region, including Maryland, Pennsylvania, Virginia and Washington, D.C., and two properties are located in the Denver, Colorado area. Of the two pending mergers, one of the properties is in the Mid-Atlantic region and the other is in the Denver, Colorado area. As a result of this geographic concentration, our business is dependent on the condition of the economy in these regions generally and the respective markets for retail real estate in particular, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio. We cannot assure you that these markets will grow or that underlying real estate fundamentals will be favorable to owners and operators of retail properties. Our operations may also be adversely affected if competing properties are built in these markets. Moreover, submarkets within any of our target markets may be dependent upon a limited number of industries. Any adverse economic or real estate developments in our markets, or any decrease in demand for retail space resulting from the COVID-19 pandemic and related economic fallout, the regulatory environment, business climate or fiscal problems, could materially and adversely affect our financial condition, results of operations, cash flows, cash available for distribution and ability to satisfy our debt service obligations.
We depend upon tenant leases for most of our revenue, and lease terminations and/or tenant defaults, particularly by one of our significant tenants, could materially and adversely affect the income produced by our properties, which could materially and adversely affect our financial condition, results of operations, cash flows, cash available for distribution and ability to satisfy our debt service obligations.
We depend primarily upon tenant leases for our revenue. Our ability to sustain our rental revenue depends on the financial stability of our tenants, any of whom may experience a change in its business at any time. The ability of our tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations, and cash flows generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. Furthermore, certain of our tenants have experienced limited operations as a result of the COVID-19 pandemic and measures intended to mitigate its spread. See “—The ongoing COVID-19 pandemic and measures intended to mitigate its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.” As a result, our tenants may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rental payments when due, or declare bankruptcy and abandon the leased property. Any of these actions could result in a significant reduction or total loss of the revenue from the affected leases. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-leasing our property.
If significant leases are terminated or defaulted upon, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. In addition, significant expenditures, such as mortgage payments, real estate taxes and insurance and maintenance costs, are generally fixed and do not decrease when revenues at the related property decrease.
The occurrence of any of the situations described above, particularly if it involves one of our anchor tenants, could seriously harm our operating performance and materially and adversely affect our financial condition, results of operations, cash flows, cash available for distribution and ability to satisfy our debt service obligations.
We may be unable to collect balances due from tenants that file for bankruptcy protection, which could materially and adversely affect our financial condition, results of operations, cash flows, cash available for distribution and ability to satisfy our debt service obligations.
If a tenant files for bankruptcy, we may not be able to collect all pre-bankruptcy amounts owed by that party. In addition, a tenant that files for bankruptcy protection may terminate its lease with us, in which event we would have a general unsecured claim
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against such tenant that would likely be worth less than the full amount owed to us for the remainder of the lease term, which could adversely affect our financial condition, results of operations and cash flows.
We have a substantial amount of indebtedness outstanding, which could materially and adversely affect our financial condition, results of operations and ability to make distributions to our stockholders.
As of December 31, 2021, we had an aggregate of $180.1 million of outstanding indebtedness, including $13.1 million of preferred equity in the Sub-OP (as defined below), BSV Highlandtown (as defined below) and BSV Spotswood (as defined below) that is classified as indebtedness on our balance sheet. We expect to incur or assume an aggregate of $24.4 million in additional indebtedness in connection with the closings of the two pending Mergers. In addition, we may need to incur additional indebtedness to fund the $122.0 million purchase price for our pending Midtown Row Acquisition. We may also need to incur additional indebtedness in the future to repay or refinance other outstanding debt, to make acquisitions or for other purposes. If we incur additional debt, the related risks that we now face could intensify. Our substantial indebtedness could have material adverse consequences to us, including:
If any one or more of these events were to occur, our financial condition, results of operations, cash flows and the market value of our common stock could be materially and adversely affected.
Secured 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.
Each property in our portfolio is, and the two properties we expect to acquire in the remaining Mergers will be and the pending Midtown Row Acquisition may be, subject to secured indebtedness. 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. For example, we have two mortgage loans and a mezzanine loan on two properties totaling approximately $17.3 million, which mature during 2022, and the $66.8 million Basis Term Loan, which is secured by mortgages on six properties and matures in January 2023, subject to two one-year extension options that are subject to certain conditions. We can provide no assurances that we will be able to refinance these loans on favorable terms, or at all, or exercise our extension options for the Basis Term Loan. If we are unable to refinance or extend the loans, the lenders will have the right to place their loans in default and ultimately foreclose on the properties. 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. If any of our properties are foreclosed upon due to a default, it could materially and adversely affect our financial condition, results of operations, cash flows and cash available for distribution to our stockholders.
The Basis Loan Agreement, the Sub-OP Agreement and the operating agreements of BSV Highlandtown and BSV Spotswood contain provisions that could significantly impede our operations and our ability to efficiently manage our business and that could materially and adversely affect our financial condition, results of operations and cash flows, the trading price of our common stock and our ability to pay dividends to our common stockholders in the future.
Entities affiliated with Basis Management Group, LLC ("Basis") have substantial rights under the Basis Loan Agreement and the Sub-OP Operating Agreement (each as defined below), in particular, with respect to the properties owned by the Sub-OP, which secure the Basis Term Loan (as defined below). Similarly, Lamont Street Partners LLC ("Lamont Street") has substantial rights under
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the operating agreements of BSV Highlandtown and BSV Spotswood. Under these agreements, the following are either prohibited or require the approval of Basis or Lamont Street, as applicable:
Under certain circumstances, including in the event that their preferred interests are not redeemed on or prior to the redemption date, Basis and Lamont Street, as applicable, may remove the Operating Partnership as the manager of the applicable entities and their property-owning subsidiaries. In addition, if the debt service coverage ratio under the Basis Loan Agreement falls below 1.05x for two consecutive calendar quarters, the Basis Lender (as defined below) has the right to remove us as the manager of the six properties securing the Basis Term Loan. If the Basis Lender removed us as the manager of these properties, we would no longer manage the day-to-day operations of those properties.
Moreover, if there is a default by the Company under the MVB Loan (as defined below), by Mr. Jacoby under his guarantee of the MVB Loan or by Mr. Jacoby under a certain personal loan as long as he has pledged OP units as collateral for such loan, and such default has not been waived or cured, then the Basis Lender will have the right to sweep the cash accounts of the property-owning entities that collect rental payments from the properties securing the Basis Term Loan on a daily basis in order for the Basis Lender to create a cash reserve that will serve as additional collateral for the Basis Term Loan. The Basis Lender also has the right to sweep those cash accounts if the debt service coverage ratio under the Basis Loan Agreement falls below 1.10x. If the Basis Lender exercises its right under the cash sweep provision, then our cash available for operations and other purposes would be significantly limited.
Basis’ and Lamont Street's rights may significantly impede our ability to operate our business and manage our properties. Furthermore, these rights may prevent us from engaging in transactions, including change of control or financing transactions, that otherwise would be attractive to us. The foregoing could adversely affect our financial condition, results of operations and cash flows, the market value of our common stock and our ability to pay dividends to our common stockholders in the future. In addition, failure to comply with any of these covenants, including the financial coverage ratios, could cause an event of default under or accelerate some or all of our indebtedness, which would have a material adverse effect on us.
Covenants in our debt agreements could adversely affect our financial condition, results of operations and cash flows and the trading price of our common stock.
In addition to the restrictions provided in the Basis Loan Agreement and the Sub-OP Operating Agreement described above, other documents evidencing indebtedness contain certain financial covenants and affirmative and restrictive covenants, including, among other things, with respect to insurance coverage and our ability to incur additional indebtedness. The MVB Loan Agreement (as defined below) also requires us to maintain (as such terms are defined in the MVB Loan Agreement (i) a debt service coverage ratio of at least 1.00 to 1, (ii) an EBITDA to consolidated funded debt ratio of at least 7.0% and (iii) an aggregate minimum unencumbered cash, including funds available under other lines of credit, of greater than $3.0 million. The Hollinswood mortgage, Vista Shops mortgage, Brookhill mortgage, Highlandtown mortgage, Cromwell mortgage, Spotswood mortgage, Greenwood mortgage and Lamar Station Plaza East mortgage require us to maintain a debt service coverage ratio (as such terms are defined in the respective loan agreements) of at least 1.40x, 1.50x, 1.30x, 1.30x, 1.00x, 1.15x, 1.40x and 1.25x, respectively. These limitations may restrict our ability to engage in some business activities, which could adversely affect our financial condition, results of operations and cash flows and the market value of our common stock. In addition, failure to comply with any of these covenants, including the financial coverage ratios, could cause an event of default under or accelerate some or all of our indebtedness, which would have a material adverse effect on us.
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There are conditions that raise substantial doubt about our ability to continue as a going concern.
In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Company’s current financial condition, liquidity sources and debt maturities, including the Basis Term Loan and the Basis Preferred Interest (as defined below) totaling approximately $75.4 million, which mature on January 1, 2023, subject to two one-year extension options that are subject to certain conditions. Management believes that we will meet the conditions necessary to exercise our extension options under the Basis Term Loan and the Basis Preferred Interest prior to their maturity. Management also is in discussions with other lenders to refinance the Basis Term Loan and the Basis Preferred Interest with new loans, which management believes will be available on acceptable terms based on discussions with lenders and the loan-to-value ratios of the properties securing the Basis Term Loan. There can be no assurances, however, that we will be successful in exercising these extension options or refinancing the Basis Term Loan and the Basis Preferred Interest prior to their maturity. If we are unable to extend or refinance the Basis Term Loan prior to maturity, the lender will have the right to place the loan in default and ultimately foreclose on the six properties securing the loan. If we are unable to extend or redeem the Basis Preferred Interest prior to the mandatory redemption date, the Preferred Investor may remove the Operating Partnership as the manager of the Sub-OP and as the manager of the property-owning entities held under the Sub-OP.
Although management believes that we will be able to extend or refinance our debt prior to maturity, including the Basis Term Loan and the Basis Preferred Interest, it is possible that we may be unable extend or refinance such debt, which creates substantial doubt about our ability to continue as a going concern for a period of one year after the date of that the financial statements included in this report are issued, and our independent registered public accounting firm has included an explanatory paragraph regarding our ability to continue as a going concern in its report on our financial statements included in this report. Although the Basis Term Loan and the Basis Preferred Interest have two one-year extension options, those extension options are subject to certain conditions. If we are unable to exercise the extension options, we will be dependent on additional debt and/or equity financing to repay such obligations, which may not be available on acceptable terms or at all. If we are unable to raise needed funds on acceptable terms, we will not be able to repay our debt at maturity, execute our business plan, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. The financial statements included in this report have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Our pending acquisitions are subject to conditions and may not close in a timely manner or at all.
The completion of each of the remaining two Mergers and the Midtown Row Acquisition is subject to certain conditions, including, among others, obtaining the consent from the requisite lenders and refinancing certain indebtedness secured by the properties to be acquired in such transactions. There can be no assurances that we will be able to meet these conditions or obtain the necessary financing to close the remaining Mergers or the Midtown Row Acquisition. Therefore, there can be no assurance with respect to the timing of the closing of the remaining two Mergers or the Midtown Row Acquisition or that such transactions will be completed at all. If we are unable to complete the Mergers or the Midtown Row Acquisition, we will own a less diversified portfolio of properties and will have less rental revenue, which could adversely impact our results of operations, financial condition and ability to pay dividends to our stockholders.
There are inherent risks associated with real estate investments and with the real estate industry, each of which could have an adverse impact on our financial performance and the value of our properties.
By owning our common stock, you are subject to the risks associated with the ownership of real properties, including risks related to:
Any of these factors could adversely impact our financial performance and the value of our properties.
Our dependence on smaller businesses to rent our space could have a material adverse effect on our financial condition, results of operations, cash flows, cash available for distribution and ability to satisfy our debt service obligations.
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Many of our tenants are smaller businesses that generally do not have the financial strength or resources of larger corporate tenants. Smaller independent businesses generally experience a higher rate of failure than larger businesses. As a result of our dependence on these smaller businesses, we could experience a higher rate of tenant defaults, turnover and bankruptcies, which could have a material adverse effect on our financial condition, results of operations, cash flows, cash available for distribution and ability to service our debt obligations.
Our growth will depend in part upon our ability to acquire additional retail properties for our portfolio, and we may be unsuccessful in identifying and consummating attractive acquisitions or taking advantage of other investment opportunities, which would impede our growth and materially and adversely affect our ability to pay dividends to our stockholders.
Our ability to expand through acquisitions is integral to our long-term business strategy and requires that we identify and consummate suitable acquisition or investment opportunities in retail properties for our portfolio that meet our investment criteria and are compatible with our growth strategy. Our ability to acquire retail properties on favorable terms, or at all, may be adversely affected by the following significant factors:
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 materially and adversely affect our ability to make distributions to our stockholders.
The terms of joint venture agreements or other joint ownership arrangements into which we may enter could impair our operating flexibility and subject us to risks not present in investments that do not involve co-ownership.
Until we have greater access to capital, we intend to make acquisitions through joint ventures, partnerships, co-tenancies or other syndicated or co-ownership arrangements entered into with affiliates or third parties. For example, as described above, Basis has substantial rights under the Sub-OP Operating Agreement, and Lamont Street Partners LLC has substantial rights under the respective operating agreements of BSV Highlandtown and BSV Spotswood. We may also enter into joint ventures to redevelop or develop properties. Such investments may involve risks not otherwise present when acquiring real estate directly, including the following:
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If any of the foregoing were to occur, our financial condition, results of operations and cash available for distribution could be materially and adversely affected.
Failure to succeed in new markets may limit our growth.
In the future, if appropriate opportunities arise and subject to capital availability, we may acquire properties that are outside of our existing markets. Entering into new markets exposes us to a variety of risks, including difficulty evaluating local market conditions and local economies, developing new business relationships in the area, competing with other companies that already have an established presence in the area, hiring and retaining key personnel, evaluating quality tenants in the area and a lack of familiarity with local governmental and permitting procedures. Furthermore, expansion into new markets may divert management time and other resources away from our existing markets. As a result, we may not be successful in expanding into new markets, which could adversely impact our financial condition, results of operations, cash flows, cash available for distribution and ability to service our debt obligations.
Many of our operating costs and expenses are fixed and will not decline if our revenues decline.
Our results of operations depend, in large part, on our level of revenues, operating costs and expenses. The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction in revenue from the property. As a result, if revenues or cash flows decline, we may not be able to reduce our expenses to keep pace with the corresponding reductions in revenues. Many of the costs associated with real estate investments, such as real estate taxes, insurance, loan payments and maintenance, generally will not be reduced if a property is not fully occupied or other circumstances cause our revenues or cash flows to decrease, which could have a material adverse effect on our financial condition, results of operations, cash flows, cash available for distribution and ability to service our debt obligations.
Adverse conditions in the general retail environment could have a material adverse effect on our financial condition, results of operations, cash flows, cash available for distribution and ability to service our debt obligations.
We are subject to factors that affect the retail sector generally, as well as the market for retail space. The retail environment and the market for retail space have been, and in the future could be, adversely affected by weakness in the national, regional and local economies such as the weakness caused by the ongoing COVID-19 pandemic, the level of consumer spending and consumer confidence, the adverse financial condition of some large retail companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets and increasing competition from discount retailers, outlet malls, internet retailers and other online businesses. Increases in consumer spending via the internet may significantly affect our retail tenants’ ability to generate sales in their stores. New and enhanced technologies, including new digital technologies and new web services technologies, may increase competition for certain of our retail tenants. Furthermore, we can provide no assurances that consumers’ retail habits will return to norms that existed prior to the COVID-19 outbreak. Our tenants may experience difficulties attracting customers to their stores even after the social-distancing measures are lifted.
Any of the foregoing factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our retail properties. In turn, these conditions could negatively affect market rents for retail space and could materially and adversely affect our financial condition, results of operations, cash flows, cash available for distribution and ability to service our debt obligations.
We face considerable competition in leasing our properties and may be unable to renew existing leases or re-lease retail space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-lease retail space, which may adversely affect our operating results.
As of December 31, 2021, leases representing approximately 5.3% and 14.3% of our total annualized base rent are scheduled to expire by the end of 2022 and 2023, respectively, assuming no exercise of renewal options or early termination rights. In addition, approximately 11.9% of the square footage at our properties was available for rent as of December 31, 2021. We compete with many other entities engaged in real estate investment and leasing activities, including national, regional and local owners, operators, acquirers and developers. If our competitors offer retail space at rental rates below current market rates or below the rental rates that we currently charge our tenants, we may lose potential tenants. Even if our tenants renew their leases or we are able to re-lease the space, the terms and other costs of renewal or re-leasing, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates and other potential concessions, may be less favorable than the terms of our current leases and could
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require significant capital expenditures. If we are unable to renew leases or re-lease space in a reasonable time, or if rental rates decline or tenant improvement costs increase, leasing commissions or other costs increase, our business, financial condition and results of operations, ability to make distributions and ability to satisfy our debt service obligations could be materially and adversely affected.
Certain of the leases at our properties contain, and leases for properties that we may acquire in the future may contain, “co-tenancy” or “go-dark” provisions, which, if triggered, may allow tenants to pay reduced rent, cease operations or terminate their leases, any of which could materially and adversely affect our performance or the value of the affected retail property.
Certain of the leases at our properties contain, and leases for properties that we may acquire in the future may contain, “co-tenancy” provisions that condition a tenant’s obligation to remain open, the amount of rent payable by the tenant or the tenant’s obligation to continue occupancy on certain conditions, including: (i) the presence of a certain anchor tenant or tenants, (ii) the continued operation of an anchor tenant’s store and (iii) minimum occupancy levels at the retail property. If a co-tenancy provision is triggered by a failure of any of these or other applicable conditions, a tenant could have the right to cease operations, to terminate its lease early or to reduce its rent. In periods of prolonged economic decline, including as a result of the COVID-19 pandemic, there is a higher-than-normal risk that co-tenancy provisions will be triggered as there is a higher risk of tenants closing stores or terminating leases during these periods. In addition to these co-tenancy provisions, certain of the leases at our retail properties contain “go-dark” provisions that allow the tenant to cease operations while continuing to pay rent. This could result in decreased customer traffic at the affected retail property, thereby decreasing sales for our other tenants at that property, which may result in our other tenants being unable to pay their minimum rents or expense recovery charges. These provisions also may result in lower rental revenue generated under the applicable leases. To the extent co-tenancy or go-dark provisions in our retail leases result in lower revenue, tenants’ rights to terminate their leases early, or a reduction of their rent, our revenues and the value of the affected retail property could be materially and adversely affected.
Risks associated with redevelopment and development activities could materially adversely affect us.
We may determine in the future to redevelop or develop certain properties directly rather than acquiring existing operating properties that meet our investment criteria. Large-scale, ground-up redevelopment or development of retail or mixed-use properties presents additional risks for us, including risks that:
In addition, capital improvements on our existing properties may divert cash that may otherwise be available for property acquisitions, dividends to our stockholders or for other purposes. These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of redevelopment and development activities once undertaken, any of which could have a material adverse effect on our business, results of operations and financial condition.
The illiquid nature of real estate investments could significantly impede our ability to respond to changing economic, financial and investment conditions, which could adversely affect our cash flows and results of operations.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more of our properties in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control.
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Accordingly, we cannot predict whether we will be able to sell any of our properties for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of our properties. We may be required to expend funds to correct defects or to make improvements before a property can be sold, and we cannot assure you that we will have funds available to correct those defects or to make those improvements. Our inability to dispose of assets at opportune times or on favorable terms could adversely affect our cash flows and results of operations.
Increases in interest rates could increase our interest expense and may adversely affect our cash flows, our ability to service our indebtedness and our ability to pay dividends to our stockholders.
As of December 31, 2021, we had approximately $129.4 million in floating-rate indebtedness, and we may enter into debt instruments with variable interest rates in the future. Increases in interest rates on variable rate debt will increase our interest expense, unless we make arrangements to hedge the risk of rising interest rates. These increased costs could reduce our profitability, impair our ability to meet our debt obligations, increase the cost of financing or impair our ability to pay dividends to our stockholders. An increase in interest rates also could limit our ability to refinance existing debt upon maturity or cause us to pay higher rates upon refinancing.
The phase-out of London Interbank Offered Rate ("LIBOR") could affect interest rates under our variable rate debt, interest rate swaps and interest rate cap agreements.
LIBOR is used as a reference rate for our Basis Term Loan, various of our mortgage indebtedness, our interest rate swap and interest rate cap agreements. On July 27, 2017, the United Kingdom's Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The administrator of LIBOR ceased the publication of the one-week and two-month LIBOR settings immediately following the LIBOR publication on December 31, 2021. On November 30, 2020, the ICE Benchmark Administration Limited announced its plan to extend the date that the remaining U.S. LIBOR values would cease being computed and published from December 31, 2021 to June 30, 2023. The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to U.S. dollar LIBOR in derivatives and other financial contracts. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, published by the Federal Reserve Bank of New York. It is expected that new contracts will not reference LIBOR and will instead use SOFR or other alternative reference rates. At this time, we cannot predict the effect of any discontinuance, modification or other reforms to LIBOR or if SOFR, or another alternative reference rate, will attain market traction as a LIBOR replacement. As LIBOR phases out and ceases to exist, we will need to agree upon a benchmark replacement index with the lenders for debt using LIBOR as a reference rate, and as such the interest rate on any existing debt using LIBOR may change. The new rate may not be as favorable as those in effect prior to the LIBOR phase-out. Furthermore, the transition process may result in delays in funding, higher interest expense, additional expenses, and increased volatility in markets for instruments that currently rely on LIBOR, all of which could negatively impact our cash flow.
Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations, cash flows, cash available for distribution and ability to service our debt obligations.
We have entered into hedging transactions to protect us from the effects of interest rate fluctuations on floating rate debt and may enter into other hedging transactions in the future. Our hedging transactions include interest rate cap agreements and interest rate swap agreements. These agreements involve risks, such as the risk that (i) such arrangements would not be effective in reducing our exposure to interest rate changes, (ii) a court could rule that such agreements are not legally enforceable, (iii) hedging could actually increase our costs and reduce the overall returns on our investments, as interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates, (iv) counterparties to such arrangements would not perform, (v) we could incur significant costs associated with the settlement of the agreements, or (vi) the underlying transactions could fail to qualify as highly-effective cash flow hedges under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. Our failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations, cash flows, cash available for distribution and ability to service our debt obligations.
Our management team had no prior experience operating a public company prior to their appointment in December 2019, and we cannot assure you that the past experience of our senior management team will be sufficient to successfully operate as a public company.
Our board of directors and senior management team have overall responsibility for the management of the Company and, while certain members of our senior management team and directors have extensive experience in real estate marketing, development, management, finance and law, few members of our senior management team and board of directors had prior experience in operating a public company prior to their appointment in December 2019. As a public company, we are required to develop and implement substantial control systems, policies and procedures in order to satisfy the company’s periodic SEC reporting. We cannot assure you that management’s past experience will be sufficient to successfully develop and implement these systems, policies and procedures and to operate a public company.
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We have identified material weaknesses in our internal control over financial reporting. If we are unable to remedy these material weaknesses, we may not be able to accurately report our financial results, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As described under Item 9A—Controls and Procedures, we conducted our assessment of our internal control over financial reporting as is set forth in Item 308(a) of Regulation S-K promulgated under the Exchange Act, and Section 404 of the Sarbanes-Oxley Act as of December 31, 2021, the end of our last fiscal year. Our assessment noted that while remediation of the previously identified material weaknesses is in process, such remediation has not been completed nor have the remediated controls been in place for a sufficient amount of time to conclude as to their operating effectiveness. Consequently, the material weaknesses as noted previously remain at December 31, 2021 and our internal controls over financial reporting are ineffective.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Prior to the completion and as a result of the Mergers, we did not maintain appropriately designed entity-level controls impacting the control environment, risk assessment procedures, and effective monitoring controls to prevent or detect material misstatements to the consolidated financial statements. These material weaknesses contributed to additional material weaknesses within certain business processes and the information technology environment. See Item 9A “Controls and Procedures—Material Weaknesses.” Although these material weaknesses did not result in any material misstatement of our consolidated financial statements for the periods presented, they could lead to a material misstatement of account balances or disclosures.
The majority of the control improvement efforts have been completed as of December 31, 2021, with the remainder expected to be completed during the fiscal year ending December 31, 2022. While we believe that our efforts described under Item 9A “Controls and Procedures—Remediation Plan” will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, or that we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material weaknesses in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. The continued existence of material weaknesses in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, any of which could cause the value of our common stock to decline.
We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders.
Because we own real estate, we are subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could change the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury claims could be substantial, which could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing.
Uninsured losses relating to real estate and lender requirements to obtain insurance may materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders.
There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes and other natural disasters, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by
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insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure you that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase. If any one of the events described above were to occur, it could have a material adverse effect on our business, financial condition and results of operations and our ability to pay dividends to our stockholders.
Compliance with the ADA and fire, safety and other regulations may require us to make unexpected expenditures that adversely affect our business, financial condition, results of operations and ability to pay dividends to our stockholders.
Under the ADA all places of public accommodation are required to meet certain U.S. federal requirements related to access and use by disabled persons. Noncompliance with the ADA could result in the imposition of fines, an award of damages to private litigants and/or an order to correct any non-complying feature which could result in substantial capital expenditures. A number of additional U.S. federal, state and local laws may also require modifications to our properties, or restrict certain further renovations of such properties, with respect to access thereto by disabled persons. We have not conducted a detailed audit or investigation of all of our properties to determine our compliance, and we cannot predict the ultimate cost of compliance with the ADA or other legislation. If one or more of our properties is not in compliance with the ADA or other similar legislation, then we would be required to incur additional costs to bring such property into compliance, which could adversely affect our financial condition, results of operations and cash flows. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and become applicable to our properties. We may be required to make substantial capital expenditures to comply with those requirements, which could materially and adversely affect our business, financial condition, results of operations and ability to pay dividends to our stockholders.
We may not be able to rebuild our properties to their existing specifications if we experience a substantial or comprehensive loss of such properties.
In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications. Further, reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements. Environmental and legal restrictions could also restrict the rebuilding of our properties.
We depend on key personnel whose continued service is not guaranteed and each of whom would be difficult to replace.
Our success depends, to a significant extent, on the services of certain key personnel, particularly Michael Jacoby, our chairman and chief executive officer. Among the reasons that Mr. Jacoby is important to our continued success is that he has significant experience in acquiring, financing, owning, leasing, managing, developing and redeveloping commercial real estate properties. Our ability to acquire, manage, develop and redevelop and successfully integrate and operate retail properties, therefore, depends upon the significant relationships that Mr. Jacoby and other members of our senior management team have developed over many years. Although we have entered into employment agreements with Mr. Jacoby and Alexander Topchy, our chief financial officer, we cannot provide any assurance that they will remain employed by us. Our ability to retain our senior management team, or to attract and integrate suitable replacements should any member of the senior management team leave, is dependent upon the competitive nature of the employment market. The loss of services of one or more members of our senior management team, particularly Mr. Jacoby, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could adversely affect our business, financial condition and results of operations. Furthermore, the Basis Loan Agreement prohibits us from engaging in certain change of control transactions. It is deemed a change of control under the Basis Loan Agreement if Mr. Jacoby ceases to be our chairman and chief executive officer and ceases to be actively involved in our daily activities and operations if Basis does not approve a replacement of Mr. Jacoby within 90 days of him ceasing to serve in such roles. If Mr. Jacoby were to no longer serve in his current roles, we could be declared in default under the Basis Loan Agreement.
Risks Related to Our Common Stock
Our common stock has a very limited trading market, which limits your ability to resell shares of our common stock.
Although our common stock is quoted on the OTCQX, there is a very limited trading market for our common stock, which limits your ability to resell shares of our common stock. The OTCQX quotation platform is an inter-dealer market that is less regulated than the major securities markets. There can be no assurances that an active trading market for our common stock will develop or be sustained. Accordingly, there can be no assurance as to the ability of holders of shares of our common stock to sell their shares or the prices at which holders may be able to sell their shares.
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In addition, all of the shares of our common stock that were issued in the Mergers were issued pursuant to exemptions from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D thereunder. Those shares may not be offered or sold unless the offer and sale is registered under, or exempt from the registration requirements of, the Securities Act, and we do not intend to register the offer and sale of those shares. Pursuant to Rule 144 under the Securities Act, those shares may be transferred without registration only if we satisfy the current public information requirement of Rule 144, which requires that we have filed all required periodic reports under the Exchange Act during the 12 months preceding such sale. If we do not satisfy the current public information requirement of Rule 144, shares of common stock issued in the Mergers that have been completed to date cannot be transferred pursuant to Rule 144 under the Securities Act.
The trading volume and market price of our common stock may fluctuate significantly, and you may have an illiquid investment.
Even if a trading market develops and is sustained for our common stock, the market price of our common stock may be volatile. In addition, the trading volume of our common stock may fluctuate and cause significant price variations to occur. It may be difficult for our stockholders to resell their shares in the amount or at prices or times that they find attractive, or at all. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future, including as a result of factors unrelated to our operating performance or prospects. In particular, the market price of our common stock could be subject to wide fluctuations in response to many factors, including, among others, the following:
In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.
We have not established a minimum dividend, and there can be no assurance that we will be able to pay or maintain cash dividends on our common stock or that dividends will increase over time.
We have not established a minimum dividend payment level for our common stock and can provide no assurances regarding the payment of dividends in the future. Dividends will be authorized and determined by our board of directors in its sole and absolute discretion from time to time and will depend upon a number of factors, including:
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We bear all expenses incurred by our operations, and our funds generated by operations, after deducting these expenses, may not be sufficient to cover dividends to our stockholders at desirable levels or at all.
Common stock eligible for future sale could have an adverse effect on the market price of our common stock.
In connection with the Mergers, we have issued 28,744,641 shares of common stock and 2,827,904 OP units and expect to issue an additional 1,317,055 shares of common stock and 573,529 OP units in the remaining two Mergers. OP units may be tendered by the holder for redemption in exchange for cash or, at our election, shares of common stock beginning on the first anniversary of issuance. Pursuant to Rule 144 under the Securities Act, the shares of common stock issued to non-affiliates in the Mergers will become freely transferable by the holders thereof six months after issuance, subject to us meeting the current public information requirement under Rule 144. In addition, from time to time we may issue additional shares of common stock or OP units in connection with the acquisition of properties, as compensation or otherwise, and we may grant registration rights in connection with such issuances.
We cannot predict the effect, if any, of future issuances and sales of our common stock and OP units, or the availability of shares for future sales, on the market price of the common stock. Issuances and sales of substantial amounts of our common stock, or upon the exchange of OP units, or the perception that such sales could occur, may materially and adversely affect the market price of our common stock.
Future issuances of debt securities or preferred stock, which would rank senior to our common stock upon liquidation, or future issuances of equity securities (including OP units), which would dilute our existing stockholders and may be senior to our common stock for purposes of making distributions, may materially and adversely affect the market price of our common stock and the value of OP units.
In the future, we may issue debt or equity securities or incur other borrowings. Upon our liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. If we incur additional debt in the future, our future interest costs could increase and adversely affect our liquidity and results of operations. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis. Therefore, additional common stock issuances, directly or through convertible or exchangeable securities (including OP units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of our common stock. If we issue additional preferred stock, it would likely have a preference on dividend payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make dividends to our common stockholders. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings will negatively affect the market price of our common stock.
Increases in market interest rates may reduce demand for our common stock and result in a decline in the market price of our common stock.
The market price of our common stock may be influenced by the dividend yield on our common stock (i.e., the amount of our annual dividends, if any, as a percentage of the market price of our common stock) relative to market interest rates. An increase in market interest rates, which are currently low compared to historical levels, may lead prospective purchasers of our common stock to expect a higher dividend yield, which we may not be able, or may choose not, to provide. Higher interest rates would also likely increase our borrowing costs and decrease our operating results and cash available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decline.
Risks Related to Our Organizational Structure
Messrs. Jacoby and Yockey own a substantial interest in our company on a fully diluted basis and may have the ability to exercise significant influence on our company.
As of April 8, 2022, Messrs. Jacoby and Yockey together owned approximately 16.4% of the outstanding shares of our common stock and 18.8% of the combined outstanding shares of common stock and OP units (which OP units may be tendered by the holder for redemption in exchange for cash or, at our election, shares of common stock beginning on the first anniversary of issuance). Furthermore, if all of the Mergers are completed, they will own 18.7% of the combined outstanding shares of common stock and OP units. In addition, Mr. Neal, a member of our board of directors, owned approximately 2.9% of the outstanding shares of our common stock as of April 8, 2022. Consequently, certain members of our management and our board of directors, whose economic, tax or business interests or goals may be different or inconsistent with ours, may be able to significantly influence the outcome of matters submitted for stockholder action, including the election of directors and the approval of significant corporate transactions, including business combinations, consolidations and mergers.
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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 (including certain of our executive officers and directors), on the other hand. Our directors and officers have duties to our company under Delaware law in connection with their management of our company. At the same time, our wholly owned subsidiary, Broad Street OP GP, LLC, as the general partner of the Operating Partnership, has fiduciary duties and obligations to the Operating Partnership and its limited partners under Delaware law and the Agreement of Limited Partnership of the Operating Partnership (the “OP Partnership Agreement”) in connection with the management of the Operating Partnership. The general partner’s fiduciary duties and obligations as the general partner of the Operating Partnership may come into conflict with the duties of our directors and officers the Company. Certain of our officers and directors are limited partners in the Operating Partnership.
Unless otherwise provided for in a partnership agreement, Delaware law generally requires a general partner of a Delaware limited partnership to adhere to fiduciary duty standards under which it owes its limited partners the highest duties of good faith, fairness and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The OP Partnership Agreement provides that, in the event of a conflict between the interests of the limited partners of the Operating Partnership, on the one hand, and the separate interests of our stockholders, on the other hand, the general partner, in its capacity as the general partner of the Operating Partnership, shall act in the interests of our stockholders and is under no obligation to consider the separate interests of the limited partners of the Operating Partnership in deciding whether to cause the Operating Partnership to take or not to take any actions. The OP Partnership Agreement further provides that any decisions or actions not taken by the general partner in accordance with the OP Partnership Agreement will not violate any duties, including the duty of loyalty that the general partner, in its capacity as the general partner of the Operating Partnership, owes to the Operating Partnership and its partners.
We are a holding company with no direct operations and, as such, we will rely on funds received from the Operating Partnership to pay any distributions to our stockholders, and the interests of our stockholders are structurally subordinated to all liabilities and obligations of the Operating Partnership and its subsidiaries.
We are a holding company and conduct substantially all of our operations through the Operating Partnership. Apart from interests in the Operating Partnership, we do not have any material assets. As a result, we will rely on cash distributions from the Operating Partnership to pay any distributions our board of directors may 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, claims of our stockholders are 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 board of directors may change its strategies, policies or procedures without the consent of stockholders, which may subject us to different and more significant risks in the future.
Our investment, financing, leverage and distribution policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, are determined by our board of directors in its sole discretion. These policies may be amended or revised at any time and from time to time at the discretion of the board of directors without notice to or a vote of the stockholders. This could result in us conducting operational matters, making investments or pursuing different business or growth strategies than those previously disclosed. Under these circumstances, we may be exposed to different and more significant risks in the future, which could have a material adverse effect on our business and growth. In addition, our board of directors may change our policies with respect to conflicts of interest, provided that such changes are consistent with applicable legal requirements. A change in these policies could have an adverse effect on our financial condition, results of operations, cash flows, trading price of our common stock and ability to satisfy our liquidity obligations and to make distributions to stockholders.
Certain provisions in the OP Partnership Agreement may delay or prevent unsolicited acquisitions of us.
Provisions in the OP Partnership Agreement 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 in our control, although some of our stockholders might consider such proposals, if made, desirable. These provisions include, among others:
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Certain of our directors, officers and employees have outside business interests that present conflicts of interest with us and may adversely affect our business.
Messrs. Jacoby, Yockey, Topchy, Holden and Foster collectively own a 20.9% interest in an entity that is redeveloping a property that formerly was a part of our Midtown Colonial property into a mixed-use facility with retail on the ground floor and multi-family above. When the redevelopment is complete, we will manage the retail portion of the property. However, we will have no ownership interest in the property. As a result of their ownership interest in this entity, Messrs. Jacoby, Yockey, Topchy, Holden and Foster will have conflicts of interest. The retail portion of the property owned in part by Messrs. Jacoby, Yockey, Topchy, Holden and Foster may compete with properties we own, including the portion of Midtown Colonial that we own. Furthermore, our directors and officers may invest in other properties in the future that compete with properties owned by us.
Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event that we take certain actions which are not in our stockholders’ best interests.
Our charter and bylaws obligate us to indemnify each present and former director or officer, and the OP Partnership Agreement requires us to indemnify the general partner of the Operating Partnership, to the maximum extent permitted by Delaware law, in the defense of any proceeding to which he, she or it is made, or threatened to be made, a party by reason of his, her or its service to us or the Operating Partnership. In addition, we may be obligated to advance the defense costs incurred by our directors and officers. We have also entered into indemnification agreements with our executive officers and directors granting them express indemnification rights. 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, bylaws and indemnification agreements or that might exist for other public companies.
Delaware law could make a merger or tender offer difficult, thereby depressing the trading price of our common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder (generally a stockholder, who together with affiliates and associates, owns 15% or more of our voting rights) for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our stockholders.
Our bylaws contain provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management.
Our bylaws contain provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management and may prevent a change in control of us that is in the best interests of our stockholders. Our bylaws provide that a director may only be removed for cause upon the affirmative vote of holders of a majority of all the shares then outstanding. Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control that is in the best interests of our stockholders.
Termination of the employment agreements with our executive officers could be costly and prevent a change in control.
The employment agreements that we entered into with Messrs. Jacoby and Topchy provide that, if their employment with us terminates under certain circumstances (including upon a change in our control), we may be required to pay them significant amounts of severance compensation, including accelerated vesting of equity awards, thereby making it costly to terminate their employment. Furthermore, these provisions could delay or prevent a transaction or a change in control that might involve a premium paid for our common stock or otherwise be in the best interests of our stockholders.
We may pursue less vigorous enforcement of terms of certain agreements with members of our senior management and our affiliates because of our dependence on them and conflicts of interest.
Messrs. Jacoby and Yockey entered into a representation, warranty and indemnification agreement with the Company and the Operating Partnership, pursuant to which they have agreed to indemnify the Company and the Operating Partnership for certain breaches of the representations and warranties of certain parties to the merger agreements for a period of one year following the closing of the Mergers. We may choose not to enforce, or to enforce less vigorously, our rights under this agreement because of our desire to maintain ongoing relationships with Messrs. Jacoby and Yockey, which could have a negative impact on stockholders.
Furthermore, Messrs. Jacoby, Yockey, Topchy and Neal have ownership interests in the property-owning entities that are party to the Mergers that have not closed. As a result, there are inherent conflicts of interest in the remaining Mergers. As a result of these
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relationships, we may choose not to enforce, or to enforce less vigorously, our rights under the merger agreements for the remaining Mergers. Furthermore, our decision about whether or not to continue to pursue the closings of these Mergers could be impacted by these relationships.
Our tax protection agreements could limit our ability to sell or otherwise dispose of certain properties.
In connection with the Mergers in which OP units were or will be issued as consideration, our Operating Partnership has or will enter into tax protection agreements that provide that if we dispose of any interest in the contributed properties in a taxable transaction prior to the seventh anniversary of the completion of such Mergers, subject to certain exceptions, we will indemnify the investors for their tax liabilities attributable to the built-in gain that exists with respect to such property interests as of the time of such Mergers and the tax liabilities incurred as a result of such tax protection payment. In addition, we may enter into similar tax protection agreements in the future if we issue OP units in connection with the acquisition of properties. Therefore, although it may be in our best interests that we sell one of these properties, it may be economically prohibitive for us to do so because of these obligations.
Our tax protection agreements may require our Operating Partnership to maintain certain debt levels that otherwise would not be required to operate our business.
Under our tax protection agreements, our Operating Partnership is obligated to provide certain OP unit holders the opportunity to guarantee debt or enter into deficit restoration obligations, including upon a future repayment, retirement, refinancing or other reduction (other than scheduled amortization) of currently outstanding debt prior to the seventh anniversary of the completion of such Mergers. If we fail to make such opportunities available, we will be required to deliver to each such OP unit holder a cash payment intended to approximate the investor's tax liability resulting from our failure to make such opportunities available to that OP unit holder and the tax liabilities incurred as a result of such tax protection payment. We agreed to these provisions in order to assist the investors in deferring the recognition of taxable gain as a result of and after such Mergers, and we may agree to similar provisions in the future if we issue OP units in connection with the acquisition of additional properties. These obligations may require us to maintain more or different indebtedness than we would otherwise require for our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The information set forth under “Our Portfolio” in Item 1 of this report is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal actions in the ordinary course of business. We are not currently involved in any material legal proceedings outside the ordinary course of our business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTCQX under the symbol “BRST.” On April 8, 2022, there were 618 holders of record. Such information was obtained through our registrar and transfer agent. The quotations on the OTCQX are inter-dealer prices without retail markups, markdowns or commissions, and may not necessarily represent actual transactions.
Dividends
We do not have a history of paying cash dividends to holders of our common stock. In the future, we intend to make regular quarterly distributions to the holders of our common stock. However, we can provide no assurances as to the timing of dividends or as to the amount of dividends. Our ability to make distributions will depend upon our actual results of operations and earnings, economic
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conditions and other factors that could differ materially from our current expectations. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations to us and unanticipated expenditures. For more information regarding factors that could materially and adversely affect our actual results of operations and ability to make distributions to our stockholders, see Item 1.A “Risk Factors” included elsewhere in this report. Distributions declared by us will be authorized by our board of directors in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including restrictions under applicable law and the capital requirements of our company. We may be required to fund distributions from working capital or borrow to provide funds for such distributions, or we may choose to make a portion of the required distributions in the form of a taxable stock dividend to preserve our cash balance or reduce our distributions. However, we currently have no intention to make distributions using shares of our common stock.
Furthermore, we anticipate that, at least initially, any distributions that we make will exceed our then current and then accumulated earnings and profits for the relevant taxable year, as determined for U.S. federal income tax purposes, due to non-cash expenses, primarily depreciation and amortization charges that we expect to incur. Therefore, all or a portion of these distributions may represent a return of capital for U.S. federal income tax purposes. The extent to which our distributions exceed our current and accumulated earnings and profits may vary substantially from year to year. To the extent that a distribution is treated as a return of capital for U.S. federal income tax purposes, it will reduce a holder’s adjusted tax basis in the holder’s shares, and to the extent that it exceeds the holder’s adjusted tax basis will be treated as gain resulting from a sale or exchange of such shares. As a result, the gain (or loss) recognized on the sale of that common stock or upon our liquidation will be decreased (or increased) accordingly.
Unregistered Sales of Equity Securities
Under the terms of the partnership agreement of our Operating Partnership, holders of OP units may, subject to certain conditions, tender their OP units for redemption by our Operating Partnership in exchange for cash equal to the market price of shares of our common stock at the time of redemption or, at our option and sole discretion, for shares of our common stock on a one-for-one basis. During the three months ended December 31, 2021, we issued 36,064 shares of common stock in connection with the redemption of OP units. The shares of common stock were issued pursuant to exemptions from registration under Section 4(a)(2) of the Securities Act.
Issuer Purchases of Equity Securities
From time to time, we could be deemed to have purchased shares as a result of shares withheld for tax purposes upon a stock compensation related vesting event. During the three months ended December 31, 2021, certain of our employees surrendered shares of common stock owned by them to satisfy their minimum statutory federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our Amended and Restated 2020 Equity Incentive Plan (the "Plan"). The following table summarizes all of these repurchases during the three months ended December 31, 2021.
Period |
| Total Number of Shares Purchased (1) |
|
| Average Price Paid Per Share |
|
| Total Number of Shares as Part of Publicly Announced Plans or Programs |
| Maximum Number of Shares That May Yet be Purchased Under the Plan or Programs | ||
October 1 through October 31, 2021 |
|
| — |
|
| $ | — |
|
| N/A |
| N/A |
November 1 through November 30, 2021 |
|
| — |
|
| $ | — |
|
| N/A |
| N/A |
December 1 through December 31, 2021 |
|
| 4,781 |
|
| $ | 2.49 |
|
| N/A |
| N/A |
Total |
|
| 4,781 |
|
|
|
|
|
|
|
| |
ITEM 6. [RESERVED]
35
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section provides a discussion of our financial condition and comparative results of operations and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in this report. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the audited consolidated financial statements included in this report.
Overview
We are focused on owning and managing essential grocery-anchored and mixed-use assets located in densely populated technology employment hubs and higher education centers within the Mid-Atlantic, Southeast and Colorado markets. As of December 31, 2021, we owned 15 properties with an additional three properties under contract to be acquired. The properties in our portfolio and the properties we have under contract are dispersed in sub-markets that we believe generally have high population densities, high traffic counts, good visibility and accessibility, which provide our tenants with attractive locations to serve the necessity-based needs of the surrounding communities. As of December 31, 2021, the properties in our portfolio were 88.1% leased and 84.7% occupied. We are focused on acquiring additional strategically positioned properties in established and developing neighborhoods primarily leased to necessity-based tenants that meet the needs of the surrounding communities in our existing markets, as well as acquiring properties in new markets that meet our investment criteria, including the Southeastern United States. In addition, we provide commercial real estate brokerage services for our own portfolio and third-party office, industrial and retail operators and tenants.
The table below provides certain information regarding our portfolio as of December 31, 2021 and 2020.
|
| As of |
|
| As of |
| ||
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Number of properties |
|
| 15 |
|
|
| 11 |
|
Number of states |
|
| 5 |
|
|
| 5 |
|
Total square feet (in thousands) |
|
| 1,737 |
|
|
| 1,055 |
|
Anchor spaces |
|
| 917 |
|
|
| 566 |
|
Inline spaces |
|
| 820 |
|
|
| 489 |
|
Leased % of rentable square feet (1): |
|
|
|
|
|
| ||
Total portfolio |
|
| 88.1 | % |
|
| 85.8 | % |
Anchor spaces |
|
| 94.3 | % |
|
| 93.4 | % |
Inline spaces |
|
| 81.3 | % |
|
| 77.0 | % |
Occupied % of rentable square feet: |
|
|
|
|
|
| ||
Total portfolio |
|
| 84.7 | % |
|
| 82.6 | % |
Anchor spaces |
|
| 91.9 | % |
|
| 90.7 | % |
Inline spaces |
|
| 76.7 | % |
|
| 73.2 | % |
Average remaining lease term (in years) (2) |
|
| 4.7 |
|
|
| 5.4 |
|
Annualized base rent per leased square feet (3) |
| $ | 13.83 |
|
| $ | 13.80 |
|
We are structured as an “Up-C” corporation with substantially all of our operations conducted through our Operating Partnership and its direct and indirect subsidiaries. As of December 31, 2021, we owned 91.9% of the OP units in our Operating Partnership, and we are the sole member of the sole general partner of our Operating Partnership.
Acquisitions
On July 2, 2020, we closed one Merger whereby we acquired Lamar Station Plaza East. During 2021, we closed four additional Mergers whereby we acquired Highlandtown Village Shopping Center, Cromwell Field Shopping Center, Spotswood Valley Square Shopping Center and The Shops at Greenwood Village on May 21, 2021, May 26, 2021, June 4, 2021, and October 6, 2021, respectively.
Impact of COVID-19
We continue to monitor and address risks related to the COVID-19 pandemic. Certain tenants experiencing economic difficulties during the pandemic have previously sought rent relief, which had been provided on a case-by-case basis primarily in the form of rent deferrals and, in more limited cases, in the form of rent abatements. Since April 2020, we have entered into lease modifications that deferred approximately $0.6 million and waived approximately $0.3 million of contractual revenue for rent that pertained to April 2020
36
through December 2020; in 2021 we had only one lease modification related to COVID-19, which was approximately $16,000 related to contractual rent owed February 2021 through April 2021. Approximately $0.3 million of the total deferred rent from all lease modifications since April 2020 remained outstanding and to be billed as of December 31, 2021 and has a weighted average payback period of approximately 26 months. As of April 15, 2022, we have given rent deferrals to 36 tenants (approximately 12.0% of our total tenants representing approximately 2.8% of our annualized base rent at December 31, 2021) with eight tenants still on a payment plan. All but four tenants are compliant with their plan.
However, even as conditions improve and governmental restrictions are lifted, the ability of our tenants to successfully operate their businesses and pay rent may continue to be impacted by economic conditions resulting from COVID-19 or public perception of the risk of COVID-19, which could adversely affect foot traffic to our tenants' businesses and our tenants' ability to adequately staff their businesses. The extent of the COVID-19 pandemic's effect on our future operational and financial performance, financial condition and liquidity will depend on future developments, including the duration and intensity of the pandemic, the effectiveness, including the deployment, of COVID-19 vaccines and treatments, the duration of government measures to mitigate the pandemic and how quickly and to what extent normal economic and operating conditions can resume, all of which are uncertain and difficult to predict.
How We Derive Our Revenue
We derive a substantial majority of our revenue from rents received from our tenants at each of our properties. Our leases are generally triple net, pursuant to which the tenant is responsible for property expenses, including real estate taxes, insurance and maintenance, or modified gross, pursuant to which the tenant generally reimburses us for its proportional share of expenses. As of December 31, 2021, our portfolio (i) had annualized base rent of $21.2 million, (ii) had an annualized base rent per square foot of $13.83, (iii) was 88.1% leased (84.7% occupied) to a diversified group of tenants and (iv) had no tenant accounting for more than 4.0% of the total annualized base rent. We also operate a third-party property management and brokerage business unit. Our brokerage business primarily consists of representations of commercial tenants for their office and retail real estate needs, either for lease transactions or purchase and sale transactions. Until we close the remaining two Mergers, we will receive property management fees for the management of those properties.
Factors that May Impact Future Results of Operations
Rental Income
Growth in rental income will depend on our ability to acquire additional properties that meet our investment criteria and on filling vacancies and increasing rents on the properties in our portfolio. The amount of rental income generated by the properties in our portfolio depends on our ability to renew expiring leases or re-lease space upon the scheduled or unscheduled termination of leases, lease currently available space and maintain or increase rental rates at our properties. In addition to the factors regarding the COVID-19 pandemic described above, our rental income in future periods could be adversely affected by local, regional or national economic conditions, an oversupply of or a reduction in demand for retail space, changes in market rental rates, our ability to provide adequate services and maintenance at our properties, and fluctuations in interest rates. In addition, economic downturns affecting our markets or downturns in our tenants’ businesses that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments to us, including as a result of the COVID-19 pandemic, could adversely affect our ability to maintain or increase rent and occupancy.
Scheduled Lease Expirations
Our ability to re-lease expiring space at rental rates equal to or greater than that of current rental rates will impact our results of operations. Our properties are marketed to smaller tenants that generally desire shorter-term leases. As of December 31, 2021, approximately 60.2% of our portfolio (based on leased GLA) was leased to tenants occupying less than 10,000 square feet. In addition, as of December 31, 2021, approximately 11.9% of our GLA was vacant and approximately 5.6% of our leases (based on total GLA) were month-to-month or scheduled to expire on or before December 31, 2022. See “Item 1 Business—Our Portfolio—Lease Expirations.” Although we maintain ongoing dialogue with our tenants, we generally raise the issue of renewal at least 12 months prior to lease renewal often providing concessions for early renewal. If our current tenants do not renew their leases or terminate their leases early, we may be unable to re-lease the space to new tenants on favorable terms or at all, including as a result of the COVID-19 pandemic. Our vacancy trends will be impacted by new properties that we acquire, which may include properties with higher vacancy where we identified opportunities to increase occupancy.
Acquisitions
Over the long-term, we intend to grow our portfolio through the acquisition of additional strategically positioned properties in established and developing neighborhoods primarily leased to necessity-based tenants that meet the needs of the surrounding communities in our existing markets, as well as acquiring properties in new markets that meet our investment criteria, including the Southeastern United States. We have established relationships with a wide variety of market participants, including tenants, leasing agents, investment sales brokers, property owners and lenders, in our target markets and beyond and, over the long-term, we believe that we will have opportunities to acquire properties that meet our investment criteria at attractive prices. See “Business—Portfolio—Pending Mergers” and “Business—Portfolio—Pending Midtown Row Acquisition.”
37
General and Administrative Expenses
General and administrative expenses include employee compensation costs, professional fees, consulting and other general administrative expenses. We expect an increase in general and administrative expenses in the future related to stock issuances to employees. We expect that our general and administrative expenses will rise in some measure as our portfolio grows but that such expenses as a percentage of our revenue will decrease over time due to efficiencies and economies of scale.
Capital Expenditures
We incur capital expenditures at our properties that vary in amount and frequency based on each property’s specific needs. We expect our capital expenditures will be for recurring maintenance to ensure our properties are in good working condition, including parking and roof repairs, façade maintenance and general upkeep. We also will incur capital expenditures related to repositioning and refurbishing properties where we have identified opportunities to improve our properties to increase occupancy, and we may incur capital expenditures related to redevelopment or development consistent with our business and growth strategies.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers accounting estimates or assumptions critical in either of the following cases:
Management believes the current assumptions used to make estimates in the preparation of the consolidated financial statements are appropriate and not likely to change in the future. However, actual experience could differ from the assumptions used to make estimates, resulting in changes that could have a material adverse effect on our consolidated results of operations, financial position and/or liquidity. These estimates will be made and evaluated on an ongoing basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances. Management has discussed the determination and disclosures of these critical accounting policies with the audit committee of the board of directors.
The following presents information about our critical accounting policies including the material assumptions used to develop significant estimates. Certain of these critical accounting policies contain discussion of judgments and estimates that have not yet been required by management but that it believes may be reasonably required of it to make in the future. See Note 2 “Accounting Policies and Related Matters” to the consolidated financial statements for additional information on significant accounting policies and the effect of recent accounting pronouncements.
Principles of Consolidation
The consolidated financial statements include the accounts of our wholly owned subsidiaries, and all material intercompany transactions and balances are eliminated in consolidation. We consolidate entities in which we own less than 100% of the equity interest but have a controlling interest through a variable interest, voting rights or other means. For these entities, we record a noncontrolling interest representing the equity held by other parties.
From inception, we continually evaluate all of our transactions and investments to determine if they represent variable interests subject to the variable interest entity (“VIE”) consolidation model and then determine which business enterprise is the primary beneficiary of its operations. We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. This evaluation is based on our ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance.
For investments not subject to the variable interest entity consolidation model, we will evaluate the type of rights held by the limited partner(s) or other member(s), which may preclude consolidation in circumstances in which the sole general partner or managing member would otherwise consolidate the limited partnership. The assessment of limited partners’ or members’ rights and their impact on the presumption of control over a limited partnership or limited liability corporation by the sole general partner or managing member should be made when an investor becomes the sole general partner or managing member and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners or members, (ii) the sole general partner or member increases or decreases its ownership in the limited partnership or corporation or (iii) there is an increase or decrease in the number of outstanding limited partnership or membership interests.
Our ability to assess correctly our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements.
38
Subsequent evaluations of the primary beneficiary of a VIE may require the use of different assumptions that could lead to identification of a different primary beneficiary, resulting in a different consolidation conclusion than what was determined at inception of the arrangement.
Revenue Recognition
Leases of Real Estate Properties: At the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. Currently, all of our lease arrangements are classified as operating leases. Rental revenue for operating leases is recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of a leased asset. If we determine that substantially all future lease payments are not probable of collection, we will account for these leases on a cash basis. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or by us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of the tenant improvements is subject to significant judgment. If our assessment of the owner of the tenant improvements for accounting purposes were different, the timing and amount of revenue recognized would be impacted.
A majority of our leases require tenants to make estimated payments to the Company to cover their proportional share of operating expenses, including, but not limited to, real estate taxes, property insurance, routine maintenance and repairs, utilities and property management expenses. We collect these estimated expenses and are reimbursed by tenants for any actual expense in excess of estimates or reimburse tenants if collected estimates exceed actual operating results. The reimbursements are recorded in rental income, and the expenses are recorded in property operating expenses, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and bear the credit risk.
We assess the probability of collecting substantially all payments under our leases based on several factors, including, among other things, payment history of the lessee, the financial strength of the lessee and any guarantors, historical operations and operating trends and current and future economic conditions and expectations of performance. If our evaluation of these factors indicates it is probable that we will be unable to collect substantially all rents, we recognize a charge to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected. If we change our conclusion regarding the probability of collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion.
Leasing Commissions: We earn leasing commissions as a result of providing strategic advice and connecting tenants to property owners in the leasing of retail space. We record commission revenue on real estate leases at the point in time when the performance obligation is satisfied, which is generally upon lease execution. Terms and conditions of a commission agreement may include, but are not limited to, execution of a signed lease agreement and future contingencies, including tenant’s occupancy, payment of a deposit or payment of first month’s rent (or a combination thereof).
Property and Asset Management Fees: We provide real estate management services for owners of properties, representing a series of daily performance obligations delivered over time. Pricing is generally in the form of a monthly management fee based upon a percentage of property-level cash receipts or some other variable metric.
When accounting for reimbursements of third-party expenses incurred on a client’s behalf, we determine whether we are acting as a principal or an agent in the arrangement. When we are acting as a principal, our revenue is reported on a gross basis and comprises the entire amount billed to the client and reported cost of services includes all expenses associated with the client. When we are acting as an agent, our fee is reported on a net basis as revenue for reimbursed amounts is netted against the related expenses.
Engineering Services: We provide engineering services to property owners on an as needed basis at the properties where we are the property or asset manager. We receive consideration at agreed upon fixed rates for the time incurred plus a reimbursement for costs incurred and revenue is recognized over time because the customer simultaneously receives and consumes the benefits of the services as they are performed. We account for performance obligations using the right to invoice practical expedient. We apply the right to invoice practical expedient to record revenue as the services are provided, given the nature of the services provided and the frequency of billing under the customer contract. Under this practical expedient, we recognize revenue in an amount that corresponds directly with the value to the customer of performance completed to date and for which there is a right to invoice the customer.
Real Estate Investments
We evaluate each purchase transaction to determine whether the acquired assets and liabilities assumed meet the definition of a business and make estimates as part of our allocation of the purchase prices. For acquisitions accounted for as asset acquisitions, the purchase price, including transaction costs, is allocated to the various components of the acquisition based upon the relative fair value of each component. For acquisitions accounted for as business combinations, the purchase price is allocated at fair value of each component and transaction costs are expensed as incurred.
We assess the fair value of acquired assets and acquired liabilities in accordance with the ASC Topic 805 Business Combinations and allocate the purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize
39
appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market and economic conditions that may affect the property. The most significant components of our allocations are typically the allocation of fair value to land and buildings and in-place leases and other intangible assets. The estimates of the fair value of buildings will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired.
For any value assigned to in-place leases and other intangibles, including the assessment as to the existence of any above-or below-market leases, management makes its best estimates based on the evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases. The values of any identified above-or below-market leases are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, or for below-market leases including any bargain renewal option terms. Above-market lease values are recorded as a reduction of rental income over the lease term while below-market lease values are recorded as an increase to rental income over the lease term. The recorded values of in-place lease intangibles are recognized in amortization expense over the initial term of the respective leases.
Transaction costs related to asset acquisitions are included in the cost basis of the acquired assets, while transaction costs related to acquisitions that are deemed business combinations are expensed as incurred.
Asset Impairment
Real estate asset impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses if there are triggering events including macroeconomic conditions, loss of an anchor tenant and the ability to re-tenant the space, significant and persistent delinquencies, unanticipated decreases in or sustained reductions of net operating income and government-mandated compliance with an adverse effect to the Company's cost basis or operating costs. If management concludes there are triggering events, we then assess the impairment of properties individually. Impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that we will dispose of the property. In determining fair value, we use current appraisals or other third-party opinions of value and other estimates of fair value such as estimated discounted future cash flows. The determination of undiscounted cash flows requires significant estimates by management. In management’s estimate of cash flows, it considers factors such as expected future sale of an asset, capitalization rates, holding periods and the undiscounted future cash flow analysis. Subsequent changes in estimated undiscounted cash flows could affect the determination of whether an impairment exists.
Income Taxes
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur.
Recently Issued Accounting Standards
See Note 2 “Accounting Policies and Related Matters” in the notes to the consolidated financial statements for information concerning recently issued accounting standards.
40
Results of Operations
This section provides a comparative discussion on our results of operations and should be read in conjunction with our consolidated financial statements, including the accompanying notes. See "Critical Accounting Policies and Estimates" for more information concerning the most significant accounting policies and estimates applied in determining our results of operations.
Comparison of the year ended December 31, 2021 to the year ended December 31, 2020
|
| For the year ended December 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental income |
| $ | 21,408 |
|
| $ | 15,864 |
|
| $ | 5,544 |
|
|
| 35 | % |
Commissions |
|
| 2,836 |
|
|
| 2,437 |
|
|
| 399 |
|
|
| 16 | % |
Management and other fees |
|
| 1,105 |
|
|
| 1,358 |
|
|
| (253 | ) |
|
| (19 | %) |
Total revenues |
|
| 25,349 |
|
|
| 19,659 |
|
|
| 5,690 |
|
|
| 29 | % |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of services |
|
| 1,824 |
|
|
| 1,685 |
|
|
| 139 |
|
|
| 8 | % |
Depreciation and amortization |
|
| 12,501 |
|
|
| 9,939 |
|
|
| 2,562 |
|
|
| 26 | % |
Property operating |
|
| 5,694 |
|
|
| 3,914 |
|
|
| 1,780 |
|
|
| 45 | % |
Bad debt expense |
|
| 34 |
|
|
| 320 |
|
|
| (286 | ) |
|
| (89 | %) |
General and administrative |
|
| 11,360 |
|
|
| 8,911 |
|
|
| 2,449 |
|
|
| 27 | % |
Total operating expenses |
|
| 31,413 |
|
|
| 24,769 |
|
|
| 6,644 |
|
|
| 27 | % |
Operating loss |
|
| (6,064 | ) |
|
| (5,110 | ) |
|
| (954 | ) |
|
| 19 | % |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest and other income (expense) |
|
| (33 | ) |
|
| 55 |
|
|
| (88 | ) |
|
| (160 | %) |
Derivative fair value adjustment |
|
| 353 |
|
|
| (639 | ) |
|
| 992 |
|
|
| 155 | % |
Interest expense |
|
| (9,961 | ) |
|
| (6,676 | ) |
|
| (3,285 | ) |
|
| 49 | % |
Gain on extinguishment of debt |
|
| 1,528 |
|
|
| — |
|
|
| 1,528 |
|
| N/A |
| |
Other expense |
|
| (100 | ) |
|
| (187 | ) |
|
| 87 |
|
|
| (47 | %) |
Total other income (expense) |
|
| (8,213 | ) |
|
| (7,447 | ) |
|
| (766 | ) |
|
| 10 | % |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income tax benefit |
|
| 3,533 |
|
|
| 3,033 |
|
|
| 500 |
|
|
| 16 | % |
Net loss |
| $ | (10,744 | ) |
| $ | (9,524 | ) |
| $ | (1,220 | ) |
|
| 13 | % |
Plus: Net loss attributable to noncontrolling interest |
|
| 1,236 |
|
|
| 1,379 |
|
|
| (143 | ) |
|
| (10 | %) |
Net loss attributable to common stockholders |
| $ | (9,508 | ) |
| $ | (8,145 | ) |
| $ | (1,363 | ) |
|
| 17 | % |
Revenues for the year ended December 31, 2021 increased approximately $5.7 million, or 29%, compared to the year ended December 31, 2020, as a result of an approximately $5.5 million increase in rental income and an approximately $0.4 million increase in commissions. These increases were partially offset by an approximately $0.3 million decrease in management and other fees. Rental income increased as a result of the acquisition of three properties in the second quarter of 2021 and one property in the fourth quarter of 2021. The increase in commissions is mainly attributable to a larger transaction volume during 2021 due to transactions delayed in 2020 related to COVID-19. The decrease in management and other fees is mainly attributable to fees recognized in 2020 related to the properties acquired by the Company during 2021.
Total operating expenses for the year ended December 31, 2021 increased approximately $6.6 million, or 27%, compared to the year ended December 31, 2020, primarily from: (i) an increase in depreciation and amortization expense of approximately $2.6 million primarily related to five properties that were acquired since July 2020 (which comprise $3.8 million of the total depreciation and amortization expense, partially offset by a $1.5 million decrease in amortization of in-place lease tangibles); (ii) an increase in general and administrative expenses of approximately $2.4 million mainly attributable to an increase in professional service fees including legal, audit and tax fees of approximately $0.7 million, an increase in stock compensation expense of approximately $0.6 million, higher payroll and related expenses of approximately $0.6 million, an increase in leasing commissions of approximately $0.3 million, and an increase in fees to operate as a public company, including directors and officers insurance, board of directors fees and filing fees of approximately $0.1 million; and (iii) an increase in property operating expenses of $1.8 million, of which $1.4 million is related to the five properties acquired since July 2020 and $0.2 million related to an increase in snow removal expense.
The gain on derivative fair value adjustment was approximately $0.4 million for the year ended December 31, 2021 compared to a loss of $0.6 million for the year ended December 31, 2020. The increase of approximately $1.0 million was primarily due to the interest rate swaps the Company entered into on July 1, 2021 and December 27, 2019.
41
Interest expense for the year ended December 31, 2021 increased approximately $3.3 million, or 49%, compared to the year ended December 31, 2020, primarily due to debt that was assumed or originated in connection with the five properties that were acquired since July 2020.
The gain on extinguishment of debt of approximately $1.5 million for the year ended December 31, 2021 is related to the forgiveness of the PPP Loan and Second PPP Loan (each as defined below) described under the heading "Liquidity and Capital Resources—Consolidated Indebtedness and Preferred Equity—PPP Loans".
Income tax benefit increased approximately $0.5 million over the prior year, which is attributable to the timing of the completion of the Mergers in 2021.
Net loss attributable to noncontrolling interest for the year ended December 31, 2021 decreased approximately $0.1 million compared to the year ended December 31, 2020. The net loss attributable to noncontrolling interest reflects the proportionate share of the OP units held by outside investments in the operating results of the Operating Partnership from the completion of the Mergers on December 27, 2019.
Non-GAAP Performance Measures
We present the non-GAAP performance measures set forth below. These measures should not be considered as an alternative to, or more meaningful than, net income (calculated in accordance with GAAP) or other GAAP financial measures, as an indicator of financial performance and are not alternatives to, or more meaningful than, cash flow from operating activities (calculated in accordance with GAAP) as a measure of liquidity. Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental financial results to those calculated in accordance with GAAP. Our computation of these non-GAAP performance measures may differ in certain respects from the methodology utilized by other real estate companies and, therefore, may not be comparable to similarly titled measures presented by other real estate companies. Investors are cautioned that items excluded from these non-GAAP performance measures are relevant to understanding and addressing financial performance.
Funds From Operations and Adjusted Funds from Operations
Funds from operations ("FFO") is a supplemental non-GAAP financial measure of real estate companies' operating performance. The National Association of Real Estate Investment Trusts ("Nareit") defines FFO as follows: net income (loss), computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis.
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Considering the nature of our business as a real estate owner and operator, we believe that FFO is useful to investors in measuring our operating and financial performance because the definition excludes items included in net income that do not relate to or are not indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analysis of operating and financial performance more difficult, such as gains and losses from the sale of certain real estate assets and impairment write-downs of certain real estate assets. Specifically, in excluding real estate related depreciation and amortization and gains and losses from sales of depreciable operating properties, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
Adjusted FFO ("AFFO") is calculated by excluding the effect of certain items that do not reflect ongoing property operations, including stock-based compensation expense, deferred financing and debt issuance cost amortization, non-real estate depreciation and amortization, straight-line rent and other non-comparable or non-operating items. Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO.
AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) is the most directly comparable GAAP financial measure to AFFO.
42
Management believes that AFFO is a widely recognized measure of the operations of real estate companies, and presenting AFFO enables investors to assess our performance in comparison to other real estate companies. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
Our reconciliation of net income (loss) to FFO and AFFO for the years ended December 31, 2021, and 2020 is as follows:
|
| For the Year Ended December 31, |
| |||||
(dollars in thousands) |
| 2021 |
|
| 2020 |
| ||
Net loss |
| $ | (10,744 | ) |
| $ | (9,524 | ) |
Real estate depreciation and amortization |
|
| 12,014 |
|
|
| 9,515 |
|
Amortization of direct leasing costs |
|
| 8 |
|
|
| 2 |
|
FFO attributable to common shares and OP units |
|
| 1,278 |
|
|
| (7 | ) |
Stock-based compensation expense |
|
| 643 |
|
|
| — |
|
Deferred financing and debt issuance cost amortization |
|
| 1,302 |
|
|
| 906 |
|
Non-real estate depreciation and amortization |
|
| 19 |
|
|
| 19 |
|
Recurring capital expenditures |
|
| (280 | ) |
|
| (607 | ) |
Straight-line rent revenue |
|
| (512 | ) |
|
| (855 | ) |
Minimum return on preferred interests |
|
| (335 | ) |
|
| (982 | ) |
Non cash derivative fair value adjustment |
|
| (353 | ) |
|
| 639 |
|
AFFO attributable to common shares and OP units |
| $ | 1,762 |
|
| $ | (887 | ) |
|
|
|
|
|
|
| ||
Weighted average shares outstanding to common shares |
|
|
|
|
|
| ||
Diluted |
|
| 26,928,510 |
|
|
| 22,029,408 |
|
|
|
|
|
|
|
| ||
Net loss attributable to common stockholders per share |
|
|
|
|
|
| ||
Diluted (1) |
| $ | (0.35 | ) |
| $ | (0.37 | ) |
|
|
|
|
|
|
| ||
Weighted average shares outstanding to common shares and OP units |
|
|
|
|
|
| ||
Diluted |
|
| 29,747,324 |
|
|
| 24,857,312 |
|
|
|
|
|
|
|
| ||
FFO attributable to common shares and OP units |
|
|
|
|
|
| ||
Diluted (2) |
| $ | 0.04 |
|
| $ | — |
|
Liquidity and Capital Resources
Overview
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay any outstanding borrowings, fund and maintain our assets and operations and other general business needs.
Our short-term liquidity requirements consist primarily of debt service requirements, operating expenses, recurring capital expenditures (such as repairs and maintenance of our properties), and non-recurring capital expenditures (such as capital improvements and tenant improvements). We expect to meet our short-term liquidity requirements through cash on hand and cash reserves, additional secured and unsecured debt and, subject to market conditions, the issuance of additional shares of common stock, preferred stock or OP units. As of December 31, 2021 and April 8, 2022, we had unrestricted cash and cash equivalents of approximately $2.8 million and $1.8 million, respectively, available for current liquidity needs and restricted cash of approximately $8.2 million and $8.7 million, respectively, which is available for debt service shortfall requirements, certain capital expenditures, real estate taxes and insurance.
We have two mortgage loans and a mezzanine loan on two properties (Cromwell Field Shopping Center and Lamar Station Plaza East) totaling approximately $17.3 million that mature within the next twelve months. We project that we will not have sufficient cash available to pay off the mortgage and mezzanine loans upon maturity, and we are currently seeking to refinance the loans prior to maturity in July 2022 and November 2022. There can be no assurances that we will be successful on the refinance of the mortgage and
43
mezzanine loans on favorable terms or at all. If we are unable to refinance the mortgage and mezzanine loans, the lenders have the right to place the loans in default and ultimately foreclose on the properties. Under this circumstance, we would not have any further financial obligation to the lenders as the value of these properties are in excess of the outstanding loan balances.
In addition, the Basis Term Loan and the Basis Preferred Interest totaling approximately $75.4 million mature on January 1, 2023, subject to two one-year extension options that are subject to certain conditions. Management believes that we will meet the conditions necessary to exercise our extension options under the Basis Term Loan and the Basis Preferred Interest prior to their maturity. Management also is in discussions with other lenders to refinance the Basis Term Loan and the Basis Preferred Interest with new loans, which management believes will be available on acceptable terms based on discussions with lenders and the loan-to-value ratios of the properties securing the Basis Term Loan. There can be no assurances, however, that we will be successful in exercising these extension options or refinancing the Basis Term Loan and the Basis Preferred Interest prior to their maturity. If we are unable to extend or refinance the Basis Term Loan prior to maturity, the lender will have the right to place the loan in default and ultimately foreclose on the six properties securing the loan. If we are unable to extend or redeem the Basis Preferred Interest prior to the mandatory redemption date, the Preferred Investor may remove the Operating Partnership as the manager of the Sub-OP and as the manager of the property-owning entities held under the Sub-OP.
Although management believes that we will be able to extend or refinance our debt prior to maturity, including the Basis Term Loan and the Basis Preferred Interest, it is possible that we may be unable extend or refinance such debt, which creates substantial doubt about our ability to continue as a going concern for a period of one year after the date of that the financial statements included in this report are issued, and our independent registered public accounting firm has included an explanatory paragraph regarding our ability to continue as a going concern in its report on our financial statements included in this report. The financial statements included in this report have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Our long-term liquidity requirements are expected to consist primarily of funds necessary for the repayment of debt at or prior to maturity, capital improvements, development and/or redevelopment of properties and property acquisitions. We expect to meet our long-term liquidity requirements through net cash from operations, additional secured and unsecured debt and, subject to market conditions, the issuance of additional shares of common stock, preferred stock or OP units.
Our pending Midtown Row Acquisition has a purchase price of $122.0 million in cash. We are currently looking into various alternatives to be able to fund the acquisition in cash. There can be no assurances that we will be successful and we may need to incur additional indebtedness to fund the acquisition.
Our access to capital depends upon a number of factors over which we have little or no control, including general market conditions, the market’s perception of our current and potential future earnings and cash distributions, our current debt levels and the market price of the shares of our common stock. Although our common stock is quoted on the OTCQX, there is a very limited trading market for our common stock, and if a more active trading market is not developed and sustained, we will be limited in our ability to issue equity to fund our capital needs. If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or pay dividends to our stockholders. Until we have greater access to capital, we will likely structure future acquisitions through joint ventures or other syndicated structures in which outside investors will contribute a majority of the capital and we will manage the assets.
As described below, under our existing debt agreements, we are subject to continuing covenants. As of December 31, 2021, we were in compliance with all of the covenants under our debt agreements. In the event of a default, the lenders could accelerate the timing of payments under the applicable debt obligations and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition and results of operations.
44
Consolidated Indebtedness and Preferred Equity
Indebtedness Summary
The following table sets forth certain information regarding our outstanding indebtedness as of December 31, 2021:
(dollars in thousands) |
| Maturity Date |
| Rate Type |
| Interest |
| Balance Outstanding at December 31, 2021 |
| |
Basis Term Loan (net of discount of $745) |
| January 1, 2023 |
| Floating (2) |
| 6.125% |
| $ | 66,811 |
|
Basis Preferred Interest (net of discount of $150) (3) |
| January 1, 2023 (4) |
| Fixed |
| 14.00% (5) |
|
| 8,560 |
|
MVB Term Loan |
| December 27, 2022 (6) |
| Fixed |
| 6.75% |
|
| 3,934 |
|
MVB Revolver |
| December 27, 2022 (6) |
| Floating (7) |
| 6.75% |
|
| 1,404 |
|
Hollinswood Shopping Center Loan |
| December 1, 2024 |
| LIBOR + 2.25% (8) |
| 4.06% |
|
| 13,070 |
|
Avondale Shops Loan |
| June 1, 2025 |
| Fixed |
| 4.00% |
|
| 3,097 |
|
Vista Shops at Golden Mile Loan (net of discount of $39) (9) |
| June 24, 2023 |
| Fixed |
| 3.83% |
|
| 11,661 |
|
Brookhill Azalea Shopping Center Loan |
| January 31, 2025 |
| LIBOR + 2.75% |
| 2.85% |
|
| 9,034 |
|
Lamar Station Plaza East Loan (net of discount of $8) |
| July 17, 2022 (10) |
| LIBOR + 3.00% (11) |
| 4.00% |
|
| 3,507 |
|
Cromwell Field Shopping Center Land Loan (12) |
| January 10, 2023 |
| Fixed |
| 6.75% |
|
| — |
|
First Paycheck Protection Program Loan |
| April 20, 2022 (13) |
| Fixed |
| 1.00% |
|
| — |
|
Second Paycheck Protection Program Loan |
| March 18, 2026 (14) |
| Fixed |
| 1.00% |
|
| — |
|
Lamont Street Preferred Interest (net of discount of $67) (15) |
| September 30, 2023 |
| Fixed |
| 13.50% |
|
| 4,498 |
|
Highlandtown Village Shopping Center Loan (net of discount of $46) |
| May 6, 2023 |
| Fixed |
| 4.13% |
|
| 5,364 |
|
Cromwell Field Shopping Center Loan (net of discount of $144) |
| November 15, 2022 |
| LIBOR + 5.40% (16) |
| 5.90% |
|
| 12,249 |
|
Cromwell Field Shopping Center Mezzanine Loan (net of discount of $18) |
| November 15, 2022 |
| Fixed |
| 10.00% |
|
| 1,512 |
|
Spotswood Valley Square Shopping Center Loan (net of discount of $94) |
| July 6, 2023 |
| Fixed |
| 4.82% |
|
| 12,100 |
|
The Shops at Greenwood Village Loan (net of discount of $114) |
| October 10, 2028 |
| Prime - 0.35% (17) |
| 4.08% |
|
| 23,296 |
|
|
|
|
|
|
|
|
|
| 180,097 |
|
Unamortized deferred financing costs, net |
|
|
|
|
|
|
|
| (1,115 | ) |
Total |
|
|
|
|
|
|
| $ | 178,982 |
|
_____________________
45
The following table sets forth our scheduled principal repayments and maturities during each of the next five years and thereafter as of December 31, 2021:
(dollars in thousands) |
|
|
|
|
|
| ||
Year (1) |
| Amount |
|
| Percentage |
| ||
2022 |
| $ | 24,851 |
|
|
| 13.7 | % |
2023 |
|
| 110,444 |
|
|
| 61.0 | % |
2024 |
|
| 13,597 |
|
|
| 7.5 | % |
2025 |
|
| 11,095 |
|
|
| 6.1 | % |
2026 |
|
| 644 |
|
|
| 0.4 | % |
Thereafter |
|
| 20,444 |
|
|
| 11.3 | % |
|
| $ | 181,075 |
|
|
| 100.0 | % |
_____________________
Basis Loan Agreement
In December 2019, six of our subsidiaries, as borrowers (collectively, the “Borrowers”), and Big Real Estate Finance I, LLC, a subsidiary of a real estate fund managed by Basis Management Group, LLC ("Basis"), as lender (the “Basis Lender”), entered into a loan agreement (the “Basis Loan Agreement”) pursuant to which the Basis Lender made a senior secured term loan of up to $66.9 million (the “Basis Term Loan”) to the Borrowers. Pursuant to the Basis Loan Agreement, the Basis Term Loan is secured by mortgages on the following properties: Coral Hills, Crestview, Dekalb, Midtown Colonial, Midtown Lamonticello and West Broad. The Basis Term Loan matures on January 1, 2023, subject to two one-year extension options, subject to certain conditions. The Basis Term Loan bears interest at a rate equal to the greater of (i) LIBOR plus 3.850% per annum and (ii) 6.125% per annum. The Borrowers have entered into an interest rate cap that effectively caps LIBOR at 3.50% per annum. As of December 31, 2021, the interest rate of the Basis Term Loan was 6.125% and the balance outstanding was $66.9 million.
Certain of the Borrowers’ obligations under the Basis Loan Agreement are guaranteed by the Company and by Michael Z. Jacoby, the Company’s chairman and chief executive officer, and Thomas M. Yockey, a director of the Company. The Company has agreed to indemnify Mr. Yockey for any losses he incurs as a result of his guarantee of the Basis Term Loan.
The Basis Loan Agreement contains certain customary representations and warranties and affirmative negative and restrictive covenants, including certain property related covenants for the properties owned by the Sub-OP, including a requirement that certain capital improvements be made. The Basis Lender has certain approval rights over amendments or renewals of material leases (as defined in the Basis Loan Agreement) and property management agreements for the properties securing the Basis Term Loan.
If (i) an event of default exists, (ii) the Company's subsidiary serving as the property manager ("BSR") or any other subsidiary of the Company serving as property manager for one of the secured parties becomes bankrupt, insolvent or a debtor in an insolvency proceeding, or there is a change of control of BSR or such other subsidiary without approval by the Basis Lender, (iii) a default occurs under the applicable management agreement, or (iv) the property manager has engaged in fraud, willful misconduct, misappropriation of funds or is grossly negligent with regard to the applicable property, the Basis Lender may require a Borrower to replace BSR or such other subsidiary of the Company as the property manager and hire a third party manager approved by the Basis Lender to manage the applicable property.
The Borrowers are generally prohibited from selling the properties securing the Basis Term Loan and the Company is prohibited from transferring any interest in any of the Borrowers, in each case without consent from the Basis Lender. The Company is prohibited from engaging in transactions that would result in a Change in Control (as defined in the Basis Loan Agreement) of the Company. Under
46
the Basis Loan Agreement, among other things, it is deemed a Change in Control if Michael Z. Jacoby ceases to be the chairman and chief executive officer of the Company and actively involved in the daily activities and operations of the Company and the Borrowers and a competent and experienced person is not approved by the Basis Lender to replace Mr. Jacoby within 90 days of him ceasing to serve in such roles.
The Basis Loan Agreement provides for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events and changes in control. If an event of default occurs and is continuing under the Basis Loan Agreement, the Basis Lender may, among other things, require the immediate payment of all amounts owed thereunder.
In addition, if there is a default by the Company under the MVB Loan, by Mr. Jacoby under his guarantee of the MVB Loan or by Mr. Jacoby under a certain personal loan as long as he has pledged OP units as collateral for such loan, and such default has not been waived or cured, then the Basis Lender will have the right to sweep the Borrowers’ cash account in which they collect and retain rental payments from the properties securing the Basis Term Loan on a daily basis in order for the Basis Lender to create a cash reserve that will serve as collateral for the Basis Term Loan.
The Basis Loan Agreement includes a debt service coverage calculation based on the trailing twelve month's results which includes an adjustment for tenants that are more than one-month delinquent in paying rent. A debt service coverage ratio below 1.10x is a Cash Trap Trigger Event (as defined in the Basis Loan Agreement), which gives the Basis Lender the right to institute a cash management period until the trigger is cured. A debt service coverage ratio below 1.05x for two consecutive calendar quarters gives the Basis Lender the right to remove the Company as manager of the properties. The debt service coverage calculation for the twelve months ended December 31, 2021, was approximately 1.42x.
Basis Preferred Interest
In December 2019, the Operating Partnership and Big BSP Investments, LLC, a subsidiary of a real estate fund managed by Basis (the “Preferred Investor”), entered into an amended and restated operating agreement (the "Sub-OP Operating Agreement") of Broad Street BIG First OP, LLC a subsidiary of the Operating Partnership (the "Sub-OP"). Pursuant to the Sub-OP Operating Agreement, among other things, the Preferred Investor committed to make an investment of up to $10.7 million in the Sub-OP, of which $6.9 million had been funded as of December 31, 2021, in exchange for a 1.0% membership interest in the Sub-OP designated as Class A units.
Pursuant to the Sub-OP Operating Agreement, the Preferred Investor is entitled to a cumulative annual return of 14.0% on its initial capital contribution (the “Class A Return”), and the Preferred Investor will be entitled to a 20% return (the “Enhanced Class A Return”) on any capital contribution made to the Sub-OP in excess of the $10.7 million commitment. The Preferred Investor’s interests must be redeemed on or before the earlier of: (i) January 1, 2023and (ii) the date on which the Basis Term Loan is paid in full (the “Redemption Date”). The Redemption Date may be extended to December 31, 2023 and December 31, 2024, in each case subject to certain conditions, including the payment of a fee equal to 0.25% of the Preferred Investor’s net invested capital for the first extension option and a fee of 0.50% of the Preferred Investor’s net invested capital for the second extension option. If the redemption price is paid on or before the Redemption Date, then the redemption price will be equal to (a) all unreturned capital contributions made by the Preferred Investor, (b) all accrued but unpaid Class A Return, (c) all accrued but unpaid Enhanced Class A Return and (d) all costs and other expenses incurred by the Preferred Investor in connection with the enforcement of its rights under the Sub-OP Operating Agreement. Additionally, at the Redemption Date, the Preferred Investor is entitled to an amount equal to (a) the product of (i) the aggregate amount of capital contributions made and (ii) 0.4, less (b) the aggregate amount of Class A return payments made to the Preferred Investor (the “Minimum Multiple Amount”). As of December 31, 2021 and 2020, the Minimum Multiple Amount was approximately $0.8 million and $1.8 million, respectively, which is included as indebtedness on the consolidated balance sheet.
The Operating Partnership serves as the managing member of the Sub-OP. However, the Preferred Investor has approval rights over certain major decisions (as defined in the Sub-OP Operating Agreement), including, but not limited to, (i) the incurrence of new indebtedness or modification of existing indebtedness by the Sub-OP or its direct or indirect subsidiaries, (ii) capital expenditures over $250,000, (iii) any proposed change to a property directly or indirectly owned by the Sub-OP, (iv) direct or indirect acquisitions of new properties, (v) the sale or other disposition of any property directly or indirectly owned by the Sub-OP, (v) the issuance of additional membership interests in the Sub-OP, (vi) the entry into any new material lease or any amendment to an existing material lease and (vii) decisions regarding the dissolution, winding up or liquidation of the Sub-OP or the filing of any bankruptcy petition by the Sub-OP.
Under certain circumstances, including in the event that the Preferred Investor’s interests are not redeemed on or prior to the Redemption Date (as it may be extended), the Preferred Investor may remove the Operating Partnership as the manager of the Sub-OP and as the manager for each of the property-owning entities held under the Sub-OP.
The obligations of the Operating Partnership under the Sub-OP Operating Agreement are guaranteed by the Company, Mr. Jacoby, the Company’s chairman and chief executive officer, and Mr. Yockey, a director of the Company. The Company has agreed to indemnify Mr. Yockey for any losses he incurs as a result of this guarantee.
The Preferred Investor’s interests in the Sub-OP under the Sub-OP Operating Agreement are mandatorily redeemable, and, as a result, are characterized as indebtedness in the accompanying consolidated financial statements.
47
On June 16, 2020, the Preferred Investor made two additional capital contributions available to the Sub-OP in the aggregate amount of approximately $2.9 million, which is classified as debt. The two capital contributions consisted of: (i) a $2.4 million capital contribution to the Sub-OP that the Sub-OP contributed to the Borrowers for purposes of making debt service payments under the Basis Loan Agreement and (ii) a $0.5 million capital contribution to the Sub-OP that the Sub-OP contributed to certain of its other property owning subsidiaries for purposes of making debt service payments on mortgage debt secured by the properties owned by such subsidiaries and making payments of the Class A return due to the Preferred Investor pursuant to the Sub-OP Operating Agreement. The Preferred Investor is entitled to a cumulative annual return of 13.0% on the additional capital contributions. As described below under the heading "—Other Mortgage Indebtedness," the Company repaid approximately $0.8 million of these funds with the proceeds from the Vista Shops mortgage refinance. Additionally, approximately $0.3 million of availability under the capital contributions was returned to the Preferred Investor and is no longer available to the Company. On October 1, 2021, approximately $1.0 million of availability under the capital contributions was returned to the Preferred Investor and is no longer available to the Company. As of the date of this report, there is no remaining availability to the Company from these capital contributions.
MVB Loans
In December 2019, the Company, the Operating Partnership and BSR entered into a loan agreement (the “MVB Loan Agreement”) with MVB Bank, Inc. (“MVB”) with respect to a $6.5 million loan consisting of a $4.5 million term loan (the “MVB Term Loan”) and a $2.0 million revolving credit facility (the “MVB Revolver”). The MVB Term Loan matures on December 27, 2022 and the MVB Revolver had an original maturity date of December 27, 2020, which has been extended to December 27, 2022 under the terms described below. The MVB Term Loan has a fixed interest rate of 6.75% per annum and the MVB Revolver carries an interest rate of the greater of (i) prime rate plus 1.5% and (ii) 6.75%.
The Company has no additional availability under the MVB Term Loan and the MVB Revolver as of December 31, 2021.
The MVB Loan Agreement is secured by certain personal property of the Company, the Operating Partnership and BSR. In addition, Mr. Jacoby has pledged a portion of his shares of the Company's common stock and a portion of his OP units in the Operating Partnership as collateral under the MVB Loan Agreement. The obligations of the Company and the Operating Partnership under the MVB Loan Agreement are guaranteed by Mr. Jacoby, in his individual capacity.
The MVB Loan Agreement contains certain customary representations and warranties and affirmative and negative covenants. The MVB Loan Agreement also requires the Company to maintain (as such terms are defined in the MVB Loan Agreement) (i) a debt service coverage ratio of at least 1.30 to 1.00, (ii) an EBITDA to consolidated funded debt ratio of at least 8.0%, (iii) an aggregate minimum unencumbered cash, including funds available under other lines of credit, of greater than $5.0 million (the “Minimum Liquidity Requirement”), and (iv) one or more deposit accounts with MVB with an aggregate minimum balance of $3.0 million (the “Deposit Requirement”). The failure to comply with the Deposit Requirement is not a default under the MVB Loan Agreement but will increase the interest rate under the MVB Term Loan and MVB Revolver by 1.0% until the Deposit Requirement has been satisfied. As described below, MVB agreed to require interest-only payments for three months in 2021 (April, May, and June) and deferred covenant tests until June 30, 2021 and December 31, 2021.
In December 2020, we entered into an amendment to the MVB Loan Agreement which extended the maturity date of the MVB Revolver to December 27, 2021 and in March 2021, we entered into another amendment to the MVB Loan Agreement which further extended the maturity date of the MVB Revolver to December 27, 2022. The amendments also eliminate the revolving nature of the facility, require monthly principal payments as calculated over a 10-year amortization schedule, and require the repayment of $250,000 on each of the following dates (a) the earlier of March 31, 2021 or the closing date of our then-pending mergers of the Highlandtown and Spotswood properties, (b) the earlier of September 30, 2021 or the closing date of the then-pending merger of the Greenwood property, (c) March 31, 2022, and (d) September 30, 2022. The $250,000 payments owed by March 31, 2021 and September 30, 2021 have been paid. Additionally, the amendments (i) deferred testing for covenants related to the Deposit Requirement, Minimum Liquidity Requirement and the debt service coverage ratio until June 30, 2021, (ii) deferred testing for the covenant related to the Company’s EBITDA to consolidated funded debt ratio until December 31, 2021, (iii) modified the debt service coverage ratio to 1.00 to 1 and (iv)modified the Minimum Liquidity Requirement to $3.0 million. These amendments were treated as modifications under the accounting standards. The Company is in compliance with all financial coverage as of December 31, 2021.
The MVB Loan Agreement provides for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events and changes in control. If an event of default occurs and is continuing under the MVB Loan Agreement, MVB may, among other things, require the immediate payment of all amounts owed thereunder.
On March 22, 2022, we entered into agreements (the "MVB Amendments") with respect to the MVB Term Loan and the MVB Revolver, which further extended the maturity date of each to June 27, 2023. The MVB Amendments require the repayment of $250,000 on each of the following dates (i) on or before March 31, 2022; (ii) on or before September 30, 2022 and (iii) on or before March 31, 2023. The $250,000 payment owed by March 31, 2022 has been paid. The MVB Amendments also provide for a $2.0 million term loan (the "Second MVB Term Loan"). The Second MVB Term Loan has a fixed interest rate of 6.75% per annum and matures on June 27, 2023. We are required to pay an exit fee to MVB in an amount equal to two percent multiplied by the aggregate principal balance of the
48
MVB Term Loan, the MVB Revolver and the Second MVB Term Loan at the time of the maturity date or just prior to such repayments. Additionally, the MVB Amendments modified the EBITDA to consolidated funded debt ratio from a minimum of 8.0% to 7.0%.
Lamont Street Preferred Interest
In connection with the closing of the Highlandtown and Spotswood Mergers on May 21, 2021 and June 4, 2021, respectively, Lamont Street contributed an aggregate of $3.9 million in exchange for a 1.0% preferred membership interest in BSV Highlandtown Investors LLC (“BSV Highlandtown”) and BSV Spotswood Investors LLC (“BSV Spotswood”) designated as Class A units.
Lamont Street is entitled to a cumulative annual return of 13.5% (the "Lamont Street Class A Return"), of which 10.0% is paid current and 3.5% is accrued. Lamont Street's interests are to be redeemed on or before September 30, 2023 (the "Lamont Street Redemption Date"). The Lamont Street Redemption Date may be extended by us to September 30, 2024 and September 30, 2025, in each case subject to certain conditions, including the payment of a fee equal to 0.25% of Lamont Street's net invested capital for the first extension option and a fee of 0.50% of Lamont Street's net invested capital for the second extension option. If the redemption price is paid on or before the Lamont Street Redemption Date, then the redemption price will be equal to (a) all unreturned capital contributions made by Lamont Street, (b) all accrued but unpaid Lamont Street Class A Return and (c) all costs and other expenses incurred by Lamont Street in connection with the enforcement of its rights under the agreements. Additionally, at the Lamont Street Redemption Date, Lamont Street is entitled to (i) a redemption fee of 0.50% of the capital contributions returned and (ii) an amount equal to (a) the product of (i) the aggregate amount of capital contributions made and (ii) 0.26 less (b) the aggregate amount of Lamont Street Class A Return payments made to Lamont Street (the "Lamont Street Minimum Multiple Amount"). The Lamont Street Minimum Multiple Amount of approximately $1.0 million was recorded as interest expense in the consolidated statement of operations during the second quarter of 2021. As of December 31, 2021, the remaining Lamont Street Minimum Multiple Amount was approximately $0.6 million.
Our Operating Partnership serves as the managing member of BSV Highlandtown and BSV Spotswood. However, Lamont Street has approval rights over certain major decisions, including, but not limited to (i) the incurrence of new indebtedness or modification of existing indebtedness by BSV Highlandtown and BSV Spotswood, or their direct or indirect subsidiaries, (ii) capital expenditures over $100,000, (iii) any proposed change to a property directly or indirectly owned by BSV Highlandtown and BSV Spotswood, (iv) direct or indirect acquisitions of new properties by BSV Highlandtown or BSV Spotswood, (v) the sale or other disposition of any property directly or indirectly owned by BSV Highlandtown or BSV Spotswood, (vi) the issuance of additional membership interests in BSV Highlandtown and BSV Spotswood, (vii) any amendment to an existing material lease related to the properties and (viii) decisions regarding the dissolution, winding up or liquidation of BSV Highlandtown or BSV Spotswood or the filing of any bankruptcy petition by BSV Highlandtown and BSV Spotswood or their subsidiaries.
Under certain circumstances, including an event whereby Lamont Street's interests are not redeemed on or prior to the Lamont Street Redemption Date (as it may be extended), Lamont Street may remove our Operating Partnership as the manager of BSV Highlandtown and BSV Spotswood.
Paycheck Protection Program Loans
On April 20, 2020, a wholly owned subsidiary of the Company entered into a promissory note with MVB with respect to an unsecured loan of approximately $0.8 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the "PPP"), which was established under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and is administered by the U.S. Small Business Administration (the “SBA”). The PPP Loan bore interest at a rate of 1.0% per year. During the first quarter of 2021, the Company received forgiveness for its entire balance of the PPP Loan from the SBA and recognized a $0.8 million gain on debt extinguishment in the Company’s statement of operations.
On March 18, 2021, a wholly owned subsidiary of the Company entered into a promissory note with MVB with respect to an unsecured loan of approximately $0.8 million (the “Second PPP Loan”) pursuant to the PPP. The Second PPP Loan bore interest at a rate of 1.0% per year. During the third quarter of 2021, the Company received forgiveness for its entire balance of the Second PPP Loan from the SBA and recognized a $0.8 million gain on debt extinguishment in the Company's statement of operations.
Other Mortgage Indebtedness
As of December 31, 2021 and 2020, we had approximately $94.9 million and $38.1 million, respectively, of outstanding mortgage indebtedness secured by individual properties. The Hollinswood mortgage, Vista Shops mortgage, Brookhill mortgage, Highlandtown mortgage, Cromwell mortgage, Spotswood mortgage and Greenwood Village mortgage require the Company to maintain a debt service coverage ratio (as such terms are defined in the respective loan agreements) as follows in the table below.
49
Minimum Debt Service Coverage | ||
Hollinswood Shopping Center | 1.40 to 1.00 | |
Vista Shops at Golden Mile | 1.50 to 1.00 | |
Brookhill Azalea Shopping Center | 1.30 to 1.00 | |
Highlandtown Village Shopping Center | 1.30 to 1.00 | |
Cromwell Field Shopping Center | 1.00 to 1.00 | |
Spotswood Valley Square Shopping Center | 1.15 to 1.00 | |
The Shops at Greenwood Village | 1.40 to 1.00 |
The debt service coverage ratio required for the Lamar Station Plaza East mortgage was modified with the loan amendment and is described below.
In March 2021, the Company completed the refinance of the Vista Shops mortgage loan. The new loan has a principal balance of $11.7 million, matures in June 2023, and carries an interest rate of 3.83% per annum. The Company deposited approximately $1.9 million of the proceeds from the refinance with the Basis Lender, which was applied as follows during the second quarter of 2021: (i) repaid approximately $0.75 million of the outstanding principal balance on the capital contributions, which are treated as debt, provided to the Company in June 2020 under the Basis Preferred Interest as described above under the heading "—Basis Preferred Interest", (ii) paid approximately $46,000 in accrued interest on these funds and (iii) contributed approximately $1.1 million into an escrow account with the Basis Lender which will be used to pay down the outstanding principal balance of the capital contribution upon satisfaction of certain conditions.
In July 2021, the Company entered into a modification of the Lamar Station Plaza East mortgage loan, which extended the maturity date of the loan to July 2022. The amendment also waived the debt service coverage ratio test for the period ending June 30, 2021 and requires a debt service coverage ratio of (i) 1.05 to 1.0 for the three months ended September 30, 2021; (ii) 1.15 to 1.0 for the six months ended December 31, 2021; and (iii) 1.25 to 1.0 for the twelve months ended March 31, 2022.
In connection with the closing of the Merger whereby the Company acquired The Shops at Greenwood Village as described in Notes to Consolidated Financial Statements—Note 3 under the heading "—2021 Real Estate Acquisitions", on October 6, 2021, the Company entered into a $23.5 million mortgage loan secured by the property, which bears interest at prime rate less 0.35% per annum and matures on October 10, 2028. The Company has entered into an interest rate swap which fixes the interest rate of the loan at 4.082%.
In connection with the closings of the two remaining Mergers, we expect to incur or assume approximately $24.4 million of additional mortgage indebtedness. Our pending Midtown Row Acquisition has a purchase price of $122.0 million in cash. We are currently looking into various alternatives to be able to fund the acquisition in cash. There can be no assurances that we will be successful and we may need to incur additional indebtedness to fund the acquisition.
As of December 31, 2021, we were in compliance with all of the covenants under our debt agreements.
Interest Rate Derivatives
We may use interest rate derivatives from time to time to manage our exposure to interest rate risks. On December 27, 2019, we entered into an interest rate cap agreement on the full $66.9 million Basis Term Loan to cap the variable LIBOR interest rate at 3.5%. We also entered into two interest rate swap agreements on the Hollinswood loan to fix the interest rate at 4.06%. The swap agreements are effective as of December 27, 2019 on the outstanding balance of $10.2 million and on July 1, 2021 for the additional availability of $3.0 million under the Hollinswood loan. On October 6, 2021, the Company entered into an interest rate swap agreement on the Greenwood Village Loan to fix the interest rate at 4.082%. Since our derivative instruments are not designated as hedges nor do they meet the criteria for hedge accounting, the fair value is recognized in earnings. For the year ended December 31, 2021, we recognized a $0.4 million gain as a component of "Derivative fair value adjustment" on the consolidated statement of operations.
Cash Flows
The table below sets forth the sources and uses of cash reflected in our consolidated statements of cash flows for the years ended December 31, 2021 and 2020.
|
| For the year ended December 31, |
|
|
|
| ||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Cash and cash equivalents and restricted cash at beginning of period |
| $ | 9,983 |
|
| $ | 11,595 |
|
| $ | (1,612 | ) |
Net cash used in operating activities |
|
| (5,586 | ) |
|
| (2,418 | ) |
|
| (3,168 | ) |
Net cash used in investing activities |
|
| (20,235 | ) |
|
| (6,247 | ) |
|
| (13,988 | ) |
Net cash provided by financing activities |
|
| 26,862 |
|
|
| 7,053 |
|
|
| 19,809 |
|
Cash and cash equivalents and restricted cash at end of period |
| $ | 11,024 |
|
| $ | 9,983 |
|
| $ | 1,041 |
|
Operating Activities- Cash used in operating activities increased by approximately $3.2 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Operating cash flows were primarily impacted by a net increase in changes in operating assets and liabilities of approximately $3.1 million, of which approximately $4.0 million and $0.5 million are related to the
50
change in accounts payable and accrued liabilities and other assets, respectively. This was partially offset by approximately $1.5 million of net change in accounts receivable.
Investing Activities- Cash used in investing activities during the year ended December 31, 2021 increased by approximately $14.0 million compared to the year ended December 31, 2020. This increase is the result of the acquisitions of four properties during the year ended December 31, 2021 as compared to the acquisition of one property and one parcel of land during the year ended December 31, 2020.
Financing Activities- Cash provided by financing activities for the year ended December 31, 2021 increased by approximately $19.8 million compared to the year ended December 31, 2020. The change resulted primarily from an increase in net borrowings relating to the acquisition of Greenwood Village of $23.5 million, the Lamont Street contribution of $3.9 million, the Lamont Street Minimum Multiple of $1.0 million and the Second PPP Loan of $0.8 million. This was partially offset by an increase in debt repayments during 2021 of approximately $9.9 million.
Inflation
Substantially all of our leases provide for the recovery of increases in real estate taxes and operating expenses. In addition, substantially all of our leases provide for annual rent increases. We believe that inflationary increases may be offset in part by the contractual rent increases and expense escalations previously described.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined in Item 10 of Regulation S-K, the Company is not required to provide this information.
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Broad Street Realty, Inc.
Index to Consolidated Financial Statements
and Financial Statement Schedules
Page | |
53 | |
55 | |
56 | |
57 | |
58 | |
60 | |
Consolidated Financial Statement Schedules | |
91 |
52
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Broad Street Realty, Inc.
Bethesda, Maryland
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Broad Street Realty, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, equity, and cash flows for the years then ended, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has loans with varying debt maturities through January of 2023 for which there can be no guarantee that the Company will be able to refinance or extend the maturity dates of the loans. This condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
53
Purchase Price Allocation
As described in Note 3 to the consolidated financial statements, during 2021 the Company completed four asset acquisitions for total consideration of $35.4 million. The Company uses estimated cash flow projections in the determination of fair value, which requires significant management judgment. The Company allocates the consideration paid for the acquired real estate to the identifiable assets and liabilities based on their relative fair values.
We identified the allocation of the purchase price related to the four asset acquisitions in 2021 as a critical audit matter. Management applies judgment in selecting market-based assumptions used in the estimated cash flow projections, including forecasts of future revenue and operating expense growth rates, market lease rates, comparable land values, lease-up periods, capitalization rates, and discount rates. In addition, the calculation and analysis of the income tax positions related to the purchase price allocation were complex and requires management to make significant judgments. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort, including the need for specialized knowledge and skill.
The primary procedures we performed to address this critical audit matter included:
Assessment of Impairment of Real Estate Properties
The Company’s total real estate properties, net approximated $234.2 million as of December 31, 2021. As discussed in Note 2 to the consolidated financial statements, the Company assesses a property for impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. Impairment is recognized when the expected undiscounted cash flows for a property are less than its carrying amount, at which time the property is written down to its estimated fair value. The Company determined that there were no triggering events that would cause the Company to perform an undiscounted cash flow test on its real estate properties in the current year.
We identified management’s assessment of potential triggering events of impairment of real estate properties as a critical audit matter. Significant management judgment was required in the evaluation of potential impairment indicators, including changes in occupancy, the nature of the real estate properties, and their operating and collections performance compared to historical data. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Potomac, Maryland
April 15, 2022
54
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Assets |
|
|
|
|
|
| ||
Real estate properties |
|
|
|
|
|
| ||
Land |
| $ | 49,341 |
|
| $ | 38,458 |
|
Building and improvements |
|
| 171,894 |
|
|
| 122,988 |
|
Intangible lease assets |
|
| 35,435 |
|
|
| 20,619 |
|
Construction in progress |
|
| 1,247 |
|
|
| 2,951 |
|
Less accumulated depreciation and amortization |
|
| (23,683 | ) |
|
| (10,535 | ) |
Total real estate properties, net |
|
| 234,234 |
|
|
| 174,481 |
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
| 2,786 |
|
|
| 4,105 |
|
Restricted cash |
|
| 8,238 |
|
|
| 5,878 |
|
Tenant and accounts receivable, net of allowance of $75 and $523, respectively |
|
| 1,812 |
|
|
| 2,224 |
|
Other assets, net |
|
| 4,599 |
|
|
| 4,738 |
|
Total Assets |
| $ | 251,669 |
|
| $ | 191,426 |
|
|
|
|
|
|
|
| ||
Liabilities and Equity |
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
| ||
Mortgage and other indebtedness, net |
| $ | 178,982 |
|
| $ | 122,060 |
|
Accounts payable and accrued liabilities |
|
| 11,384 |
|
|
| 10,486 |
|
Unamortized intangible lease liabilities, net |
|
| 2,729 |
|
|
| 2,381 |
|
Payables due to related parties |
|
| 626 |
|
|
| 660 |
|
Deferred tax liabilities |
|
| 8,964 |
|
|
| 11,853 |
|
Deferred revenue |
|
| 860 |
|
|
| 502 |
|
Total liabilities |
|
| 203,545 |
|
|
| 147,942 |
|
|
|
|
|
|
|
| ||
Commitments and contingencies |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
| ||
Equity |
|
|
|
|
|
| ||
Preferred Stock, $0.01 par value, 20,000 shares authorized, 500 shares and 500 shares outstanding at December 31, 2021 and 2020, respectively |
|
| — |
|
|
| — |
|
Common stock, $0.01 par value, 50,000,000 shares authorized, |
|
| 319 |
|
|
| 225 |
|
Additional paid in capital |
|
| 70,022 |
|
|
| 54,622 |
|
Accumulated deficit |
|
| (19,543 | ) |
|
| (10,035 | ) |
Total Broad Street Realty, Inc. stockholders' equity |
|
| 50,798 |
|
|
| 44,812 |
|
Noncontrolling interest |
|
| (2,674 | ) |
|
| (1,328 | ) |
Total equity |
|
| 48,124 |
|
|
| 43,484 |
|
Total Liabilities and Equity |
| $ | 251,669 |
|
| $ | 191,426 |
|
The accompanying notes are an integral part of these consolidated financial statements.
55
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
|
| For the Year Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenues |
|
|
|
|
|
| ||
Rental income |
| $ | 21,408 |
|
| $ | 15,864 |
|
Commissions |
|
| 2,836 |
|
|
| 2,437 |
|
Management and other fees |
|
| 1,105 |
|
|
| 1,358 |
|
Total revenues |
|
| 25,349 |
|
|
| 19,659 |
|
Operating Expenses |
|
|
|
|
|
| ||
Cost of services |
|
| 1,824 |
|
|
| 1,685 |
|
Depreciation and amortization |
|
| 12,501 |
|
|
| 9,939 |
|
Property operating |
|
| 5,694 |
|
|
| 3,914 |
|
Bad debt expense |
|
| 34 |
|
|
| 320 |
|
General and administrative |
|
| 11,360 |
|
|
| 8,911 |
|
Total operating expenses |
|
| 31,413 |
|
|
| 24,769 |
|
Operating loss |
|
| (6,064 | ) |
|
| (5,110 | ) |
|
|
|
|
|
|
| ||
Other income (expense) |
|
|
|
|
|
| ||
Net interest and other income (expense) |
|
| (33 | ) |
|
| 55 |
|
Derivative fair value adjustment |
|
| 353 |
|
|
| (639 | ) |
Interest expense |
|
| (9,961 | ) |
|
| (6,676 | ) |
Gain on extinguishment of debt |
|
| 1,528 |
|
|
| — |
|
Other expense |
|
| (100 | ) |
|
| (187 | ) |
Total other income (expense) |
|
| (8,213 | ) |
|
| (7,447 | ) |
|
|
|
|
|
|
| ||
Income tax benefit |
|
| 3,533 |
|
|
| 3,033 |
|
Net loss |
| $ | (10,744 | ) |
| $ | (9,524 | ) |
Plus: Net loss attributable to noncontrolling interest |
|
| 1,236 |
|
|
| 1,379 |
|
Net loss attributable to common stockholders |
| $ | (9,508 | ) |
| $ | (8,145 | ) |
|
|
|
|
|
|
| ||
Net loss attributable to common stockholders per share |
|
|
|
|
|
| ||
Basic and diluted |
| $ | (0.35 | ) |
| $ | (0.37 | ) |
|
|
|
|
|
|
| ||
Weighted average shares outstanding |
|
|
|
|
|
| ||
Basic and diluted |
|
| 26,928,510 |
|
|
| 22,029,408 |
|
|
|
|
|
|
|
| ||
The accompanying notes are an integral part of these consolidated financial statements.
56
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
(in thousands, except share amounts)
|
| Preferred Stock |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Additional |
|
| Accumulated Deficit |
|
| Non-controlling Interest |
|
| Total Equity |
| ||||||||
Balance at December 31, 2019 |
|
| 500 |
|
| $ | — |
|
|
| 21,587,336 |
|
| $ | 216 |
|
| $ | 53,059 |
|
| $ | (1,890 | ) |
| $ | 51 |
|
| $ | 51,436 |
|
Issuance of Common Stock |
|
| — |
|
|
| — |
|
|
| 884,143 |
|
|
| 9 |
|
|
| 1,563 |
|
|
| — |
|
|
| — |
|
|
| 1,572 |
|
Grants of restricted stock |
|
| — |
|
|
| — |
|
|
| 153,200 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,145 | ) |
|
| (1,379 | ) |
|
| (9,524 | ) |
Balance at December 31, 2020 |
|
| 500 |
|
|
| — |
|
|
| 22,624,679 |
|
|
| 225 |
|
|
| 54,622 |
|
|
| (10,035 | ) |
|
| (1,328 | ) |
|
| 43,484 |
|
Issuance of Common Stock |
|
| — |
|
|
| — |
|
|
| 9,119,794 |
|
|
| 91 |
|
|
| 14,813 |
|
|
| — |
|
|
| (110 | ) |
|
| 14,794 |
|
Grants of restricted stock |
|
| — |
|
|
| — |
|
|
| 148,657 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeitures of restricted stock |
|
| — |
|
|
| — |
|
|
| (7,785 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares surrendered for taxes upon vesting |
|
| — |
|
|
| — |
|
|
| (11,917 | ) |
|
| — |
|
|
| (33 | ) |
|
| — |
|
|
| — |
|
|
| (33 | ) |
Issuance of warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 639 |
|
|
| — |
|
|
| — |
|
|
| 642 |
|
Tax effect of change in ownership percentage of OP |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (41 | ) |
|
| — |
|
|
| — |
|
|
| (41 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,508 | ) |
|
| (1,236 | ) |
|
| (10,744 | ) |
Balance at December 31, 2021 |
|
| 500 |
|
| $ | — |
|
|
| 31,873,428 |
|
| $ | 319 |
|
| $ | 70,022 |
|
| $ | (19,543 | ) |
| $ | (2,674 | ) |
| $ | 48,124 |
|
The accompanying notes are an integral part of these consolidated financial statements.
57
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
|
| For the Year Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (10,744 | ) |
| $ | (9,524 | ) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
| ||
Deferred income tax benefit |
|
| (3,533 | ) |
|
| (3,033 | ) |
Depreciation and amortization |
|
| 13,343 |
|
|
| 10,442 |
|
Minimum return on basis preferred interest |
|
| (335 | ) |
|
| (982 | ) |
Gain on extinguishment of debt |
|
| (1,528 | ) |
|
| — |
|
Straight-line rent receivable |
|
| (512 | ) |
|
| (855 | ) |
Straight-line rent liability |
|
| (29 | ) |
|
| 9 |
|
Stock-based compensation |
|
| 642 |
|
|
| — |
|
Change in fair value of derivatives |
|
| (353 | ) |
|
| 639 |
|
Bad debt expense |
|
| 34 |
|
|
| 320 |
|
Write-off of pre-acquisition costs |
|
| 73 |
|
|
| 150 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Accounts receivable |
|
| 822 |
|
|
| (662 | ) |
Other assets |
|
| 221 |
|
|
| 712 |
|
Receivables due from related parties |
|
| (185 | ) |
|
| 13 |
|
Accounts payable and accrued liabilities |
|
| (3,545 | ) |
|
| 456 |
|
Payables due to related parties |
|
| (14 | ) |
|
| (12 | ) |
Deferred revenues |
|
| 57 |
|
|
| (91 | ) |
Net cash used in operating activities |
|
| (5,586 | ) |
|
| (2,418 | ) |
Cash flows from investing activities |
|
|
|
|
|
| ||
Acquisitions of real estate, net of cash and restricted cash received |
|
| (16,945 | ) |
|
| (2,044 | ) |
Capitalized pre-acquisition costs, net of refunds |
|
| (196 | ) |
|
| 120 |
|
Capital expenditures for real estate |
|
| (3,094 | ) |
|
| (4,323 | ) |
Net cash used in investing activities |
|
| (20,235 | ) |
|
| (6,247 | ) |
Cash flows from financing activities |
|
|
|
|
|
| ||
Borrowings under debt agreements |
|
| 41,461 |
|
|
| 10,539 |
|
Repayments under debt agreements |
|
| (14,221 | ) |
|
| (3,308 | ) |
Offering costs |
|
| — |
|
|
| (1 | ) |
Taxes remitted upon vesting of restricted stock |
|
| (33 | ) |
|
| — |
|
Debt origination and discount fees |
|
| (1,123 | ) |
|
| (103 | ) |
Proceeds from related parties |
|
| 1,301 |
|
|
| 1,149 |
|
Payments to related parties |
|
| (523 | ) |
|
| (1,223 | ) |
Net cash provided by financing activities |
|
| 26,862 |
|
|
| 7,053 |
|
Increase (decrease) in cash, cash equivalents, and restricted cash |
|
| 1,041 |
|
|
| (1,612 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 9,983 |
|
|
| 11,595 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 11,024 |
|
| $ | 9,983 |
|
The accompanying notes are an integral part of these consolidated financial statements.
58
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(in thousands)
|
| For the Year Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Reconciliation of cash and cash equivalents and restricted cash: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 2,786 |
|
| $ | 4,105 |
|
Restricted cash |
|
| 8,238 |
|
|
| 5,878 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 11,024 |
|
| $ | 9,983 |
|
Supplemental Cash Flow Information |
|
|
|
|
|
| ||
Interest paid |
| $ | 8,473 |
|
| $ | 5,995 |
|
Taxes (refunded) paid, net |
|
| (159 | ) |
|
| 323 |
|
Accrued acquisition costs |
|
| 870 |
|
|
| — |
|
Accrued offering costs |
|
| 457 |
|
|
| 457 |
|
Accrued pre-acquisition costs |
|
| 4 |
|
|
| 119 |
|
Accrued capital expenditures for real estate |
|
| 229 |
|
|
| 10 |
|
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
| ||
Forgiveness of Paycheck Protection Program loan |
|
| 1,530 |
|
|
| — |
|
Acquisition of real estate |
|
| (46,406 | ) |
|
| (4,101 | ) |
Common shares issued in Mergers |
|
| 14,892 |
|
|
| 1,583 |
|
Debt assumed in Mergers |
|
| 31,514 |
|
|
| 2,518 |
|
The accompanying notes are an integral part of these consolidated financial statements.
59
Broad Street Realty, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 2021
Note 1 - Organization and Nature of Business
Broad Street Realty, Inc. (the “Company”) is focused on owning and managing essential grocery-anchored and mixed-use assets located in densely populated technology employment hubs and higher education centers within the Mid-Atlantic, Southeast, and Colorado markets. As of December 31, 2021, the Company had real estate assets of $257.9 million, gross, in 15 real estate properties. In addition, the Company provides commercial real estate brokerage services for its own portfolio and third-party office, industrial and retail operators and tenants.
(in thousands) |
|
|
|
|
| |
Property Name |
| City/State |
| Total Gross Real Estate Assets at December 31, 2021 |
| |
Avondale Shops |
| Washington, D.C. |
| $ | 8,393 |
|
Brookhill Azalea Shopping Center |
| Richmond, VA |
|
| 17,270 |
|
Cromwell Field Shopping Center |
| Glen Burnie, MD |
|
| 18,511 |
|
Coral Hills Shopping Center |
| Capitol Heights, MD |
|
| 16,682 |
|
Crestview Square Shopping Center |
| Landover Hills, MD |
|
| 18,676 |
|
Dekalb Plaza |
| East Norriton, PA |
|
| 27,628 |
|
The Shops at Greenwood Village |
| Greenwood Village, CO |
|
| 31,273 |
|
Highlandtown Village Shopping Center |
| Baltimore, MD |
|
| 7,401 |
|
Hollinswood Shopping Center |
| Baltimore, MD |
|
| 25,401 |
|
Lamar Station Plaza East |
| Lakewood, CO |
|
| 6,106 |
|
Midtown Colonial |
| Williamsburg, VA |
|
| 14,901 |
|
Midtown Lamonticello |
| Williamsburg, VA |
|
| 16,241 |
|
Spotswood Valley Square Shopping Center |
| Harrisonburg, VA |
|
| 14,671 |
|
Vista Shops at Golden Mile |
| Fredrick, MD |
|
| 14,937 |
|
West Broad Commons Shopping Center |
| Richmond, VA |
|
| 19,826 |
|
|
|
|
| $ | 257,917 |
|
The Company is structured as an “Up-C” corporation with substantially all of its operations conducted through Broad Street Operating Partnership, LP (the “Operating Partnership”) and its direct and indirect subsidiaries. As of December 31, 2021, the Company owned 91.9% of the units of limited partnership interest in its Operating Partnership (“OP units”) and is the sole member of the sole general partner of the Operating Partnership. The Company began operating in its current structure on December 27, 2019 upon the completion of the Initial Mergers (as defined below) and operates as a single reporting segment.
Merger with MedAmerica Properties Inc.
On May 28, 2019, MedAmerica Properties Inc. and certain of its subsidiaries (“MedAmerica”) entered into 19 separate agreements and plans of merger (collectively, the “Merger Agreements”) with each of Broad Street Realty, LLC ("BSR"), Broad Street Ventures, LLC ("BSV") and each of the separate 17 separate entities (collectively with BSR and BSV, the "Broad Street Entities") that owned the properties acquired by the Company in the Initial Mergers (as defined below) and to be acquired in the additional Mergers (as defined below). The Merger Agreements relate to a series of 19 mergers (“Mergers”) whereby BSR, BSV and each other Broad Street Entity has or will become subsidiaries of the Company.
On December 27, 2019, the Company completed 11 of the Mergers (the “Initial Mergers”), including the Mergers with BSR and BSV and the Mergers with 9 other Broad Street Entities. Upon completion of the Initial Mergers, MedAmerica’s name was changed to “Broad Street Realty, Inc.”
On December 31, 2019, the Company completed 1 additional Merger whereby it acquired Brookhill Azalea Shopping Center. On July 2, 2020, the Company closed 1 Merger whereby it acquired Lamar Station Plaza East. During 2021, the Company closed four additional Mergers whereby it acquired Highlandtown Village Shopping
60
Center, Cromwell Field Shopping Center, Spotswood Valley Square Shopping Center and The Shops at Greenwood Village on May 21, 2021, May 26, 2021, June 4, 2021, and October 6, 2021, respectively.
As consideration for the Mergers that have closed as of the date of the issuance of these financial statements, the Company has issued an aggregate 28,744,641shares of common stock and 2,827,904 OP units to prior investors in the Broad Street Entities. In addition, certain prior investors in the Broad Street Entities received an aggregate of approximately $1.9 million in cash as a portion of the consideration for the Mergers.
As of the date of the issuance of these financial statements, there are 2 Mergers that have not been completed. The Company expects to issue an aggregate of 1,317,055 shares of common stock and 573,529 OP units as consideration for the additional Mergers as agreed to in the Merger Agreements. Until the closing of the remaining Mergers, the Company will continue to manage these two properties and receive management fees.
Liquidity, Management’s Plans and Going Concern
The Company's rental revenue and operating results depend significantly on the occupancy levels at its properties and the ability of its tenants to meet their rent and other obligations to the Company. The Company's contractual rent collections have generally returned to pre-COVID results, and the Company continues to maintain ongoing communications and work with its tenants to collect prior deferred rent and to monitor any additional disruptions to their business. The Company's projected operating model reflects sufficient cash flow to cover its obligations over the next twelve months, except as noted below.
The Company's financing is generally comprised of mortgages secured by the Company's properties that typically mature within three to five years of origination. Management is currently in contact with lenders and brokers in the marketplace to restructure the Company's debt.
Specifically, as of December 31, 2021, the Company has 2 mortgage loans and a mezzanine loan on 2 properties with a combined principal balance outstanding of approximately $17.3 million that mature within the next twelve months. The Company projects that it will not have sufficient cash available to pay off the mortgage and mezzanine loans upon maturity and is currently seeking to refinance the loans prior to maturity in July 2022 and November 2022. There can be no assurances that the Company will be successful in its efforts to refinance the mortgage and mezzanine loans on favorable terms or at all. If the Company is unable to refinance these mortgage and mezzanine loans, the lenders have the right to place the loans in default and ultimately foreclose on the properties. Under this circumstance, the Company would not have any further financial obligations to the lenders as the value of these properties are in excess of the outstanding loan balances.
In addition, the Basis Term Loan and the Basis Preferred Interest (each as defined below), totaling approximately $75.4 million, mature on January 1, 2023, subject to two one-year extension options that are subject to certain conditions, including a Material Adverse Change clause. Based on discussions with Basis Management Group, LLC (as defined below), they are in agreement that the Company currently meets the debt yield, debt service coverage ratio and loan to value tests to qualify for the extension and, further to that point, if the current market conditions remain the same as of the date of extension of the loans, there is no "Material Adverse Change" event that would impact Basis Management Group, LLC (as defined below) approving the extension request. Management also is in discussions with other lenders to refinance the Basis Term Loan and the Basis Preferred Interest with new loans. There can be no assurances, however, that the Company will be successful in exercising these extension options or refinancing the Basis Term Loan and the Basis Preferred Interest prior to their maturity. If the Company is unable to extend or refinance the Basis Term Loan prior to maturity, the lender will have the right to place the loan in default and ultimately foreclose on the six properties securing the loan. If the Company is unable to extend or redeem the Basis Preferred Interest prior to the mandatory redemption date, the Preferred Investor (as defined below) may remove the Operating Partnership as the manager of the Sub-OP (as defined below) and as the manager of the property-owning entities held under the Sub-OP. In addition, if the Company sells or otherwise disposes of properties other than in the ordinary and usual course of its business, the lender under the MVB Loan Agreement (as defined below) could declare an event of default and accelerate the repayment of the MVB Term Loan and MVB Revolver.
Management is in discussions with various lenders to extend or refinance its debt prior to maturity, including the Basis Term Loan and the Basis Preferred Interest. However, there is no assurance that the Company will be able to extend or refinance such debt, which creates substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date that these financial statements are issued. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
61
The Company's pending Midtown Row Acquisition has a purchase price of $122.0 million in cash. Management is currently looking into various alternatives to be able to fund the acquisition in cash. There can be no assurances that management will be successful and the Company may need to incur additional indebtedness to fund the acquisition.
The Company's access to capital depends upon a number of factors over which the Company has little or no control, including general market conditions, the market's perception of the Company's current and potential future earnings and cash distributions, the Company's current debt levels and the market price of the shares of the Company's common stock. Although the Company's common stock is quoted on the OTCQX Best Market, an over-the-counter stock market, there is a very limited trading market for the Company's common stock, and if a more active trading market is not developed and sustained, the Company will be limited in its ability to issue equity to fund its capital needs. If the Company cannot obtain capital from third-party sources, the Company may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of its existing properties, satisfy its debt service obligations or pay dividends to its stockholders.
As of December 31, 2021, the Company was in compliance with all of the covenants under its debt agreements. In the event of a default, the lenders could accelerate the timing of payments under the applicable debt obligations and the Company may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on the Company's liquidity, financial condition and results of operations.
Note 2 - Accounting Policies and Related Matters
Use of Estimates
The preparation of the consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the amounts of revenue and expense reported in the period. Significant estimates are made for the valuation of real estate and any related intangibles and fair value assessments with respect to purchase price allocations. Actual results may differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries and subsidiaries in which the Company has a controlling interest. All material intercompany transactions and balances have been eliminated in consolidation. There are no material differences between the Company and the Operating Partnership as of December 31, 2021.
When the Company obtains an economic interest in an entity, management evaluates the entity to determine: (i) whether the entity is a variable interest entity (“VIE”), (ii) in the event that the entity is a VIE, whether the Company is the primary beneficiary of the entity, and (iii) in the event the entity is not a VIE, whether the Company otherwise has a controlling financial interest. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.
The Company consolidates: (i) entities that are VIEs for which the Company is deemed to be the primary beneficiary and (ii) entities that are not VIEs which the Company controls. If the Company has an interest in a VIE but is not determined to be the primary beneficiary, the Company accounts for its interest under the equity method of accounting. Similarly, for those entities which are not VIEs and the Company does not have a controlling financial interest, the Company accounts for its interest under the equity method of accounting. The Company continually reconsiders its determination of whether an entity is a VIE and whether the Company qualifies as its primary beneficiary. The Company consolidates the Operating Partnership, the Sub-OP (as defined in Note 6 under the heading “—Basis Preferred Interest”), BSV Highlandtown (as defined in Note 6 under the heading "—Lamont Street Preferred Interest") and BSV Spotswood (as defined in Note 6 under the heading "—Lamont Street Preferred Interest"), VIEs in which the Company is considered the primary beneficiary.
Noncontrolling Interest
The portion of equity not owned by the Company in entities controlled by the Company, and thus consolidated, is presented as noncontrolling interest and classified as a component of consolidated equity, separate from total stockholders’ equity on the Company’s consolidated balance sheets. The amount recorded will be based on the noncontrolling interest holder’s initial investment in the consolidated entity, adjusted to reflect the noncontrolling
62
interest holder’s share of earnings or losses in the consolidated entity, any distributions received or additional contributions made by the noncontrolling interest holder and conversion of OP units into common stock. The earnings or losses from the entity attributable to noncontrolling interests are reflected in “net income (loss) attributable to noncontrolling interest” in the consolidated statements of operations.
Segment Reporting
The Company owns, operates, develops and redevelops primarily grocery-anchored shopping centers, street retail-based properties and mixed-use assets. The Company is managed as one reporting unit, rather than multiple reporting units, for internal reporting purposes and for internal decision-making. Therefore, the Company discloses its operating results in a single reportable segment.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. The majority of the Company’s cash and cash equivalents are held at major commercial banks which at times may exceed the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses to date on invested cash.
Amounts included in restricted cash represents escrow deposits held for real estate taxes, property maintenance, insurance and other requirements at specific properties as required by lending institutions.
Revenue Recognition
The Company earns revenue from the following: Leases of Real Estate Properties, Leasing Commissions, Property and Asset Management, Engineering Services, Development Services, and Capital Transactions.
Leases of Real Estate Properties: At the inception of a new lease arrangement, including new leases that arise from amendments, the Company assesses the terms and conditions to determine the proper lease classification. Currently, all of the Company’s lease arrangements are classified as operating leases. Rental revenue for operating leases is recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of a leased asset. If the Company determines that future lease payments are not probable of collection, the Company will account for these leases on a cash basis. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or by the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of the tenant improvements is subject to significant judgment. If the Company’s assessment of the owner of the tenant improvements for accounting purposes were different, the timing and amount of revenue recognized would be impacted.
A majority of the Company’s leases require tenants to make estimated payments to the Company to cover their proportional share of operating expenses, including, but not limited to, real estate taxes, property insurance, routine maintenance and repairs, utilities and property management expenses. The Company collects these estimated expenses and is reimbursed by tenants for any actual expense in excess of estimates or reimburses tenants if collected estimates exceed actual operating results. The reimbursements are recorded in rental income and the expenses are recorded in property-related expenses.
The Company adopted Accounting Standards Codification ("ASC") Topic 842, Leases effective January 1, 2019 under the modified retrospective approach and elected the optional transition method to apply the provisions of ASC 842 as of the effective date, rather than the earliest period presented. The Company elected the "package of practical expedients," which permits it not to reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs. The Company made an accounting policy election to exempt short-term leases of 12 months or less from balance sheet recognition requirements associated with the new standard. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being material to the Company. The Company also elected the practical expedient for lessors to combine the lease and non-lease components (primarily impacts common area maintenance reimbursements).
Leasing Commissions: The Company earns leasing commissions as a result of providing strategic advice and connecting tenants to property owners in the leasing of retail space. The Company records commission revenue on real estate leases at the point in time when the performance obligation is satisfied, which is generally upon lease
63
execution. Terms and conditions of a commission agreement may include, but are not limited to, execution of a signed lease agreement and future contingencies, including tenant’s occupancy, payment of a deposit or payment of first month’s rent (or a combination thereof). The Company’s performance obligation will typically be satisfied upon execution of a lease and the portion of the commission that is contingent on a future event will likely be recognized if deemed not subject to significant reversal, based on the Company’s estimates and judgments.
Property and Asset Management Fees: The Company provides real estate management services for owners of properties, representing a series of daily performance obligations delivered over time. Pricing is generally in the form of a monthly management fee based upon property-level cash receipts or some other variable metric.
When accounting for reimbursements of third-party expenses incurred on a client’s behalf, the Company determines whether it is acting as a principal or an agent in the arrangement. When the Company is acting as a principal, the Company’s revenue is reported on a gross basis and comprises the entire amount billed to the client and reported cost of services includes all expenses associated with the client. When the Company is acting as an agent, the Company’s fee is reported on a net basis as revenue for reimbursed amounts is netted against the related expenses. The control of the service before transfer to the customer is the focal point of the principal versus agent assessments. The Company is a principal if it controls the services before they are transferred to the client. The presentation of revenues and expenses pursuant to these arrangements under either a gross or net basis has no impact on net loss or cash flows.
Engineering Services: The Company provides engineering services to property owners on an as needed basis at the properties where the Company is the property or asset manager. The Company receives consideration at agreed upon fixed rates for the time incurred plus a reimbursement for costs incurred and revenue is recognized over time because the customer simultaneously receives and consumes the benefits of the services as they are performed. The Company accounts for performance obligations using the right to invoice practical expedient. The Company applies the right to invoice practical expedient to record revenue as the services are provided, given the nature of the services provided and the frequency of billing under the customer contract. Under this practical expedient, the Company recognizes revenue in an amount that corresponds directly with the value to the customer of performance completed to date and for which there is a right to invoice the customer. Engineering services fees are included in Management and other fee income on the consolidated statements of operations.
Development Services: The Company provides construction-related services ranging from general contracting to project management for owners and occupiers of real estate. Depending on the terms of the engagement, the Company’s performance obligation is either to arrange for the completion of a project or to assume responsibility for completing a project on behalf of a client. The Company’s obligations to clients are satisfied over time due to the continuous transfer of control of the underlying asset. Therefore, the Company recognizes revenue over time, generally using input measures (e.g., to-date costs incurred relative to total estimated costs at completion). Typically, the Company is entitled to consideration at distinct milestones over the term of an engagement. The Company may receive variable consideration which can include, but is not limited to, a fee paid upon return of an investor’s original investment in a project. The Company assesses variable consideration on a contract-by-contract basis, and when appropriate, recognizes revenue based on its assessment of the outcome and historical results. The Company recognizes revenue related to variable consideration if it is deemed probable there will not be a significant reversal in the future. Development services fees are included in management and other fee income on the consolidated statements of operations.
Capital Transactions: The Company provides brokerage and other services for capital transactions, such as real estate sales, real estate acquisitions or other financing. The Company’s performance obligation is to facilitate the execution of capital transactions, and the Company is generally entitled to the full consideration at the point in time upon which its performance obligation is satisfied, at which time the Company recognizes revenue. Capital transaction fees are included in management and other fee income on the consolidated statements of operations.
Contract Assets and Contract Liabilities
Contract assets include amounts recognized as revenue for which the Company is not yet entitled to payment for reasons other than the passage of time, but that do not constrain revenue recognition. As of December 31, 2021 and 2020, the Company did 0t have any contract assets.
Contract liabilities include advance payments related to performance obligations that have not yet been satisfied and are included in deferred revenue on its consolidated balance sheets. The Company recognizes the contract liability as revenue once it has transferred control of service to the customer and all revenue recognition criteria are met. As
64
of December 31, 2020 and 2021, the Company had approximately $0.1 million of contract liabilities and de minimis contract liabilities, respectively.
Accounts Receivable Under Contracts with Customers
The Company records accounts receivable for its unconditional rights to consideration arising from its performance under contracts with customers. Additionally, the Company records other receivables, included in Other assets, net on the consolidated balance sheets, which represents commission advances to employees. Further, the Company records receivables from affiliated properties. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company estimates our allowance for doubtful accounts for specific accounts and other receivable balances based on historical collection trends, the age of the outstanding accounts and other receivables and existing economic conditions associated with the receivables. Past-due accounts receivable balances are written off to bad debt expense when the Company’s internal collection efforts have been unsuccessful or the advance has been forgiven. As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between its transfer of a promised service to a customer and when the customer pays for that service will be one year or less. The Company does not typically include extended payment terms in its contracts with customers. As of December 31, 2021 and 2020, the Company had approximately $0.9 million and $1.0 million of accounts receivable under contracts with customers.
Tenant and Other Receivables and Lease Inducements
Tenant receivables relate to the amounts currently owed to the Company under the terms of the Company’s lease agreements and is included in Tenant and accounts receivable, net of allowance on the consolidated balance sheets. Straight-line rent receivables relate to the difference between the rental revenue recognized on a straight-line basis and the amounts currently due to the Company according to the contractual agreement. This is included in Other assets, net on the consolidated balance sheets. Lease inducements result from value provided by the Company to the lessee, at the inception, modification or renewal of the lease, and are amortized as a reduction of rental income over the non-cancellable lease term.
The Company assesses the probability of collecting substantially all payments under the Company’s leases based on several factors, including, among other things, payment history of the lessee, the financial strength of the lessee and any guarantors, historical operations and operating trends and current and future economic conditions and expectations of performance. If the Company’s evaluation of these factors indicates it is probable that the Company will be unable to collect substantially all rents, the Company recognizes a charge to rental income and limits the Company’s rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected. If the Company changes its conclusion regarding the probability of collecting rent payments required by a lessee, the Company may recognize an adjustment to rental income in the period the Company makes a change to its prior conclusion.
Allocation of Purchase Price of Acquired Real Estate
As part of the purchase price allocation process of acquisitions, management estimates the fair value of each component for asset acquisitions and business combinations by using judgments regarding market-based assumptions used in the estimated cash flow projections, including forecasts of future revenue and operating expense growth rates, market lease rates, comparable land values, lease-up periods, capitalization rates, discount rates and calculation and analysis of the income tax positions related to the purchase price allocation. We assess the relative fair value of acquired assets and acquired liabilities in accordance with the Financial Accounting Standards Board (the “FASB”) ASC Topic 805 Business Combinations and allocate the purchase price based on these assessments. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market and economic conditions that may affect the property.
65
The Company records above-market and below-market lease values, if any, which are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding acquired leases, measured over a period equal to the remaining non-cancelable term of the lease, or, for below-market acquired leases, including any bargain renewal option terms. The Company amortizes any resulting capitalized above-market lease values as a reduction of rental income over the lease term. The Company amortizes any resulting capitalized below-market lease values as an increase to rental income over the lease term. As of December 31, 2021 and 2020, the Company had above-market leases with a gross value of approximately $4.8 millionand $2.7 million, respectively, included in intangible lease assets on the consolidated balance sheets and below-market lease liabilities with a gross value of approximately $4.8 millionand $3.3 million, respectively, included in unamortized intangible lease liabilities, net on the consolidated balance sheets.
In-place lease intangibles are valued considering factors such as an estimate of carrying costs during the expected lease-up periods and estimates of lost rental revenue during the expected lease-up periods based on evaluation of current market demand. The Company amortizes the value of in-place leases to amortization expense over the initial term of the respective leases. If a lease is terminated, the unamortized portion of the in-place lease value is charged to amortization expense. As of December 31, 2021 and 2020, the Company had in-place leases with a gross value of approximately $30.6 millionand $18.0 million, respectively, included in intangible lease assets on the consolidated balance sheets.
Depreciation and amortization of real estate assets and liabilities is provided for on a straight-line basis over the estimated useful lives of the assets:
Building | 15 to 45 years |
Improvements | 7.5 to 15 years |
Lease intangibles | Less than 1 month to 19 years |
Asset Impairment- Real Estate Properties
Real estate asset impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses if there are triggering events including macroeconomic conditions, loss of an anchor tenant, changes in occupancy, and the ability to re-tenant the space, nature or real estate properties, significant and persistent delinquencies, operating and collections performance compared to historical data and government-mandated compliance with an adverse effect to the Company's cost basis or operating costs. If management concludes there are triggering events, management then assesses the impairment of properties individually. Impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that the Company will dispose of the property and the criteria are met for the property to be classified as held-for-sale. In determining the fair value, the Company uses current appraisals or other third-party opinions of value and other estimates of fair value such as estimated discounted future cash flows. The determination of undiscounted cash flows requires significant estimates by management. In management’s estimate of cash flows, it considers factors such as expected future sale of an asset, capitalization rates, holding periods and estimated net operating income. Subsequent changes in estimated undiscounted cash flows could affect the determination of whether an impairment exists. In 2021, the Company determined that there were no triggering events that would cause the Company to perform an undiscounted cash flow test on its real estate properties and as such, no impairment was recorded at December 31, 2021. In 2020, the Company identified the impact on its properties and their tenants resulting from the COVID-19 pandemic as a triggering event and, as a result, performed an undiscounted cash flow test on the Company’s real estate properties. In each instance, the expected undiscounted future cash flows exceeded the carrying value of the related asset, and, therefore, no impairment was recorded at December 31, 2020.
Earnings Per Share
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined based on the weighted average common number of shares outstanding during the period combined with the incremental average common shares that would have been outstanding assuming the conversion of all potentially dilutive common shares into common shares as of the earliest date possible.
Income Taxes
The Company accounts for deferred income taxes using the asset and liability method and recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial
66
statements or tax returns. Under this method, the Company determines deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes the Company to change its judgment about expected future tax consequences of events, is included in the tax provision when such change occurs. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if the Company believes it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes the Company to change its judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur.
Deferred Costs
Costs incurred prior to the completion of offerings of stock or other capital instruments that directly relate to the offering are deferred and netted against proceeds received from the offering. Following the issuance, these offering costs are reclassified to the equity section of the balance sheet as a reduction of proceeds raised. Additionally, deferred costs include costs incurred prior to the completion of asset acquisitions which, upon completion of the acquisition, are allocated to the various components of the acquisition based upon the relative fair value of each component.
Stock-Based Compensation
The fair value of stock-based awards is calculated on the date of grant. The Company amortizes the stock-based compensation expense on a straight-line basis over the period that the awards are expected to vest, net of any forfeitures. Forfeitures of stock-based awards are recognized as they occur.
Fair Value Measurement
Fair value is defined as the price that would be received from selling an asset, or paid in transferring a liability, in an orderly transaction between market participants. In calculating fair value, a company must maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements.
A hierarchy of valuation techniques is defined to determine whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:
If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or 3 even though there may be some significant inputs that are readily observable. Valuation techniques used by the Company include the use of third-party valuations and internal valuations, which may include discounted cash flow models. For the years ended December 31, 2021 and 2020, the Company has recorded all acquisitions based on estimated fair values. The fair values were obtained from third-party appraisals based on comparable properties (using the market approach, which involved Level 3 inputs in the fair value hierarchy).
Derivatives
In the normal course of business, the Company is subject to risk from adverse fluctuations in interest rates. The Company has chosen to manage this risk through the use of derivative financial instruments, primarily interest rate swaps and interest rate caps. Counterparties to these contracts are major financial institutions. The Company is
67
exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes. The Company’s objective in managing exposure to interest risk is to limit the impact of interest rate changes on cash flows.
The Company recognizes all derivative instruments as assets or liabilities at their fair value in the consolidated balance sheets. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the criteria of hedge accounting are recognized in earnings. For the years ended December 31, 2021 and 2020, the Company recognized approximately $0.4 million and $0.6 million, respectively, as a component of "Derivative fair value adjustment" on the consolidated statements of operations.
Accounting Guidance
Adoption of Accounting Standards
In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principals in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application. The Company adopted this guidance on January 1, 2021. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Prior to issuance of the Lease Modification Q&A, the Company would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 is a lease modification under ASC 842, Leases. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e., assume relief was always contemplated by the contract or assume the relief was not contemplated by the contract), with such election applied consistently to leases with similar characteristics and similar circumstances. The Company evaluated its election on a disaggregated basis, with such election applied consistently to leases with similar characteristics and similar circumstances.
Beginning in April 2020, the Company provided lease concessions to certain tenants in response to the impact of COVID-19, in the form of rent deferrals. The Company has made an election to account for such lease concessions consistent with how those concessions would be accounted for under ASC 842 if enforceable rights and obligations for those concessions had already existed in the leases. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the Company’s rights as lessor, including concessions that result in total payments required by the modified lease being substantially the same or less than total payments required by the original lease.
Substantially all of the Company’s concessions to date provide for a deferral of payments with no substantive changes to the consideration in the original lease. These deferrals affect the timing, but not the amount, of the lease payments. The Company is accounting for these deferrals as if no changes to the lease were made. Under this accounting, the Company increases its receivables as tenant payments accrue and continues to recognize rental income. The Company accounted for forgiven rents as a reduction to rental income in the period the rent was forgiven.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 740-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, that simplifies the accounting for convertible instruments and simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. The guidance also provides clarifications to improve the consistency of earnings per share calculations and requires new disclosures regarding convertible instruments. The Company early adopted this guidance on January 1, 2021. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers
68
acquired in a business combination. Under this exception, an acquirer applies ASC 606, Revenue from Contracts with Customers, to recognize and measure contract asset and liabilities on the acquisition date. ASC 805 generally requires the acquirer in a business combination to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. This guidance is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2023, with early adoption permitted. The Company early adopted this guidance on January 1, 2022. The adoption of this guidance did not impact the Company's consolidated financial statements and related disclosures as it currently treats its property acquisitions as asset acquisitions.
Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The standard also requires additional disclosures related to significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. Operating lease receivables are excluded from the scope of this guidance. The amended guidance is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2023. The Company is evaluating the potential impact of adopting this new accounting standard on the Company’s consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply elections as applicable as changes in the market occur.
Note 3 – Real Estate
2021 Real Estate Acquisitions
On May 21, 2021, the Company completed the Merger to acquire Highlandtown Village Shopping Center. Total consideration for the property included the issuance of 1,749,008 shares of common stock and approximately $0.2 million of transaction costs that were capitalized since the transaction was accounted for as an asset acquisition. The Company assumed approximately $5.5 million of indebtedness secured by the property.
On May 26, 2021, the Company completed the Merger to acquire Cromwell Field Shopping Center. Total consideration for the property included the issuance of 2,092,657 shares of common stock, the payment of approximately $0.5 million in cash to the prior investors, and approximately $0.4 million of transaction costs that were capitalized since the transaction was accounted for as an asset acquisition. The Company assumed approximately $13.65 million of indebtedness secured by the property. The Company previously acquired the fee-simple interest in the land that the Cromwell Field Shopping Center is located on under a leasehold interest. The Company terminated the ground lease upon completion of the Merger.
On June 4, 2021, the Company completed the Merger to acquire Spotswood Valley Square Shopping Center. Total consideration for the property included the issuance of 2,489,497 shares of common stock, the payment of approximately $0.4 million in cash to the prior investors, and approximately $0.3 million of transaction costs that were capitalized since the transaction was accounted for as an asset acquisition. The Company assumed approximately $12.4 million of mortgage secured by the property.
On October 6, 2021, the Company completed the Merger to acquire The Shops at Greenwood Village. Total consideration for the property included the issuance of 2,752,568 shares of common stock, the repayment/redemption of approximately $20.2 million of the prior owner's debt and preferred equity, the payment of approximately $0.1 million in cash to the prior investors, and approximately $0.4 million of transaction costs that were capitalized since the transaction was accounted for as an asset acquisition. The Company entered into a $23.5 million mortgage loan secured by the property in connection with the Merger.
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The following table provides additional information regarding total consideration for the properties acquired during 2021.
(in thousands) |
|
|
| |
Cash paid to prior owners |
| $ | 961 |
|
Value of common shares issued |
|
| 14,892 |
|
Prior owner debt and preferred equity paid off at closing |
|
| 20,649 |
|
Settlement of notes payable owed to properties |
|
| (700 | ) |
Transaction costs |
|
| 1,323 |
|
Cash acquired in acquisition |
|
| (1,743 | ) |
Total Cost of Acquisition |
| $ | 35,382 |
|
The following table reflects the relative fair value of assets acquired and liabilities assumed related to the properties acquired during 2021.
(in thousands) |
|
|
| |
Land |
| $ | 10,884 |
|
Building |
|
| 33,889 |
|
Building and site improvements |
|
| 10,001 |
|
Intangible lease assets |
|
| 14,816 |
|
Total real estate assets acquired |
|
| 69,590 |
|
Other assets |
|
| 3,977 |
|
Total assets acquired |
|
| 73,567 |
|
Accounts payable and accrued liabilities |
|
| (4,674 | ) |
Intangible lease liabilities |
|
| (1,502 | ) |
Deferred tax liabilities |
|
| (495 | ) |
Assumed mortgage indebtedness |
|
| (31,514 | ) |
Total liabilities assumed |
|
| (38,185 | ) |
Assets acquired net of liabilities assumed |
| $ | 35,382 |
|
Pending Midtown Row Acquisition
On December 21, 2021, the Company entered into a purchase and sale agreement with BBL Current Owner, LLC (“BBL Current”) to acquire a mixed-use property in Williamsburg, Virginia known as Midtown Row for a purchase price of $122.0 million in cash (the “Midtown Row Acquisition”). The Midtown Row Acquisition is subject to customary closing conditions, and the Company expects to close the Midtown Row Acquisition by the end of the second quarter of 2022. There can be no assurances that these conditions will be satisfied or that the Company will complete the Midtown Row Acquisition on the terms described herein or at all.
2020 Real Estate Acquisitions
On July 2, 2020, the Company completed the Merger to acquire Lamar Station Plaza East. Total consideration for the property included the issuance of 884,143 common shares, the payment of approximately $0.2 million in cash to the prior investors and approximately $0.1 million of transaction costs that were capitalized since the transaction was accounted for as an asset acquisition. The Company assumed a $2.5 million mortgage on the property and, on July 2, 2020, entered into a loan modification agreement that increased the maximum principal amount available under the assumed loan agreement to $4.1 million.
The following table provides additional information regarding the total consideration for the property.
(in thousands) |
|
|
| |
Cash paid to prior owners |
| $ | 175 |
|
Value of common shares issued |
|
| 1,583 |
|
Transaction costs |
|
| 70 |
|
Cash acquired in acquisitions |
|
| (44 | ) |
Total Cost of Acquisitions |
| $ | 1,784 |
|
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The following table reflects the relative fair value of assets acquired and liabilities assumed related to the property acquired by the Company in July 2020.
(in thousands) |
|
|
| |
Land |
| $ | 1,826 |
|
Building |
|
| 2,095 |
|
Building and site improvements |
|
| 592 |
|
Intangible lease assets |
|
| 496 |
|
Total real estate assets acquired |
|
| 5,009 |
|
Other assets |
|
| 40 |
|
Total assets acquired |
|
| 5,049 |
|
Accounts payable and accrued expenses |
|
| (523 | ) |
Deferred tax liabilities |
|
| (224 | ) |
Assumed mortgage and other indebtedness |
|
| (2,518 | ) |
Total liabilities assumed |
|
| (3,265 | ) |
Assets acquired net of liabilities assumed |
| $ | 1,784 |
|
On January 10, 2020, the Company completed the acquisition of the fee-simple interest in the land that the Cromwell Field Shopping Center is located on under a leasehold interest for approximately $2.3 million, which included less than $0.1 million of transaction costs that were capitalized since this transaction was accounted for as an asset acquisition. Upon acquisition of the land, the Company leased the land to the owner of the Cromwell Field Shopping Center pursuant to a ground lease. Once the Company completed the Merger to acquire the Cromwell Field Shopping Center leasehold interest, the ground lease was terminated. The Company had a mortgage on the land of approximately $1.4 million.
Note 4 – Intangibles
The following is a summary of the carrying amount of the Company’s intangible assets and liabilities as of December 31, 2021 and 2020.
(in thousands) |
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Assets: |
|
|
|
|
|
| ||
Above-market leases |
| $ | 4,792 |
|
| $ | 2,661 |
|
Above-market leases accumulated amortization |
|
| (1,210 | ) |
|
| (504 | ) |
In-place leases |
|
| 30,643 |
|
|
| 17,958 |
|
In-place leases accumulated amortization |
|
| (10,368 | ) |
|
| (4,841 | ) |
Total net real estate intangible assets |
| $ | 23,857 |
|
| $ | 15,274 |
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
| ||
Below-market leases |
|
| 4,792 |
|
|
| 3,290 |
|
Below-market leases accumulated amortization |
|
| (2,063 | ) |
|
| (909 | ) |
Total net real estate intangible liabilities |
| $ | 2,729 |
|
| $ | 2,381 |
|
For the years ended December 31, 2021 and 2020, the Company recognized net amortization related to intangibles of approximately $5.1 million and $4.4 million, respectively, in its consolidated statement of operations.
The following table represents expected amortization of existing real estate intangible assets and liabilities as of December 31, 2021.
(in thousands) | Amortization of |
|
| Amortization of |
|
| Amortization of |
|
| Total amortization, net |
| ||||
2022 | $ | 7,156 |
|
| $ | 959 |
|
| $ | (1,333 | ) |
| $ | 6,782 |
|
2023 |
| 4,801 |
|
|
| 846 |
|
|
| (654 | ) |
|
| 4,993 |
|
2024 |
| 3,140 |
|
|
| 619 |
|
|
| (410 | ) |
|
| 3,349 |
|
2025 |
| 2,036 |
|
|
| 456 |
|
|
| (170 | ) |
|
| 2,322 |
|
2026 |
| 1,343 |
|
|
| 275 |
|
|
| (85 | ) |
|
| 1,533 |
|
Thereafter |
| 1,800 |
|
|
| 427 |
|
|
| (77 | ) |
|
| 2,150 |
|
Total | $ | 20,276 |
|
| $ | 3,582 |
|
| $ | (2,729 | ) |
| $ | 21,129 |
|
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The Company amortizes the value of in-place leases to amortization expense, the value of above-market leases as a reduction of rental income and the value of below-market leases as an increase to rental income over the initial term of the respective leases.
As of December 31, 2021, the weighted average remaining amortization period of in-place lease intangibles, above-market lease intangible assets and below-market lease intangibles is approximately 3.7 years, 4.7 years and 2.5 years, respectively.
Note 5 - Other Assets
Items included in other assets, net on the Company’s consolidated balance sheets as of December 31, 2021 and 2020 are detailed in the table below.
(in thousands) |
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Prepaid assets and deposits |
| $ | 1,708 |
|
| $ | 1,662 |
|
Right-of-use assets, net |
|
| 852 |
|
|
| 1,287 |
|
Straight-line rent receivable |
|
| 1,398 |
|
|
| 885 |
|
Pre-acquisition costs |
|
| 280 |
|
|
| 519 |
|
Other receivables, net of allowance of $75 and $82 |
|
| 82 |
|
|
| 59 |
|
Corporate property, net |
|
| 68 |
|
|
| 107 |
|
Receivables due from related parties |
|
| 208 |
|
|
| 206 |
|
Lease incentives |
|
| — |
|
|
| 12 |
|
Interest rate cap asset |
|
| 3 |
|
|
| 1 |
|
Total |
| $ | 4,599 |
|
| $ | 4,738 |
|
Receivables due from related parties as of December 31, 2021 and 2020, respectively, are described further in Note 15 “Related Party Transactions.”
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Note 6 – Mortgage and Other Indebtedness
The table below details the Company’s debt balance as of December 31, 2021 and 2020:
|
|
|
|
|
|
|
| For the Year Ended December 31, |
| |||||
(dollars in thousands) |
| Maturity Date |
| Rate Type |
| Interest Rate (1) |
| 2021 |
|
| 2020 |
| ||
Basis Term Loan (net of discount of $373 and $745, respectively) |
| January 1, 2023 |
| Floating (2) |
| 6.125% |
| $ | 66,811 |
|
| $ | 66,439 |
|
Basis Preferred Interest (net of discount of $75 and $150, respectively) (3) |
| January 1, 2023 (4) |
| Fixed |
| 14.00% (5) |
|
| 8,560 |
|
|
| 11,434 |
|
MVB Term Loan |
| December 27, 2022 (6) |
| Fixed |
| 6.75% |
|
| 3,934 |
|
|
| 4,277 |
|
MVB Revolver |
| December 27, 2022 (6) |
| Floating (7) |
| 6.75% |
|
| 1,404 |
|
|
| 2,000 |
|
Hollinswood Shopping Center Loan |
| December 1, 2024 |
| LIBOR + 2.25% (8) |
| 4.06% |
|
| 13,070 |
|
|
| 11,670 |
|
Avondale Shops Loan |
| June 1, 2025 |
| Fixed |
| 4.00% |
|
| 3,097 |
|
|
| 3,205 |
|
Vista Shops at Golden Mile Loan (net of discount of $39 and $0, respectively) (9) |
| June 24, 2023 |
| Fixed |
| 3.83% |
|
| 11,661 |
|
|
| 8,902 |
|
Brookhill Azalea Shopping Center Loan |
| January 31, 2025 |
| LIBOR + 2.75% |
| 2.85% |
|
| 9,034 |
|
|
| 9,432 |
|
Lamar Station Plaza East Loan (net of discount of $8 and $7, respectively) |
| July 17, 2022 (10) |
| LIBOR + 3.00% (11) |
| 4.00% |
|
| 3,507 |
|
|
| 3,446 |
|
Cromwell Field Land Loan (net of discount of $0 and $10, respectively) (12) |
| January 10, 2023 |
| Fixed |
| 6.75% |
|
| — |
|
|
| 1,415 |
|
First Paycheck Protection Program Loan |
| April 20, 2022 (13) |
| Fixed |
| 1.00% |
|
| — |
|
|
| 757 |
|
Second Paycheck Protection Program Loan |
| March 18, 2026 (14) |
| Fixed |
| 1.00% |
|
| — |
|
|
| — |
|
Lamont Street Preferred Interest (net of discount of $67 and $0, respectively) (15) |
| September 30, 2023 |
| Fixed |
| 13.50% |
|
| 4,498 |
|
|
| — |
|
Highlandtown Village Shopping Center Loan (net of discount of $46 and $0, respectively) |
| May 6, 2023 |
| Fixed |
| 4.13% |
|
| 5,364 |
|
|
| — |
|
Cromwell Field Shopping Center Loan (net of discount of $144 and $0, respectively) |
| November 15, 2022 |
| LIBOR + 5.40% (16) |
| 5.90% |
|
| 12,249 |
|
|
| — |
|
Cromwell Field Shopping Center Mezzanine Loan (net of discount of $18 and $0, respectively) |
| November 15, 2022 |
| Fixed |
| 10.00% |
|
| 1,512 |
|
|
| — |
|
Spotswood Valley Square Shopping Center Loan (net of discount of $94 and $0, respectively) |
| July 6, 2023 |
| Fixed |
| 4.82% |
|
| 12,100 |
|
|
| — |
|
The Shops at Greenwood Village (net of discount of $114 and $0, respectively) |
| October 10, 2028 |
| Prime - 0.35% (17) |
| 4.08% |
|
| 23,296 |
|
|
| — |
|
|
|
|
|
|
|
|
| $ | 180,097 |
|
| $ | 122,977 |
|
Unamortized deferred financing costs, net |
|
|
|
|
|
|
|
| (1,115 | ) |
|
| (917 | ) |
Total Mortgage and Other Indebtedness |
|
|
|
|
|
|
| $ | 178,982 |
|
| $ | 122,060 |
|
73
Basis Term Loan
In December 2019, six of the Company’s subsidiaries, as borrowers (collectively, the “Borrowers”), and Big Real Estate Finance I, LLC, a subsidiary of a real estate fund managed by Basis Management Group, LLC, as lender (the “Basis Lender”), entered into a loan agreement (the “Basis Loan Agreement”) pursuant to which the Basis Lender made a senior secured term loan of up to $66.9 million (the “Basis Term Loan”) to the Borrowers. Pursuant to the Basis Loan Agreement, the Basis Term Loan is secured by mortgages on the following properties: Coral Hills, Crestview, Dekalb, Midtown Colonial, Midtown Lamonticello and West Broad. The Basis Term Loan matures on January 1, 2023, subject to two one-year extension options, subject to certain conditions. The Basis Term Loan bears interest at a rate equal to the greater of (i) LIBOR plus 3.850% per annum and (ii) 6.125% per annum. The Borrowers have entered into an interest rate cap that effectively caps LIBOR at 3.50% per annum. As of December 31, 2021, the interest rate of the Basis Term Loan was 6.125% and the outstanding balance was $66.9 million.
Certain of the Borrowers’ obligations under the Basis Loan Agreement are guaranteed by the Company and by Michael Z. Jacoby, the Company’s chairman and chief executive officer, and Thomas M. Yockey, a director of the Company. The Company has agreed to indemnify Mr. Yockey for any losses he incurs as a result of his guarantee of the Basis Term Loan.
The Basis Loan Agreement contains certain customary representations and warranties and affirmative negative and restrictive covenants, including certain property related covenants for the properties owned by the Sub-OP, including a requirement that certain capital improvements be made. The Basis Lender has certain approval rights over amendments or renewals of material leases (as defined in the Basis Loan Agreement) and property management agreements for the properties securing the Basis Term Loan.
If (i) an event of default exists, (ii) BSR or any other subsidiary of the Company serving as property manager for one of the secured parties becomes bankrupt, insolvent or a debtor in an insolvency proceeding, or there is a change
74
of control of BSR or such other subsidiary without approval by the Basis Lender, (iii) a default occurs under the applicable management agreement, or (iv) the property manager has engaged in fraud, willful misconduct, misappropriation of funds or is grossly negligent with regard to the applicable property, the Basis Lender may require a Borrower to replace BSR or such other subsidiary of the Company as the property manager and hire a third party manager approved by the Basis Lender to manage the applicable property.
The Borrowers are generally prohibited from selling the properties securing the Basis Term Loan and the Company is prohibited from transferring any interest in any of the Borrowers, in each case without consent from the Basis Lender. The Company is prohibited from engaging in transactions that would result in a Change in Control (as defined in the Basis Loan Agreement) of the Company. Under the Basis Loan Agreement, among other things, it is deemed a Change in Control if Michael Z. Jacoby ceases to be the chairman and chief executive officer of the Company and actively involved in the daily activities and operations of the Company and the Borrowers and a competent and experienced person is not approved by the Basis Lender to replace Mr. Jacoby within 90 days of him ceasing to serve in such roles.
The Basis Loan Agreement provides for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events and changes in control. If an event of default occurs and is continuing under the Basis Loan Agreement, the Basis Lender may, among other things, require the immediate payment of all amounts owed thereunder.
In addition, if there is a default by the Company under the MVB Loan Agreement, by Mr. Jacoby under his guarantee of the loans under the MVB Loan Agreement or by Mr. Jacoby under a certain personal loan as long as he has pledged OP units as collateral for such loan, and such default has not been waived or cured, then the Basis Lender will have the right to sweep the Borrowers’ cash account in which they collect and retain rental payments from the properties securing the Basis Term Loan on a daily basis in order for the Basis Lender to create a cash reserve that will serve as collateral for the Basis Term Loan.
The Basis Loan Agreement includes a debt service coverage calculation based on the trailing twelve month's results which includes an adjustment for tenants that are more than one-month delinquent in paying rent. A debt service coverage ratio below 1.10x is a Cash Trap Trigger Event (as defined in the Basis Loan Agreement), which gives the Basis Lender the right to institute a cash management period until the trigger is cured. A debt service coverage ratio below 1.05x for two consecutive calendar quarters gives the Basis Lender the right to remove the Company as manager of the properties. The Company was in compliance with the debt service coverage calculation for the twelve months ended December 31, 2021.
Basis Preferred Interest
In December 2019, the Operating Partnership and Big BSP Investments, LLC, a subsidiary of a real estate fund managed by Basis Management Group, LLC (the “Preferred Investor”), entered into an amended and restated operating agreement (the “Sub-OP Operating Agreement”) of Broad Street BIG First OP, LLC (the “Sub-OP”), a subsidiary of the Operating Partnership. Pursuant to the Sub-OP Operating Agreement, among other things, the Preferred Investor committed to make an investment of up to $10.7 million in the Sub-OP, of which $6.9 million had been funded as of December 31, 2021, in exchange for a 1.0% membership interest in the Sub-OP designated as Class A units.
Pursuant to the Sub-OP Operating Agreement, the Preferred Investor is entitled to a cumulative annual return of 14.0% on its initial capital contribution (the “Class A Return”), and the Preferred Investor will be entitled to a 20% return (the “Enhanced Class A Return”) on any capital contribution made to the Sub-OP in excess of the $10.7 million commitment. The Preferred Investor’s interests must be redeemed on or before the earlier of: (i) January 1, 2023and (ii) the date on which the Basis Term Loan is paid in full (the “Redemption Date”). The Redemption Date may be extended to December 31, 2023 and December 31, 2024, in each case subject to certain conditions, including the payment of a fee equal to 0.25% of the Preferred Investor’s net invested capital for the first extension option and a fee of 0.50% of the Preferred Investor’s net invested capital for the second extension option.If the redemption price is paid on or before the Redemption Date, then the redemption price will be equal to (a) all unreturned capital contributions made by the Preferred Investor, (b) all accrued but unpaid Class A Return, (c) all accrued but unpaid Enhanced Class A Return and (d) all costs and other expenses incurred by the Preferred Investor in connection with the enforcement of its rights under the Sub-OP Operating Agreement. Additionally, at the Redemption Date, the Preferred Investor is entitled to an amount equal to (a) the product of (i) the aggregate amount of capital contributions
75
made and (ii) 0.4, less (b) the aggregate amount of Class A return payments made to the Preferred Investor (the “Minimum Multiple Amount”). As of December 31, 2021 and 2020, the Minimum Multiple Amount was approximately $0.8 million and $1.8 million, respectively, which is included as indebtedness on the consolidated balance sheet.
The Operating Partnership serves as the managing member of the Sub-OP. However, the Preferred Investor has approval rights over certain major decisions (as defined in the Sub-OP Operating Agreement), including, but not limited to, (i) the incurrence of new indebtedness or modification of existing indebtedness by the Sub-OP or its direct or indirect subsidiaries, (ii) capital expenditures over $250,000, (iii) any proposed change to a property directly or indirectly owned by the Sub-OP, (iv) direct or indirect acquisitions of new properties, (v) the sale or other disposition of any property directly or indirectly owned by the Sub-OP, (v) the issuance of additional membership interests in the Sub-OP, (vi) the entry into any new material lease or any amendment to an existing material lease and (vii) decisions regarding the dissolution, winding up or liquidation of the Sub-OP or the filing of any bankruptcy petition by the Sub-OP.
Under certain circumstances, including in the event that the Preferred Investor’s interests are not redeemed on or prior to the Redemption Date (as it may be extended), the Preferred Investor may remove the Operating Partnership as the manager of the Sub-OP and as the manager for each of the property-owning entities held under the Sub-OP.
The obligations of the Operating Partnership under the Sub-OP Operating Agreement are guaranteed by the Company, Mr. Jacoby, the Company’s chairman and chief executive officer, and Mr. Yockey, a director of the Company. The Company has agreed to indemnify Mr. Yockey for any losses he incurs as a result of this guarantee.
The Preferred Investor’s interests in the Sub-OP under the Sub-OP Operating Agreement are mandatorily redeemable, and, as a result, are characterized as indebtedness in the accompanying consolidated financial statements.
On June 16, 2020, the Preferred Investor made two additional capital contributions available to the Sub-OP in the aggregate amount of approximately $2.9 million, which is classified as debt. The two capital contributions consisted of: (i) a $2.4 million capital contribution to the Sub-OP that the Sub-OP contributed to the Borrowers for purposes of making debt service payments under the Basis Loan Agreement and (ii) a $0.5 million capital contribution to the Sub-OP that the Sub-OP contributed to certain of its other property owning subsidiaries for purposes of making debt service payments on mortgage debt secured by the properties owned by such subsidiaries and making payments of the Class A return due to the Preferred Investor pursuant to the Sub-OP Operating Agreement. The Preferred Investor is entitled to a cumulative annual return of 13.0% on the additional capital contributions. As described below under the heading "—Mortgage Indebtedness," the Company repaid approximately $0.75 million of these funds with the proceeds from the Vista Shops mortgage refinance. Additionally, approximately $0.3 million of availability under the capital contributions was returned to the Preferred Investor and is no longer available to the Company. On October 1, 2021, approximately $1.0 million of availability under the capital contributions was returned to the Preferred Investor and is no longer available to the Company. As of the date of these consolidated financial statements, there is 0 remaining availability to the Company from these capital contributions.
MVB Loan
In December 2019, the Company, the Operating Partnership and BSR entered into a loan agreement (the “MVB Loan Agreement”) with MVB Bank, Inc. (“MVB”) with respect to a $6.5 million loan consisting of a $4.5 million term loan (the “MVB Term Loan”) and a $2.0 million revolving credit facility (the “MVB Revolver”). The MVB Term Loan matures on December 27, 2022 and the MVB Revolver had an original maturity date of December 27, 2020, which has been extended to December 27, 2022 under the terms described below. The MVB Term Loan has a fixed interest rate of 6.75% per annum. The MVB Revolver carries an interest rate of the greater of (i) prime rate plus 1.5% and (ii) 6.75%.
The Company has 0 additional availability under the MVB Term Loan and the MVB Revolver as of December 31, 2021.
The MVB Loan Agreement is secured by certain personal property of the Company, the Operating Partnership and BSR. In addition, Mr. Jacoby has pledged a portion of his shares of the Company's common stock and a portion of his OP units as collateral under the MVB Loan Agreement. The obligations of the Company and the Operating Partnership under the MVB Loan Agreement are guaranteed by Mr. Jacoby, in his individual capacity.
The MVB Loan Agreement contains certain customary representations and warranties and affirmative and negative covenants. The MVB Loan Agreement also requires the Company to maintain (as such terms are defined in
76
the MVB Loan Agreement) (i) a debt service coverage ratio of at least 1.30 to 1.00, (ii) an EBITDA to consolidated funded debt ratio of at least 8.0%, (iii) an aggregate minimum unencumbered cash, including funds available under other lines of credit, of greater than $5.0 million (the “Minimum Liquidity Requirement”), and (iv) one or more deposit accounts with MVB with an aggregate minimum balance of $3.0 million (the “Deposit Requirement”). The failure to comply with the Deposit Requirement is not a default under the MVB Loan Agreement but will increase the interest rate under the MVB Term Loan and MVB Revolver by 1.0% until the Deposit Requirement has been satisfied. During 2020, the lender under the MVB Loan Agreement agreed to require interest-only payments for three months in 2021 (April, May, and June) and deferred covenant tests until June 30, 2021 and December 31, 2021 (as described below).
In December 2020, the Company entered into an amendment to the MVB Loan Agreement, which extended the maturity date of the MVB Revolver to December 27, 2021 and in March 2021, the Company entered into another amendment to the MVB Loan Agreement which further extended the maturity date of the MVB Revolver to December 27, 2022. The amendments also eliminated the revolving nature of the facility, require monthly principal payments as calculated over a 10-year amortization schedule, and require the repayment of $250,000 on each of the following dates (a) the earlier of March 31, 2021 or the closing of the Company’s then-pending Mergers of the Highlandtown and Spotswood properties, (b) the earlier of September 30, 2021 or the closing of the Company’s then-pending Merger of the Greenwood property (c) March 31, 2022, and (d) September 30, 2022. The $250,000 payments owed by March 31, 2021 and September 30, 2021 have been paid. Additionally, the amendments (i) deferred testing for covenants related to the Deposit Requirement, Minimum Liquidity Requirement and debt service coverage ratio covenant until June 30, 2021, (ii) deferred testing for the covenant related to the Company’s EBITDA to consolidated funded debt ratio until December 31, 2021, (iii) modified the debt service coverage ratio to 1.00 to 1 and (iv) modified the Minimum Liquidity Requirement to $3.0 million. These amendments were treated as modifications under the accounting standards. The Company was in compliance with debt service coverage calculation at December 31, 2021.
The MVB Loan Agreement provides for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events and changes in control. If an event of default occurs and is continuing under the MVB Loan Agreement, MVB may, among other things, require the immediate payment of all amounts owed thereunder.
On March 22, 2022, the Company entered into agreements (the "MVB Amendments") with respect to the MVB Term Loan and the MVB Revolver, which further extended the maturity date of each to June 27, 2023. The MVB Amendments require the repayment of $250,000 on each of the following dates (i) on or before March 31, 2022; (ii) on or before September 30, 2022 and (iii) on or before March 31, 2023. The $250,000 payment owed by March 31, 2022 has been paid. The MVB Amendments also provide for a $2.0 million term loan (the "Second MVB Term Loan"). The Second MVB Term Loan has a fixed interest rate of 6.75% per annum and matures on June 27, 2023. The Company is required to pay an exit fee to MVB in an amount equal to two percent multiplied by the aggregate principal balance of the MVB Term Loan, the MVB Revolver and the Second MVB Term Loan at the time of the maturity date or just prior to such repayments. Additionally, the MVB Amendments modified the EBITDA to consolidated funded debt ratio from a minimum of 8.0% to 7.0%.
Lamont Street Preferred Interest
In connection with the closing of the Highlandtown and Spotswood Mergers on May 21, 2021 and June 4, 2021, respectively, Lamont Street Partners LLC ("Lamont Street") contributed an aggregate of $3.9 million in exchange for a 1.0% preferred membership interest in BSV Highlandtown Investors LLC ("BSV Highlandtown") and BSV Spotswood Investors LLC ("BSV Spotswood") designated as Class A units (the "Lamont Street Preferred Investment").
Lamont Street is entitled to a cumulative annual return of 13.5% (the "Lamont Street Class A Return"), of which 10.0% is paid current and 3.5% is accrued. Lamont Street's interests are to be redeemed on or before September 30, 2023 (the "Lamont Street Redemption Date"). The Lamont Street Redemption Date may be extended by us to September 30, 2024 and September 30, 2025, in each case subject to certain conditions, including the payment of a fee equal to 0.25% of Lamont Street's net invested capital for the first extension option and a fee of 0.50% of Lamont Street's net invested capital for the second extension option. If the redemption price is paid on or before the Lamont Street Redemption Date, then the redemption price will be equal to (a) all unreturned capital contributions made by Lamont Street, (b) all accrued but unpaid Lamont Street Class A Return and (c) all costs and other expenses incurred by Lamont Street in connection with the enforcement of its rights under the agreements. Additionally, at the Lamont Street Redemption Date, Lamont Street is entitled to (i) a redemption fee of 0.50% of the capital contributions returned and (ii) an amount equal to (a) the product of (i) the aggregate amount of capital contributions made and (ii) 0.26 less
77
(b) the aggregate amount of Lamont Street Class A Return payments made to Lamont Street (the "Lamont Street Minimum Multiple Amount"). The Lamont Street Minimum Multiple Amount of approximately $1.0 million was recorded as interest expense in the consolidated statement of operations during the second quarter of 2021. As of December 31, 2021, the remaining Lamont Street Minimum Multiple Amount was approximately $0.6 million, which is included in indebtedness on the consolidated balance sheet.
The Operating Partnership serves as the managing member of BSV Highlandtown and BSV Spotswood. However, Lamont Street has approval rights over certain major decisions, including, but not limited to (i) the incurrence of new indebtedness or modification of existing indebtedness by BSV Highlandtown and BSV Spotswood, or their direct or indirect subsidiaries, (ii) capital expenditures over $100,000, (iii) any proposed change to a property directly or indirectly owned by BSV Highlandtown and BSV Spotswood, (iv) direct or indirect acquisitions of new properties by BSV Highlandtown or BSV Spotswood, (v) the sale or other disposition of any property directly or indirectly owned by BSV Highlandtown or BSV Spotswood, (vi) the issuance of additional membership interests in BSV Highlandtown and BSV Spotswood, (vii) any amendment to an existing material lease related to the properties and (viii) decisions regarding the dissolution, winding up or liquidation of BSV Highlandtown or BSV Spotswood or the filing of any bankruptcy petition by BSV Highlandtown and BSV Spotswood or their subsidiaries.
Under certain circumstances, including an event whereby Lamont Street's interests are not redeemed on or prior to the Lamont Street Redemption Date (as it may be extended), Lamont Street may remove the Operating Partnership as the manager of BSV Highlandtown and BSV Spotswood.
Mortgage Indebtedness
In addition to the indebtedness described above, as of December 31, 2021 and 2020, the Company had approximately $94.9 million and $38.1 million, respectively, of outstanding mortgage indebtedness secured by individual properties. The Hollinswood mortgage, Vista Shops mortgage, Brookhill mortgage, Highlandtown mortgage, Cromwell mortgage, Spotswood mortgage and Greenwood Village mortgage require the Company to maintain a minimum debt service coverage ratio (as such terms are defined in the respective loan agreements) as follows in the table below.
Minimum Debt Service Coverage | ||
Hollinswood Shopping Center | 1.40 to 1.00 | |
Vista Shops at Golden Mile | 1.50 to 1.00 | |
Brookhill Azalea Shopping Center | 1.30 to 1.00 | |
Highlandtown Village Shopping Center | 1.30 to 1.00 | |
Cromwell Field Shopping Center | 1.00 to 1.00 | |
Spotswood Valley Square Shopping Center | 1.15 to 1.00 | |
The Shops at Greenwood Village | 1.40 to 1.00 |
The debt service coverage ratio required for the Lamar Station Plaza East mortgage was modified with the loan amendment and is described below.
In March 2021, the Company completed the refinance of the Vista Shops mortgage loan. The new loan has a principal balance of $11.7 million, matures in June 2023, and carries an interest rate of 3.83% per annum. The Company deposited approximately $1.9 million of the proceeds from the refinance with the Basis Lender, which was applied as follows during the second quarter of 2021: (i) repaid approximately $0.75 million of the outstanding principal balance on the capital contributions, which are treated as debt, provided to the Company in June 2020 under the Basis Preferred Interest as described above under the heading "—Basis Preferred Interest", (ii) paid approximately $46,000 in accrued interest on these funds and (iii) contributed approximately $1.1 million into an escrow account with the Basis Lender which will be used to pay down the outstanding principal balance of the capital contribution upon satisfaction of certain conditions.
In July 2021, the Company entered into a modification of the Lamar Station Plaza East mortgage loan, which extended the maturity date of the loan to July 2022. The amendment also waived the debt service coverage ratio test for the period ending June 30, 2021 and requires a debt service coverage ratio of (i) 1.05 to 1.0 for the three months ended September 30, 2021; (ii) 1.15 to 1.0 for the six months ended December 31, 2021; and (iii) 1.25 to 1.0 for the twelve months ended March 31, 2022.
In connection with the closing of the Merger whereby the Company acquired The Shops at Greenwood Village as described in Note 3 under the heading "—2021 Real Estate Acquisitions", on October 6, 2021, the Company entered
78
into a $23.5 million mortgage loan secured by the property, which bears interest at prime rate less 0.35% per annum and matures on October 10, 2028. The Company has entered into an interest rate swap which fixes the interest rate of the loan at 4.082%.
As of December 31, 2021, the Company was in compliance with all of the covenants under its debt agreements.
PPP Loans
On April 20, 2020, a wholly owned subsidiary of the Company entered into a promissory note with MVB with respect to an unsecured loan of approximately $0.8 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the "PPP"), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is administered by the U.S. Small Business Administration (the “SBA”). During the first quarter of 2021, the Company received forgiveness for its entire balance of the PPP Loan from the SBA, which is recognized as a gain on debt extinguishment in the Company’s statement of operations.
On March 18, 2021, a wholly owned subsidiary of the Company entered into a promissory note with MVB with respect to an unsecured loan of approximately $0.8 million (the “Second PPP Loan”) pursuant to the PPP. During the third quarter of 2021, the Company received forgiveness for its entire balance of the Second PPP Loan from the SBA, which is recognized as a gain on debt extinguishment in the Company's statement of operations.
Deferred Financing Costs and Debt Discounts
The total amount of deferred financing costs associated with the Company’s debt as of December 31, 2021 and 2020 was $2.1 million, gross ($1.1 million, net) and $1.4 million, gross ($0.9 million, net), respectively. Debt discounts associated with the Company’s debt as of December 31, 2021 and 2020 was $2.1 million, gross ($1.0 million, net) and $1.4 million, gross ($0.9 million, net). Deferred financing costs and debt discounts are netted against the debt balance outstanding on the Company’s consolidated balance sheet and will be amortized to interest expense through the maturity date of the related debt.
The Company recognized amortization expense of deferred financing costs and debt discounts, included in interest expense on the consolidated statements of operations, of approximately $1.3 million and $0.9 million for the years ended December 31, 2021 and 2020, respectively.
Debt Maturities
The following table details the Company’s scheduled principal repayments and maturities during each of the next five years and thereafter as of December 31, 2021:
Year ending December 31, |
| (in thousands) |
| |
2022 (1) |
| $ | 24,851 |
|
2023 |
|
| 110,444 |
|
2024 |
|
| 13,597 |
|
2025 |
|
| 11,095 |
|
2026 |
|
| 644 |
|
Thereafter |
|
| 20,444 |
|
|
|
| 181,075 |
|
Unamortized debt discounts and issuance costs, net |
|
| (2,093 | ) |
Total |
| $ | 178,982 |
|
Interest Rate Cap and Interest Rate Swap Agreements
To mitigate exposure to interest rate risk, the Company entered into an interest rate cap agreement, effective December 27, 2019, on the full $66.9 million Basis Term Loan to cap the variable LIBOR interest rate at 3.5%. The Basis Term Loan bears interest at a rate equal to the greater of (i) LIBOR plus 3.850% per annum and (ii) 6.125% per annum. As of December 31, 2021 and 2020, the interest rate of the Basis Term Loan was 6.125%. The Company also entered into 2 interest rate swap agreements on the Hollinswood Loan to fix the interest rate at 4.06%. The swap agreements are effective as of December 27, 2019 on the outstanding balance of $10.2 million and on July 1, 2021 for the additional availability of $3.0 million under the Hollinswood Loan.
79
On October 6, 2021, the Company entered into an interest rate swap agreement on the Greenwood Village Loan to fix the interest rate at 4.082%.
The Company recognizes all derivative instruments as assets or liabilities at their fair value in the consolidated balance sheets. Changes in the fair value of the Company’s derivatives that are not designated as hedges or do not meet the criteria of hedge accounting are recognized in earnings. For the years ended December 31, 2021 and 2020, the Company recognized approximately $0.4 million and $0.6 million, respectively, as a component of "Derivative fair value adjustment" on the consolidated statements of operations.
The fair value of the Company’s derivative financial instruments as of December 31, 2021 and 2020 was an interest rate cap asset of less than $0.1 million and an interest rate swap liability of approximately $0.4 million and $0.7 million, respectively. The interest rate cap asset is included in Other assets, net and the interest rate swap liability is included in Accounts payable and accrued expenses on the consolidated balance sheets.
Covenants
The Company's loan agreements contain customary financial and operating covenants including debt service coverage ratios and aggregate minimum unencumbered cash covenants. As of December 31, 2021, the Company was in compliance with all covenants under its debt agreements.
Note 7 - Commitments and Contingencies
Commitments
As detailed in Note 1 under the heading “—Merger with MedAmerica Properties Inc.,” there are 2 Mergers that have not been completed. The Company will issue an aggregate of 1,317,055 shares of common stock and 573,529 OP units as consideration for the additional Mergers. Until the closing of the remaining Mergers, the Company will continue to manage these two properties and earn management fees.
Leases
At the inception of a lease and over its term, the Company evaluates each lease to determine the proper lease classification. Certain of these leases provide the Company with the contractual right to use and economically benefit from all of the space specified in the lease. Therefore, the Company has determined that they should be evaluated as lease arrangements. As of December 31, 2021, the Company was obligated under operating lease agreements consisting primarily of the Company’s office leases and equipment leases. The majority of the Company’s office leases contain provisions for specified annual increases over the rents of the prior year and are computed based on a specified annual increase over the prior year’s rent, generally 4.0%. The Company’s office leases have initial terms ranging from 3 to 7 years.
In accordance with the adoption of ASC 842 Leases, the Company recorded right-of-use assets (included in Other assets, net on the consolidated balance sheet) and related lease liabilities (included in Accounts payable and accrued expenses on the consolidated balance sheet) for these leases. As of December 31, 2021, the Company’s weighted average remaining lease term is approximately 2.8 years and the weighted average discount rate used to calculate the Company’s lease liability is approximately 5.5%. The Company has not recognized a right-of-use asset and lease liability for leases with terms of 12 months or less and without an option to purchase the underlying asset.
In calculating the right-of-use assets and related lease liabilities, the Company’s lease payments are typically discounted at its incremental borrowing rate because the interest rate implicit in the lease cannot be readily determined in the absence of key inputs which are typically not reported by our lessors. Judgment was used to estimate the secured borrowing rate associated with our leases and reflects the lease term specific to each lease.
The Company remeasures its lease liabilities monthly at the present value of the future lease payments using the discount rate determined at lease commencement. Rent expense relating to the operating leases, including straight-line rent, was approximately $0.5 million for the years ended December 31, 2021 and 2020, and is recorded in general and administrative in our statements of operations.
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The Company’s future minimum lease payments for its operating leases as of December 31, 2021 were as follows:
(in thousands) |
|
|
| |
For the year ending: |
|
|
| |
2022 |
| $ | 500 |
|
2023 |
|
| 411 |
|
2024 |
|
| 11 |
|
2025 |
|
| 10 |
|
2026 |
|
| 9 |
|
Thereafter |
|
| 70 |
|
Total undiscounted future minimum lease payments |
|
| 1,011 |
|
Discount |
|
| (81 | ) |
Operating lease liabilities |
| $ | 930 |
|
Contingencies
Impact of COVID-19
The Company continues to monitor and address risks related to the COVID-19 pandemic. Certain tenants experiencing economic difficulties during the pandemic have previously sought rent relief, which had been provided on a case-by-case basis primarily in the form of rent deferrals and, in more limited cases, in the form of rent abatements. Since April 2020, the Company has entered into lease modifications that deferred approximately $0.6 million and waived approximately $0.3 million of contractual revenue for rent that pertained to April 2020 through December 2020; in 2021, the Company had only one lease modification related to COVID-19, which was approximately $16,000 related to contractual rent owed February 2021 through April 2021. Approximately $0.3 million of the total deferred rent from all lease modifications since April 2020 remained outstanding and to be billed as of December 31, 2021 and has a weighted average payback period of approximately 26 months. As of April 15, 2022, the Company has given rent deferrals to 36 tenants (approximately 12.0% of the Company's total tenants) with 8 tenants still on a payment plan. All but 4 tenants are compliant with their plan.
However, even as conditions improve and governmental restrictions are lifted, the ability of the Company's tenants to successfully operate their businesses and pay rent may continue to be impacted by economic conditions resulting from COVID-19 or public perception of the risk of COVID-19, which could adversely affect foot traffic to tenants' businesses and tenants' ability to adequately staff their businesses. The extent of the COVID-19 pandemic's effect on the Company's future operational and financial performance, financial condition and liquidity will depend on future developments, including the duration and intensity of the pandemic, the effectiveness, including the deployment, of COVID-19 vaccines and treatments, the duration of government measures to mitigate the pandemic and how quickly and to what extent normal economic and operating conditions can resume, all of which are uncertain and difficult to predict.
CARES Act
On March 27, 2020, the CARES Act was signed into law, which, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The tax changes under the CARES Act are immaterial to the Company.
It also appropriated funds for the SBA PPP loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company received funds under the PPP as described in Note 6 under the heading (“—PPP Loans”). During 2021, the Company received forgiveness for the entire balance of the PPP loans and recognized a $1.5 million gain on debt extinguishment in the consolidated statements of operations. Additionally, the Company has utilized the deferred payment of the employer portions of social security taxes that would otherwise be due from March 27, 2020 through December 31, 2020, without penalty or interest charges, totaling approximately $0.2 million.
81
Litigation
From time to time, the Company or its properties may be subject to claims and suits in the ordinary course of business. The Company’s lessees and borrowers have indemnified, and are obligated to continue to indemnify, the Company against all liabilities arising from the operations of the properties and are further obligated to indemnify it against environmental or title problems affecting the real estate underlying such facilities. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
Note 8 - Equity
Common Stock
During 2021, the Company issued 9,083,730 shares of common stock in connection with the Mergers to acquire 4 properties (as discussed above in Note 3 under the heading “—2021 Real Estate Acquisitions") and 36,064 shares of common stock were issued in connection with the redemption of OP Units.
In July 2020, the Company issued 884,143 shares of common stock in connection with the Merger to acquire Lamar Station Plaza East (as discussed above in Note 1 under the heading “—Merger with MedAmerica Properties, Inc.”).
On January 3, 2022 and April 1, 2022, the Company issued 165,700 and 9,708 shares of common stock to its directors. Also on April 1, 2022, the Company issued 60,106 shares of common stock in connection with the redemption of OP Units.
Series A Preferred Stock
As of December 31, 2021 and 2020, the Company had 500 shares of Series A preferred stock, $0.01 par value per share (the “Series A preferred stock”), outstanding, all of which were assumed from MedAmerica upon completion of the Initial Mergers. The holders of Series A preferred stock are entitled to receive, out of funds legally available for that purpose, cumulative, non-compounded cash dividends on each outstanding share of Series A preferred stock at the rate of 10.0% of the $100 per share issuance price (“Series A preferred dividends”). The Series A preferred dividends are payable semiannually to the holders of Series A preferred stock, when and as declared by the Company’s board of directors, on June 30 and December 31 of each year, that shares of Series A preferred stock are outstanding; provided that due and unpaid Series A preferred dividends may be declared and paid on any date declared by the Company’s board of directors. As of December 31, 2021, less than $0.1 million of Series A preferred dividends were undeclared.
In the event of any voluntary or involuntary liquidation, sale, merger, consolidation, dissolution or winding up of the Company, before any distribution of assets shall be made to the holders of the Company’s common stock, each holder of Series A preferred stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount equal to the $100 issue price plus all Series A preferred dividends accrued and unpaid on such shares up to the date of distribution of the available assets (such amount, the “Liquidation Preference”). The amount deemed distributed for purposes of determining the Liquidation Preference shall be the cash or the fair market value of the property, rights or securities distributed to the holders of Series A preferred stock as determined in good faith by the Company’s board of directors. If, upon a liquidation event, the available assets are insufficient to pay the Liquidation Preference to the holders of Series A preferred stock in full, then the available assets shall be distributed ratably among the holders of Series A preferred stock in proportion to their respective ownership of shares of Series A preferred stock.
Shares of Series A preferred stock, excluding accrued Series A preferred dividends, which will be paid as described above, may, in the sole discretion of the holder of such shares of Series A preferred stock and by written notice to the Company, be converted into shares of the Company’s common stock, at a conversion price of $0.20 per share, subject to certain adjustments, in whole or in part at any time.
Holders of Series A preferred stock are generally not entitled to voting rights.
Noncontrolling Interest
As of December 31, 2021 and 2020, the Company owned 91.9% interest and an 88.9% interest, respectively, in the Operating Partnership and investors in the Broad Street Entities receiving OP units as consideration for the Initial Mergers collectively owned an 8.1% interest and an 11.1% interest, respectively, in the Operating Partnership.
82
Commencing on the 12-month anniversary of the date on which the OP units were issued, each limited partner of the Operating Partnership (other than the Company) will have the right, subject to certain terms and conditions, to require the Operating Partnership to redeem all or a portion of the OP units held by such limited partner in exchange for cash based on the market price of the Company’s common stock or, at the Company’s option and sole discretion, for shares of the Company’s common stock on a one-for-one basis. On October 1, 2021, the Company converted 36,064 OP units to common stock.
On April 1, 2022, the Company issued 60,106 shares of common stock in connection with the redemption of OP units.
Amended and Restated 2020 Equity Incentive Plan
On September 15, 2021, the Company's board of directors approved the Company's Amended and Restated 2020 Equity Incentive Plan (the “Plan”), which increased the number of shares of the Company's common stock reserved for issuance under the Plan by 1,500,000 shares, from 3,620,000 shares to 5,120,000 shares. The Plan provides for the grant of stock options, share awards (including restricted stock and restricted stock units), share appreciation rights, dividend equivalent rights, performance awards, annual cash incentive awards and other equity based awards, including LTIP units, which are convertible on a one-for-one basis into OP units. As of December 31, 2021, there were 4,818,143 shares available for future issuance, subject to certain adjustments set forth in the Plan. Each share subject to an award granted under the Plan will reduce the available shares under the Plan on a one-for-one basis. The Plan is administered by the compensation committee of the Company’s board of directors.
Restricted Stock
Awards of restricted stock are awards of the Company’s common stock that are subject to restrictions on transferability and other restrictions as established by the Company’s compensation committee on the date of grant that are generally subject to forfeiture if employment (or service as a director) terminates prior to vesting. Upon vesting, all restrictions would lapse. Except to the extent restricted under the award agreement, a participant awarded restricted stock will have all of the rights of a stockholder as to those shares, including, without limitation, the right to vote and the right to receive dividends on the shares. The value of the awards is determined based on the market value of the Company’s common stock on the date of grant. The Company expenses the cost of restricted stock ratably over the vesting period.
The following table summarizes the stock-based award activity under the Plan for the years ended December 31, 2021 and 2020.
|
| Restricted Stock Awards |
|
| Weighted-Average Grant Date |
| ||
Outstanding as of December 31, 2019 |
|
| — |
|
| $ | — |
|
Granted |
|
| 153,200 |
|
|
| 0.55 |
|
Outstanding as of December 31, 2020 |
|
| 153,200 |
|
|
| 0.55 |
|
Granted |
|
| 148,657 |
|
|
| 2.72 |
|
Vested |
|
| (56,451 | ) |
|
| 2.95 |
|
Forfeited |
|
| (7,785 | ) |
|
| 2.95 |
|
Outstanding as of December 31, 2021 |
|
| 237,621 |
|
| $ | 1.26 |
|
Of the restricted shares that vested during 2021, 11,917 shares were surrendered by certain employees to satisfy their tax obligations.
Compensation expense related to these share-based payments for the year ended December 31, 2021 and 2020 was $0.3 million and less than $1,000, respectively, and was included in general and administrative expenses on the consolidated statement of operations. The remaining unrecognized costs from stock-based awards as of December 31, 2021 was approximately $0.1 million and will be recognized over a weighted-average period of 0.4 years.
On October 1, 2021, the Company granted 58,140 restricted shares of common stock to employees, which will vest ratably on January 1, 2022, January 1, 2023, and January 1, 2024, subject to continued service through such dates. The total value of these awards is calculated to be approximately $0.1 million.
On April 1, 2022, the Company granted 138,262 restricted shares of common stock to employees, which will vest ratably on January 1, 2023, January 1, 2024, and January 1, 2025, subject to continued service through such dates. The total value of these awards is calculated to be approximately $0.3 million.
83
Restricted Stock Units
The Company's restricted stock unit ("RSU") awards represent the right to receive unrestricted shares of common stock based on the achievement of Company performance objectives as determined by the Company's compensation committee. Grants of RSUs generally entitle recipients to shares of common stock equal to 0% up to 300% of the number of units granted on the vesting date. RSUs are not eligible to vote or to receive dividends prior to vesting. Dividend equivalents are credited to the recipient and are paid only to the extent that RSUs vest based on the achievement of the applicable performance objectives.
On October 1, 2021, the Company granted executive RSUs with an aggregate target number of 1,220,930 RSUs, of which 0% to 300% will vest based on the Company's Implied Equity Market Capitalization (as defined in the performance award of stock units agreements pursuant to which the RSUs were granted) at the end of the performance period ending on December 31, 2024, subject to the executive's continued service on such date. If, however, the maximum amount of the award is not earned as of December 31, 2024, the remaining RSUs may be earned based on the Company's Implied Equity Market Capitalization as of December 31, 2025. The remaining unrecognized costs from RSU awards as of December 31, 2021 was approximately $4.9 million and will be recognized over 4.1 years.
Option Awards
In connection with the completion of the Initial Mergers, the Company assumed option awards previously issued to directors and officers of MedAmerica. Details of these options for the years ended December 31, 2021 and 2020, are presented in the table below:
|
| Number of Shares Underlying Options |
|
| Weighted Average Exercise Price Per Share |
|
| Weighted Average Fair Value at Grant Date |
|
| Weighted Average Remaining Contractual Life |
|
| Intrinsic Value |
| |||||
Balance at December 31, 2019 |
|
| 70,000 |
|
| $ | 7.71 |
|
| $ | — |
|
|
| 2.77 |
|
| $ | — |
|
Options granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Options exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Options expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2020 |
|
| 70,000 |
|
| $ | 7.71 |
|
| $ | — |
|
|
| 2.76 |
|
| $ | — |
|
Options granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Options exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Options expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2021 |
|
| 70,000 |
|
| $ | 7.71 |
|
| $ | — |
|
|
| 1.76 |
|
| $ | — |
|
The fair values of stock options are estimated using the Black-Scholes method, which takes into account variables such as estimated volatility, expected holding period, dividend yield, and the risk-free interest rate. The risk-free interest rate is the five-year treasury rate at the date of grant. The expected life is based on the contractual life of the options at the date of grant. All 70,000 outstanding options were fully vested at grant date. The exercise price of the outstanding options exceeded the closing price of the Company’s common stock at December 31, 2021. The intrinsic value is not material.
Warrants
On June 4, 2021, the Company issued to Lamont Street warrants to purchase 200,000 shares of the Company's common stock at an exercise price of $2.50 per share (the "Warrants"). The Warrants were issued in connection with Lamont Street's contribution of the Lamont Street Preferred Investment described in Note 6 under the heading "—Lamont Street Preferred Interest." The fair value of these warrant liabilities are estimated using the Black-Sholes method, which takes into account variables such as estimated volatility, expected holding period, dividend yield, and the risk-free interest rate. The risk-free interest rate is the U.S. Treasury rate at the date of grant. The expected life is based on the contractual life of the warrants at the date of grant, which is 4.3 years.
84
Note 9 – Revenues
Disaggregated Revenue
The following tables represents a disaggregation of revenues from contracts with customers for the years ended December 31, 2021 and 2020 by type of service:
|
|
|
| Year Ended December 31, |
| |||||
(in thousands) |
| Topic 606 |
| 2021 |
|
| 2020 |
| ||
Topic 606 Revenues |
|
|
|
|
|
|
|
| ||
Leasing commissions |
| Point in time |
| $ | 2,406 |
|
| $ | 2,313 |
|
Property and asset management fees |
| Over time |
|
| 592 |
|
|
| 711 |
|
Development fees |
| Over time |
|
| 264 |
|
|
| 361 |
|
Engineering services |
| Over time |
|
| 250 |
|
|
| 256 |
|
Sales commissions |
| Point in time |
|
| 430 |
|
|
| 124 |
|
Equity fees |
| Point in time |
|
| — |
|
|
| 4 |
|
Topic 606 Revenue |
|
|
|
| 3,941 |
|
|
| 3,769 |
|
Out of Scope of Topic 606 revenue |
|
|
|
|
|
|
|
| ||
Rental income |
|
|
|
| 21,408 |
|
|
| 15,864 |
|
Sublease income |
|
|
|
| — |
|
|
| 26 |
|
Total Out of Scope of Topic 606 revenue |
|
|
|
| 21,408 |
|
|
| 15,890 |
|
Total Revenue |
|
|
| $ | 25,349 |
|
| $ | 19,659 |
|
Leasing Operations
Minimum cash rental payments due to the Company in future periods under executed non-cancelable operating leases in place for the Company’s properties as of December 31, 2021 are as follows:
(in thousands) |
|
|
| |
For the year ending December 31: |
|
|
| |
2022 |
| $ | 20,191 |
|
2023 |
|
| 18,743 |
|
2024 |
|
| 15,348 |
|
2025 |
|
| 12,561 |
|
2026 |
|
| 9,555 |
|
Thereafter |
|
| 21,557 |
|
Total |
| $ | 97,955 |
|
85
Note 10- Concentrations of Credit Risks
The following table contains information regarding the geographic concentration of the properties in the Company’s portfolio as of December 31, 2021 and 2020.
(dollars in thousands) |
| Number of Properties at December 31, |
| Gross Real Estate Assets at December 31, |
|
| Percentage of Total Gross Real Estate Assets at December 31, |
|
| Rental income for the year ended December 31, |
| |||||||||||||||||
Location |
| 2021 |
| 2020 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||
Maryland (1) |
| 6 |
| 4 |
| $ | 101,608 |
|
| $ | 75,780 |
|
|
| 39.4 | % |
|
| 40.9 | % |
| $ | 10,332 |
|
| $ | 7,972 |
|
Virginia |
| 5 |
| 4 |
|
| 82,909 |
|
|
| 68,017 |
|
|
| 32.1 | % |
|
| 36.8 | % |
|
| 6,418 |
|
|
| 4,910 |
|
Pennsylvania |
| 1 |
| 1 |
|
| 27,628 |
|
|
| 26,757 |
|
|
| 10.7 | % |
|
| 14.5 | % |
|
| 2,457 |
|
|
| 2,109 |
|
Washington D.C. |
| 1 |
| 1 |
|
| 8,393 |
|
|
| 8,393 |
|
|
| 3.3 | % |
|
| 4.5 | % |
|
| 608 |
|
|
| 691 |
|
Colorado |
| 2 |
| 1 |
|
| 37,379 |
|
|
| 6,069 |
|
|
| 14.5 | % |
|
| 3.3 | % |
|
| 1,593 |
|
|
| 182 |
|
|
| 15 |
| 11 |
| $ | 257,917 |
|
| $ | 185,016 |
|
|
| 100.0 | % |
|
| 100.0 | % |
| $ | 21,408 |
|
| $ | 15,864 |
|
Note 11 2019– Employee Benefit Plan
The Company has a 401(k) retirement plan (the “Annual Report”“401(k) Plan”), which permits all eligible employees to defer a portion of their compensation under the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to the provisions of the 401(k) Plan, the Company may make discretionary contributions on behalf of the eligible employees. The Company made contributions to the 401(k) Plan of approximately $0.1 million for each of the years ended December 31, 2021 and 2020.
Note 12 - Earnings per Share
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined based on the weighted average number of shares outstanding during the period combined with the incremental average shares that would have been outstanding assuming the conversion of all potentially dilutive common shares into common shares as of the earliest date possible. Potentially dilutive securities include stock options, convertible preferred stock, restricted stock, restricted stock units ("RSUs") and OP units, which, subject to certain terms and conditions, may be tendered for redemption by the holder thereof for cash based on the market price of the Company’s common stock or, at the Company’s option and sole discretion, for shares of the Company’s common stock on a one-for-one basis. Stock options, convertible preferred stock, restricted stock, RSUs and OP units have been omitted from the Company’s denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the denominator would have no dilutive impact due to the net loss position. The weighted average of the anti-dilutive convertible preferred stock, restricted stock, RSUs and OP units outstanding for the year ended December 31, 2021 was approximately 3.1 million, while the weighted average of the anti-dilutive convertible preferred stock and OP units outstanding for the year ended December 31, 2020 was 2.8 million.
86
The following table sets forth the computation of earnings per common share for the years ended December 31, 2021 and 2020:
|
| For the Year Ended December 31, |
| |||||
(in thousands, except per share data) |
| 2021 |
|
| 2020 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net loss |
| $ | (10,744 | ) |
| $ | (9,524 | ) |
Plus: Net loss attributable to noncontrolling interest |
|
| 1,236 |
|
|
| 1,379 |
|
Net loss attributable to common stockholders |
| $ | (9,508 | ) |
| $ | (8,145 | ) |
Denominator |
|
|
|
|
|
| ||
Basic weighted-average common shares |
|
| 26,929 |
|
|
| 22,029 |
|
Dilutive potential common shares |
|
| - |
|
|
| - |
|
Diluted weighted-average common shares |
|
| 26,929 |
|
|
| 22,029 |
|
|
|
|
|
|
|
| ||
Net loss per common share- basic and diluted |
| $ | (0.35 | ) |
| $ | (0.37 | ) |
Note 13 - Fair Value of Financial Instruments
Financial Assets and Liabilities Measured at Fair Value
The Company’s financial assets and liabilities measured at fair value on a recurring basis currently include derivative financial instruments. These derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs. The market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate caps and interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy. The fair value of the Company’s interest rate cap, which is included in Other assets, net on the consolidated balance sheet was de minimis as of December 31, 2021 and 2020. The fair value of the Company’s interest rate swap liabilities, which are included in Accounts payable and accrued liabilities on the consolidated balance sheet, was approximately $0.4 million and $0.7 million as of December 31, 2021 and 2020, respectively. See Note 7 “—Interest Rate Cap and Interest Rate Swap Agreements” for further discussion regarding the Company’s interest rate cap and interest rate swap agreements.
Financial Assets and Liabilities Not Carried at Fair Value
The carrying amounts of cash and cash equivalents, restricted cash, receivables and accounts payables and accrued liabilities are reasonable estimates of their fair value as of December 31, 2021 and 2020 due to their short-term nature of these instruments (Level 1).
At December 31, 2021 and 2020, the Company’s indebtedness was comprised of borrowings that bear interest at LIBOR plus a margin, prime rate less a margin, and borrowings at fixed rates. The fair value of the Company’s $129.4 million and $101.9 million in borrowings under variable rates as of December 31, 2021 and 2020, respectively, approximate their carrying values as the debt is at variable rates currently available and resets on a monthly basis.
The fair value of the Company’s fixed rate debt as of December 31, 2021 and 2020 is estimated by using Level 2 inputs such as discounting the estimated future cash flows using current market rates for similar loans that would be made to borrowers with similar credit ratings and for the same remaining maturities. As of December 31, 2021, the fair value of the Company’s $50.7 million fixed rate debt was estimated to be approximately $50.6 million. As of December 31, 2020, the fair value of the Company’s $21.1 million fixed rate debt was estimated to be approximately $21.6 million.
Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible.
87
Note 14- Taxes
The income tax benefit consisted of the following for the years ended December 31, 2021 and 2020:
|
| For the Year Ended December 31, |
| |||||
(in thousands) |
| 2021 |
|
| 2020 |
| ||
Current: |
|
|
|
|
|
| ||
Federal |
| $ | — |
|
| $ | — |
|
State |
|
| — |
|
|
| — |
|
Total current tax expense (benefit) |
|
| — |
|
|
| — |
|
Deferred: |
|
|
|
|
|
| ||
Federal |
| $ | (2,471 | ) |
| $ | (2,164 | ) |
State |
|
| (1,062 | ) |
|
| (869 | ) |
Total deferred tax benefit |
|
| (3,533 | ) |
|
| (3,033 | ) |
Total income tax benefit |
| $ | (3,533 | ) |
| $ | (3,033 | ) |
The Company’s effective income tax rate for the years ended December 31, 2021 and 2020 reconciles with the federal statutory rate as follows:
|
| For the Year Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Federal statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
Loss attributable to partnership not subject to tax |
|
| (1.8 | )% |
|
| (2.3 | )% |
State income taxes, net of federal tax benefit |
|
| 5.5 | % |
|
| 5.5 | % |
Prior year adjustment |
|
| 0.1 | % |
|
| — |
|
Effective income tax rate on income before taxes |
|
| 24.8 | % |
|
| 24.2 | % |
The difference between the Company’s effective tax rate and federal statutory rate for the years ended December 31, 2021 and 2020 is 3.8%and 3.2%, respectively, which is primarily due to state taxes and permanent items.
Deferred income tax liabilities are comprised of the following as of December 31, 2021 and 2020:
|
| For the Year Ended December 31, |
| |||||
(in thousands) |
| 2021 |
|
| 2020 |
| ||
Investment in the Operating Partnership |
| $ | (12,349 | ) |
| $ | (12,826 | ) |
NOL carryforwards |
|
| 3,255 |
|
|
| 973 |
|
Equity compensation |
|
| 130 |
|
|
| — |
|
Total deferred tax liabilities |
| $ | (8,964 | ) |
| $ | (11,853 | ) |
At December 31, 2021 and 2020, the Company had pre-tax federal and state income tax NOL carryforwards of approximately $12.1 million and $3.5 million, respectively, which will carry forward indefinitely for federal purposes and for most states.
The Company had 0 uncertain tax positions as of December 31, 2021 and 2020. Generally, for federal and state purposes, the Company's 2018 through 2021 tax years remain open for examination by tax authorities. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the Internal Revenue Service. The Company’s policy is to correct an errorrecognize interest and penalties associated with uncertain tax positions as part of income tax expense.
Note 15 – Related Party Transactions
Receivables and Payables
As of December 31, 2021 and 2020, the Company had $0.2 million in receivables due from related parties, included in Other assets, net on the consolidated balance sheet, which relates to receivables due from properties managed by the Company which were provided to the properties for working capital. Additionally, as of December 31, 2021 and 2020, the Company had $0.6 million and $0.7 million, respectively, in payables due to properties
88
managed by the Company related to amounts borrowed by the Company for working capital, which are reflected in Payables due to related parties on the consolidated balance sheet.
Approximately $1.2 million and$1.6million of the Company’s total revenue for the years ended December 31, 2021 and 2020, respectively, was generated from related parties. Additionally, approximately $0.1 million and $0.5 million of the Company’s accounts receivable, net balance at December 31, 2021 and 2020, respectively, was owed from related parties.
During 2019, the Company agreed to pay $1.5 million of consideration to Thomas Yockey in exchange for repurchasing a portion of his ownership interest in BSR prior to the Mergers. Approximately $1.0 million of this consideration was paid to Mr. Yockey in the disclosure concerningfirst quarter of 2020 and the compensationremaining $0.5 million was paid to Mr. Yockey in the second quarter of 2021.
The Mergers
As consideration in the Mergers that have closed as of the date of these financial statements, as a result of their interests in the Broad Street Entities party to such Mergers, (i) Michael Jacoby received 2,533,650 shares of the Company’s common stock and 856,805 OP units, (ii) Mr. Yockey received 2,533,650 shares of the Company’s common stock and 420,523 OP units, (iii) Alexander Topchy, the Company’s Chief Financial Officer, received an aggregate of 137,345 shares of the Company’s common stock and 48,320 OP units, (iv) Daniel J.W. Neal, a member of the Company’s Board of Directors, received, directly or indirectly, 878,170 shares of the Company’s common stock and (v) Samuel M. Spiritos, a member of the Company's Board of Directors, indirectly received 13,827 shares of the Company's common stock. As consideration in the remaining 2 Mergers as a result of their interests in the remaining Broad Street Entities, (i) Mr. Jacoby will receive an aggregate of approximately 17,985 shares of the Company’s common stock and 136,213 OP units, (ii) Mr. Yockey will receive an aggregate of approximately 17,985 shares of the Company’s common stock and 136,213 OP units, (iii) Mr. Topchy will receive 1,934 shares of the Company’s common stock and 14,338 OP units and (iv) Mr. Neal will receive, directly or indirectly, an aggregate of approximately 16,450 shares of the Company’s common stock.
Management Fees
As of December 31, 2021 and December 31, 2020, the Company provided management services for the 2 and 6 properties, respectively, to be acquired in the remaining Mergers. For each property, the Company receives a management fee ranging from 3.0% to 4.0% of such property’s gross income. As described above, Messrs. Jacoby, Yockey, Topchy and Neal have interests in some or all of the Broad Street Entities that own those properties.
Messrs. Jacoby and Yockey along with Mr. Topchy, Mr. Neal, Jeffrey H. Foster, a member of the Company’s Board of Directors, and Aras Holden, the Company’s Vice President of Asset Management and Acquisitions, have indirect ownership interests in BBL Current, which owns Midtown Row. Mr. Jacoby also serves as the chief executive officer and a director of BBL Current. On December 21, 2021, the Company entered into a purchase and sale agreement with BBL Current to acquire Midtown Row for a purchase price of $122.0 million in cash, as described above in Note 3 under the heading "—Pending Midtown Row Acquisition." The Company served as the development manager for Midtown Row and serves as the property manager and the leasing broker for the retail portion of Midtown Row and will receive management fees from BBL Current beginning in the first quarter of 2022. Prior to the sale, the Company will have 0 ownership interest in the property.
Ground Lease
As described in Note 3 under the heading “—2020 Real Estate Acquisitions”, the Company acquired the fee-simple interest in the land that the Cromwell Field Shopping Center, a property managed by the Company, is located on under a leasehold interest. The Company leased the land to the owner of the Cromwell Field Shopping Center pursuant to a ground lease and recognized less than $0.1 million and approximately $0.1 million of revenue under the ground lease for the years ended December 31, 2021 and 2020, respectively. On May 26, 2021, the ground lease was terminated upon the acquisition of Cromwell Field Shopping Center.
Tax Protection Agreements
On December 27, 2019, pursuant to the Merger Agreements, the Company and the Operating Partnership entered into tax protection agreements (the “Tax Protection Agreements”) with each of the prior investors in BSV Colonial Investor LLC, BSV Lamonticello Investors LLC and BSV Patrick Street Member LLC, including Messrs. Jacoby, Yockey and Topchy, in connection with their receipt of OP units in certain of the Initial Mergers. Pursuant to
89
the Tax Protection Agreements, until the seventh anniversary of the completion of the Initial Mergers, the Company and the Operating Partnership may be required to indemnify the other parties thereto for their tax liabilities related to built-in gain that exists with respect to the properties known as Midtown Colonial, Midtown Lamonticello and Vista Shops at Golden Mile (the “Protected Properties”). Furthermore, until the seventh anniversary of the completion of the Initial Mergers, the Company and the Operating Partnership will be required to use commercially reasonable efforts to avoid any event, including a sale of the Protected Properties, that triggers built-in gain to the other parties to the Tax Protection Agreements, subject to certain exceptions, including like-kind exchanges under Section 1031 of the Code.
Guarantees
The Company’s subsidiaries’ obligations under the Basis Loan Agreement, the Sub-OP Operating Agreement, the Brookhill mortgage loan, and the Lamar Station Plaza East mortgage loan are guaranteed by Messrs. Jacoby and Yockey. We have agreed to indemnify Mr. Yockey for any losses he incurs as a result of his guarantee of the Basis Term Loan, the Sub-OP Operating Agreement, the Brookhill mortgage loan and the Lamar Station Plaza East mortgage loan. Mr. Jacoby is also a guarantor under the MVB Loan Agreement.
Consulting Agreement
The Company had engaged Timbergate Ventures, LLC, an entity wholly owned by Mr. Yockey, as a consultant for a two-year term beginning December 27, 2019. Pursuant to this arrangement, the Company paid Timbergate Ventures, LLC a consulting fee of $0.2 million per year. This agreement expired on December 26, 2021.
Legal Fees
Mr. Spiritos is the managing partner of Shulman Rogers LLP, which represents the Company in certain real estate matters, including with matters related to the Mergers. During the years ended December 31, 2021 and 2020, the Company paid approximately $0.5million and $0.1 million, respectively, in legal fees to Shulman Rogers LLP.
90
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Schedule III
Real Estate and Accumulated Depreciation
(dollars in thousands)
|
|
|
|
|
|
|
|
| Initial Cost to Company |
|
| Gross Amount at Which Carried at Close of Period |
|
|
|
|
|
|
|
| ||||||||||||||||||||
Property Name |
| Location |
| Property Type |
| Encumbrances |
|
| Land |
|
| Building and improvements and intangible lease assets and liabilities |
|
| Cost Capitalized Subsequent to Acquisition |
|
| Land |
|
| Building and improvements and intangible lease assets and liabilities |
|
| Total(1) |
|
| Accumulated Depreciation(1) (2) |
|
| Date of Construction/ |
| Date Acquired | ||||||||
Avondale Shops (3) |
| Washington, D.C. |
| Shopping Center |
| $ | 4,411 |
|
| $ | 1,776 |
|
| $ | 6,593 |
|
| $ | 7 |
|
| $ | 1,776 |
|
| $ | 6,600 |
|
| $ | 8,376 |
|
| $ | (652 | ) |
| 2010 |
| 2019 |
Brookhill Azalea Shopping Center |
| Richmond, VA |
| Shopping Center |
|
| 9,033 |
|
|
| 1,344 |
|
|
| 15,554 |
|
|
| 52 |
|
|
| 1,344 |
|
|
| 15,606 |
|
|
| 16,950 |
|
|
| (2,022 | ) |
| 2012 |
| 2019 |
Coral Hills Shopping Center (4) |
| Capitol Heights, MD |
| Shopping Center |
|
| 10,720 |
|
|
| 2,186 |
|
|
| 14,317 |
|
|
| - |
|
|
| 2,186 |
|
|
| 14,317 |
|
|
| 16,503 |
|
|
| (2,618 | ) |
| 2012 |
| 2019 |
Crestview Square Shopping Center (4) |
| Landover Hills, MD |
| Shopping Center |
|
| 11,903 |
|
|
| 2,853 |
|
|
| 15,717 |
|
|
| 106 |
|
|
| 2,853 |
|
|
| 15,823 |
|
|
| 18,676 |
|
|
| (2,262 | ) |
| 2012 |
| 2019 |
Dekalb Plaza (4) |
| East Norriton, PA |
| Shopping Center |
|
| 14,840 |
|
|
| 7,573 |
|
|
| 17,479 |
|
|
| 1,081 |
|
|
| 7,573 |
|
|
| 18,560 |
|
|
| 26,133 |
|
|
| (2,115 | ) |
| 2017 |
| 2019 |
Hollinswood Shopping Center (3) |
| Baltimore, MD |
| Shopping Center |
|
| 14,891 |
|
|
| 5,907 |
|
|
| 15,050 |
|
|
| 3,955 |
|
|
| 5,907 |
|
|
| 19,005 |
|
|
| 24,912 |
|
|
| (2,173 | ) |
| 2020 |
| 2019 |
Midtown Colonial (4) |
| Williamsburg, VA |
| Shopping Center |
|
| 8,624 |
|
|
| 3,963 |
|
|
| 10,014 |
|
|
| 924 |
|
|
| 3,963 |
|
|
| 10,938 |
|
|
| 14,901 |
|
|
| (1,049 | ) |
| 2018 |
| 2019 |
Midtown Lamonticello (4) |
| Williamsburg, VA |
| Shopping Center |
|
| 9,905 |
|
|
| 3,108 |
|
|
| 12,659 |
|
|
| 239 |
|
|
| 3,108 |
|
|
| 12,898 |
|
|
| 16,006 |
|
|
| (937 | ) |
| 2019 |
| 2019 |
Vista Shops at Golden Mile (3) |
| Frederick, MD |
| Shopping Center |
|
| 16,185 |
|
|
| 4,342 |
|
|
| 10,219 |
|
|
| 92 |
|
|
| 4,342 |
|
|
| 10,311 |
|
|
| 14,653 |
|
|
| (1,732 | ) |
| 2009 |
| 2019 |
West Broad Commons Shopping Center (4) |
| Richmond, VA |
| Shopping Center |
|
| 11,720 |
|
|
| 1,324 |
|
|
| 18,180 |
|
|
| 51 |
|
|
| 1,324 |
|
|
| 18,231 |
|
|
| 19,555 |
|
|
| (2,035 | ) |
| 2017 |
| 2019 |
Lamar Station Plaza East |
| Lakewood, CO |
| Shopping Center |
|
| 3,507 |
|
|
| 1,826 |
|
|
| 3,183 |
|
|
| 1,097 |
|
|
| 1,826 |
|
|
| 4,280 |
|
|
| 6,106 |
|
|
| (628 | ) |
| 1984 |
| 2020 |
Cromwell Field Shopping Center |
| Glen Burnie, MD |
| Shopping Center |
|
| 13,761 |
|
|
| 2,256 |
|
|
| 15,618 |
|
|
| 7 |
|
|
| 2,256 |
|
|
| 15,625 |
|
|
| 17,881 |
|
|
| (955 | ) |
| 2020 |
| 2021 |
Highlandtown Village Shopping Center |
| Baltimore, MD |
| Shopping Center |
|
| 7,325 |
|
|
| 2,998 |
|
|
| 4,341 |
|
|
| - |
|
|
| 2,998 |
|
|
| 4,341 |
|
|
| 7,339 |
|
|
| (492 | ) |
| 1987 |
| 2021 |
Spotswood Valley Square Shopping Center |
| Harrissonburg, VA |
| Shopping Center |
|
| 14,636 |
|
|
| 4,715 |
|
|
| 9,685 |
|
|
| - |
|
|
| 4,715 |
|
|
| 9,685 |
|
|
| 14,400 |
|
|
| (1,255 | ) |
| 1997 |
| 2021 |
The Shops at Greenwood Village |
| Greenwood Village, CO |
| Shopping Center |
|
| 23,296 |
|
|
| 3,170 |
|
|
| 27,560 |
|
|
| 4 |
|
|
| 3,170 |
|
|
| 27,564 |
|
|
| 30,734 |
|
|
| (695 | ) |
| 2019 |
| 2021 |
Total |
|
|
|
|
|
| 174,759 |
|
| $ | 49,341 |
|
| $ | 196,169 |
|
| $ | 7,615 |
|
| $ | 49,341 |
|
| $ | 203,784 |
|
| $ | 253,125 |
|
| $ | (21,620 | ) |
|
|
|
|
91
|
| For the year ended December 31, |
| |||||
(in thousands) |
| 2021 |
|
| 2020 |
| ||
Cost |
|
|
|
|
|
| ||
Balance at beginning of period |
| $ | 181,725 |
|
| $ | 170,094 |
|
Acquisitions |
|
| 68,087 |
|
|
| 7,265 |
|
Capitalized costs |
|
| 3,313 |
|
|
| 4,302 |
|
Purchase price accounting adjustment |
|
| - |
|
|
| 64 |
|
Balance at end of period |
| $ | 253,125 |
|
| $ | 181,725 |
|
|
|
|
|
|
|
| ||
Accumulated Depreciation |
|
|
|
|
|
| ||
Balance at beginning of period |
| $ | 9,625 |
|
| $ | 116 |
|
Depreciation |
|
| 11,995 |
|
|
| 9,509 |
|
Balance at end of period |
| $ | 21,620 |
|
| $ | 9,625 |
|
The unaudited aggregate tax value of real estate assets for federal income tax purposes as of December 31, 2021 is estimated to be $154.7 million.
92
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision of and with the participation of our management, including our Chief Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2021, the end of the period covered by this report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective due to the existence of the material weaknesses in the Company’s internal control over financial reporting described below.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of December 31, 2021, were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the consolidated financial statements and related financial information included in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP.
Management’s Annual Report on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as amended. Our internal control system is designed to provide reasonable assurance to our management and board of directors containedregarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We conducted our assessment of our internal control over financial reporting as is set forth in Item 308(a) of Regulation S-K promulgated under the Exchange Act, and Section 404 of the Sarbanes-Oxley Act as of December 31, 2021, the end of our last fiscal year. Our assessment noted that while remediation of the previously identified material weaknesses is in process, such remediation has not been completed nor have the remediated controls been in place for a sufficient amount of time to conclude as to their operating effectiveness. Consequently, the material weaknesses as previously disclosed continue to exist and our internal controls over financial reporting are ineffective as of December 31, 2021.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
93
will not be prevented or detected on a timely basis. As of December 31, 2021, the following material weaknesses existed:
Control Environment, Risk Assessment, and Monitoring
We did not maintain appropriately designed entity-level controls impacting the control environment, risk assessment procedures, and effective monitoring controls to prevent or detect material misstatements to the consolidated financial statements. These deficiencies were attributed to (i) lack of structure and responsibility, insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls, (ii) ineffective identification and assessment of risks impacting internal control over financial reporting, and (iii) ineffective evaluation and determination as to whether the components of internal control were present and functioning.
Control Activities and Information and Communication
These material weaknesses contributed to the following additional material weaknesses within certain business processes and the information technology environment.
Although these material weaknesses did not result in any material misstatement of our consolidated financial statements for the periods presented, they could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these control deficiencies constitute a material weakness.
Ongoing Remediation Plan
Throughout 2020 and 2021, management, under the oversight of the Audit Committee of the Board of Directors, has continued to implement measures designed to improve our internal control over financial reporting to remediate the identified material weaknesses. The Company began remediating the material weaknesses during the first quarter of 2020 and continues to do so through the date of this Amendment. No other changesreport. The Company’s remediation efforts have included initial assessments of existing internal control over financial reporting and its internal and external accounting resources. While the Company has completed the initial assessments, it will continue monitoring and assessing on a continuing basis.
As part of the Company’s initial assessment of its existing internal control over financial reporting the Company identified missing or inadequately designed controls and is in the process of remediating. The majority of the control improvement efforts have been made to the Annual Report. This Amendment includes disclosurecompleted as of December 31, 2021, with the original filingremainder expected to be completed in the upcoming fiscal year. Once all appropriately designed controls are in place, they will need to operate for a sufficient period of time prior to concluding they are operating effectively. As of December 31, 2021, while many of our controls are in place and operating, we have determined that our controls have not been operating for a sufficient period of time to conclude that they are operating effectively, primarily due to turnover of certain key resources during the year ended December 31, 2021.
As of the date of this report, the Annual Report, doesCompany has hired additional internal resources, including a Vice President of Finance and Reporting and a Corporate Controller. The Company has engaged outside consultants to assist with various accounting and financial reporting matters and continues to assess the need for hiring of additional accounting and financial reporting resources. Additionally, the Company has retained the services of external IT resources. One of these consultants has been retained to be the systems administrator for Yardi, the Company's accounting system.
94
The other consultant has been retained as the network administrator. The Company believes it now has adequate resources in place but will continue assessing its needs for both internal and external resources going forward.
While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, or that we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not reflect events that may have occurred subsequent to the original filing date, and otherbe prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in this Amendment,our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
95
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
This information is incorporated by reference from the Company’s Proxy Statement with respect to the 2022 Annual Meeting of Stockholders or, in the event that the Company does not modifyfile such proxy statement by April 30, 2022, such information will be provided instead by an amendment to this Annual Report on Form 10-K no later than April 30, 2022.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company’s Proxy Statement with respect to the 2022 Annual Meeting of Stockholders or, update in any way disclosuresthe event that the Company does not file such proxy statement by April 30, 2022, such information will be provided instead by an amendment to this Annual Report on Form 10-K no later than April 30, 2022.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference from the Company’s Proxy Statement with respect to the 2022 Annual Meeting of Stockholders or, in the event that the Company does not file such proxy statement by April 30, 2022, such information will be provided instead by an amendment to this Annual Report on Form 10-K no later than April 30, 2022.
This information is incorporated by reference from the Company’s Proxy Statement with respect to the 2022 Annual Meeting of Stockholders or, in the event that the Company does not file such proxy statement by April 30, 2022, such information will be provided instead by an amendment to this Annual Report on Form 10-K no later than April 30, 2022.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
This information is incorporated by reference from the Company’s Proxy Statement with respect to the 2022 Annual Meeting of Stockholders or, in the event that the Company does not file such proxy statement by April 30, 2022, such information will be provided instead by an amendment to this Annual Report on Form 10-K no later than April 30, 2022.
96
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of the report
The following documents are filed as part of this report:
The consolidated financial statements of the Company, together with the independent registered public accounting firm’s report thereon, are included herein and are incorporated by reference. See “Item 8. Financial Statements and Supplementary Data”, filed herewith, for a list of financial statements.
The following financial statement schedule is included in Item 8 and are filed as part of this report. Schedule III—Combined Real Estate Accumulated Depreciation
All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the Annual Report.
Amendment to Annual Report
The paragraph precedingrelated instructions, are inapplicable or the director compensation table under “Item 1. Executive Compensation — Director Compensation” at page 17 of the Annual Report erroneously stated that director Vineet Bedi was granted an option in June 2018 in connection with his oversight of the proposed Transaction (as definedrelated information is included in the Annual Report). MedAmerica wasfootnotes to the applicable financial statement and, therefore, have been omitted.
The exhibits listed in the accompanying Exhibit Index, which is incorporated herein by reference, are filed or furnished as part of this report.
ITEM 16. FORM 10‑K SUMMARY
The Company has elected not yet exploring the Transaction in June 2018 and Mr. Bedi was granted the option shortly after joining the MedAmerica’s board of directors in May 2018. In order to correct this error, the paragraph introducing the director compensation table is hereby deleted in its entirety and replaced with the following:include a summary.
On May 24, 2018, Vineet Bedi joined MedAmerica’s board of directors and on June 11, 2018 we granted Mr. Bedi a fully-vested five-year option to purchase 10,000 shares of our common stock for $6.00 per share for his services as a director. None of our other directors were compensated for their service on the board in 2018.97
EXHIBIT INDEX
Item 15. Exhibits, Financial Statement Schedules.
Number |
| Description |
| ||
2.1 | ||
| ||
| ||
2.4 | ||
2.5 | ||
2.6 | ||
2.7 | ||
2.8 | ||
2.9 | ||
2.10 | ||
98
2.11 | ||
2.12 | ||
2.13 | ||
2.14 | ||
2.15 | ||
2.16 | ||
2.17 | ||
2.18 | ||
2.19 | ||
2.20 | ||
2.21 | ||
99
2.22 | ||
2.23 | ||
2.24 | ||
2.25 | ||
2.26 | ||
2.27 | ||
2.28 | ||
2.29 | ||
2.30 | ||
2.31 | ||
2.32 | ||
100
2.33 | ||
2.34 | ||
2.35 | ||
2.36 | ||
2.37 | ||
2.38 | ||
2.39 | ||
2.40 | ||
2.41 | ||
2.42 | ||
2.43 | ||
101
2.44 | ||
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
4.1 | ||
10.1† | ||
10.2† | ||
10.3* | ||
10.4 | ||
10.5 | ||
10.6 | ||
102
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 † | ||
10.12 | ||
10.13† | ||
10.14 | ||
10.15 | ||
10.16 | ||
10.17 | ||
10.18† | ||
10.19† | ||
10.20 |
103
10.21 | ||
10.22† | ||
10.23 | ||
10.24 | ||
10.25 | ||
21.1* | ||
23.1* | ||
31.1* | Rule 13a-14(a) Certification | |
31.2* | ||
32.1* | ||
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF* | XBRL Taxonomy Definition Linkbase | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase | |
104 | Cover Page Interactive Data File (embedded within the |
*Filed herewith.
† Denotes management contract or compensatory plan, contract or arrangement
SIGNATURES104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, MedAmerica Properties Inc.the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BROAD STREET REALTY, INC. | |||
Date: | April 15, 2022 | By: | /s/ | |
| Michael Z. Jacoby | |||
| Chief Executive Officer | |||
| ||||
|
| |||
| ||||
| ||||
| ||||
In accordance with105
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of MedAmerica Properties Inc.the registrant and in the capacities and on the dates indicated.
|
| |||
Date: |
| By: | /s/ MICHAEL Z. JACOBY | |
|
| Michael Z. Jacoby | ||
| Chief Executive Officer | |||
|
| (principal executive officer) | ||
| ||||
Date: | April 15, 2022 | By: | /s/ ALEXANDER TOPCHY | |
|
| Alexander Topchy | ||
|
| Chief Financial Officer and Secretary | ||
| (principal financial and accounting officer) | |||
Date: | April | By: | /s/ | |
Vineet P. Bedi | ||||
Director | ||||
Date: | April 15, 2022 | By: | /s/ DONNA BRANDIN | |
Donna Brandin | ||||
Director | ||||
Date: | April 15, 2022 | By: | /s/ JEFFREY H. FOSTER | |
Jeffrey H. Foster | ||||
Director | ||||
Date: | April 15, 2022 | By: | /s/ DANIEL J.W. NEAL | |
Daniel J.W. Neal | ||||
Director | ||||
Date: | April 15, 2022 | By: | /s/ SAMUEL M. SPIRITOS | |
Samuel M. Spiritos | ||||
Director | ||||
Date: | April 15, 2022 | By: | /s/ THOMAS M. YOCKEY | |
Thomas M. Yockey | ||||
Director |
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