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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022 | |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-56032
Ares Industrial Real Estate Income Trust Inc.
(Exact name of registrant as specified in its charter)
Maryland | 47-1592886 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Tabor Center 1200 Seventeenth Street, Suite 2900 Denver, CO | 80202 | |
(Address of principal executive offices) | (Zip code) |
(303) 228-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of each class)
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 Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 (§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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
| Smaller reporting company | ☐ |
Non-accelerated filer | ☒ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check 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 ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2022 cannot be calculated because no established market exists for the registrant’s common stock.
As of March 14, 2023 there were 216,220,465 shares of the registrant’s Class T common stock, 20,784,544 shares of the registrant’s Class D common stock and 75,484,080 shares of the registrant’s Class I common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates certain information by reference to the definitive proxy statement for the registrant’s 2022 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission (the “SEC”) no later than April 28, 2023.
Auditor Name: KPMG LLP | Auditor Location: Denver, Colorado | Auditor Firm ID: 185 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes certain statements that may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements relate to, without limitation, our ability to raise capital and effectively and timely deploy the net proceeds from our public offerings, the expected use of net proceeds from our public offerings, our reliance on Ares Commercial Real Estate Management LLC (the “Advisor”) and Ares real estate group (the “Sponsor” or “AREG”) of Ares Management Corporation (“Ares”), our understanding of our competition and our ability to compete effectively, our financing needs, our expected leverage, the effects of our current strategies, rent and occupancy growth, general conditions in the geographic area where we will operate, our future debt and financial position, our future capital expenditures, future distributions and acquisitions (including the amount and nature thereof), other developments and trends of the real estate industry, investment strategies and the expansion and growth of our operations. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “project,” or the negative of these words or other comparable terminology. These statements are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict.
The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions, and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, present and future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:
● | Our ability to raise capital and effectively deploy the net proceeds raised in our public offerings in accordance with our investment strategy and objectives; |
● | The failure of properties to perform as we expect; |
● | Risks associated with acquisitions, dispositions and development of properties; |
● | Our failure to successfully integrate acquired properties and operations; |
● | Unexpected delays or increased costs associated with any development projects; |
● | The availability of cash flows from operating activities for distributions and capital expenditures; |
● | Defaults on or non-renewal of leases by customers, lease renewals at lower than expected rent, or failure to lease properties at all or on favorable rents and terms; |
● | Difficulties in economic conditions generally and the real estate, debt, and securities markets specifically, including the impact of inflation, rising interest rates, the conflict in Ukraine and the COVID-19 pandemic; |
● | Legislative or regulatory changes, including changes to the laws governing the taxation of real estate investment trusts (“REITs”); |
● | Our failure to obtain, renew, or extend necessary financing or access the debt or equity markets; |
● | Conflicts of interest arising out of our relationships with the Sponsor, the Advisor, and their affiliates; |
● | Risks associated with using debt to fund our business activities, including re-financing and interest rate risks; |
● | Increases in interest rates, operating costs, or greater than expected capital expenditures; |
● | Changes to U.S. generally accepted accounting principles (“GAAP”); and |
● | Our ability to continue to qualify as a REIT. |
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Any of the assumptions underlying forward-looking statements could prove to be inaccurate. Our stockholders are cautioned not to place undue reliance on any forward-looking statements included in this Annual Report on Form 10-K. All forward-looking statements are made as of the date of this Annual Report on Form 10-K and the risk that actual results will differ materially from the expectations expressed in this Annual Report on Form 10-K will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Annual Report on Form 10-K, whether as a result of new information, future events, changed circumstances, or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report on Form 10-K, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report on Form 10-K will be achieved.
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SUMMARY RISK FACTORS
An investment in shares of our common stock involves significant risks. See “Risk Factors” beginning on page 5. These risks include, among others:
● | There is no assurance that we will be able to achieve our investment objectives. We have experienced net losses, as defined by GAAP. |
● | There is no public trading market for shares of our common stock, and we do not anticipate that there will be a public trading market for our shares, so redemption of shares by us will likely be the only way to dispose of our stockholders’ shares. Our share redemption program will provide our stockholders with the opportunity to request that we redeem their shares on a monthly basis, but we are not obligated to redeem any shares and may choose to redeem only some, or even none, of the shares that have been requested to be redeemed in any particular month, in our discretion. In addition, redemptions will be subject to available liquidity and other significant restrictions. Further, our board of directors may modify or suspend our share redemption program if in its reasonable judgment, it deems such action to be in our best interest and the best interest of our stockholders. As a result, our shares should be considered as having only limited liquidity and at times may be illiquid, therefore, our stockholders must be prepared to hold their shares for an indefinite length of time. |
● | A portion of the proceeds received in this offering is expected to be used to satisfy redemption requests. Using the proceeds from this offering for redemptions will reduce the net proceeds available to retire debt or acquire additional properties, which may result in reduced liquidity and profitability or restrict our ability to grow our NAV. |
● | The transaction price may not accurately represent the value of our assets at any given time and the actual value of our stockholders’ investments may be substantially less. The transaction price generally will be based on our most recently disclosed monthly NAV of each class of common stock (subject to material changes) and will not be based on any public trading market. Further, our board of directors may amend our NAV procedures from time to time. For example, if our stockholders wish to subscribe for shares of our common stock in October, their subscription request must be received in good order at least five business days before November 1. Generally, the offering price per share would equal the transaction price of the applicable class as of the last calendar day of September, plus applicable upfront selling commissions and dealer manager fees. If accepted, their subscription would be effective on the first calendar day of November. Conversely, if our stockholders wish to submit their shares for redemption in October, their redemption request and required documentation must be received in good order by 4:00 p.m. (Eastern time) on the second to last business day of October. If accepted, their shares would be redeemed as of the last calendar day of October and, generally, the redemption price would equal the transaction price of the applicable class as of the last calendar day of September. Shares are subject to a 5.0% early redemption discount if they have been outstanding for less than one year. In each of these cases, the NAV that is ultimately determined as of the last day of October may be higher or lower than the NAV as of the last day of September used for determining the transaction price. Therefore, the price at which our stockholders purchase shares may be higher than the current NAV per share at the time of sale and the price at which our stockholders redeem shares may be lower than the current NAV per share at the time of redemption. |
● | The transaction price may not represent our enterprise value and may not accurately reflect the actual prices at which our assets could be liquidated on any given day, the value a third party would pay for all or substantially all of our shares, or the price that our shares would trade at on a national stock exchange. Further, it is possible that the annual appraisals of our properties may not be spread evenly throughout the year, and rapidly changing market conditions or material events may not be fully reflected in our monthly NAV. The resulting potential disparity in our NAV may inure to the benefit of redeeming stockholders or non-redeeming stockholders and new purchasers of our common stock, depending on whether our published NAV per share for such class is overstated or understated. |
● | In connection with this offering, we incur fees and expenses which will decrease the amount of cash we have available for operations and new investments. In the future we may conduct other offerings of common stock (whether existing or new classes), preferred stock, debt securities or of interests in our Operating Partnership. We may also amend the terms of this offering. We may structure or amend such offerings to attract institutional investors or other sources of capital. The costs of this offering and future offerings may negatively impact our ability to pay distributions and our stockholders’ overall return. |
● | Our NAV per share may suddenly change if the valuations of our properties materially change from prior valuations or the actual operating results or observed market transactions materially differ from what we originally budgeted. For example, due to rapidly |
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changing market conditions, such as tenant demand and resulting rental rates, the valuation of the underlying properties correspondingly may change suddenly. |
● | Inflation, rising interest rates or deflation may adversely affect our financial condition and results of operations. |
● | Some of our executive officers, directors and other key personnel are also officers, directors, managers and/or key personnel of the Advisor, the Dealer Manager, and/or other entities related to the Sponsor. As a result, they face conflicts of interest, including but not limited to conflicts arising from time constraints, allocation of investment and leasing opportunities and the fact that certain of the compensation the Advisor will receive for services rendered to us is based on our NAV, the procedures for which the Advisor assists our board of directors in developing, overseeing, implementing and coordinating. We expect to compete with certain affiliates of direct and indirect owners of the Sponsor for investments and certain of those entities may be given priority with respect to certain investment opportunities. |
● | This is a “blind pool” offering; our stockholders will not have the opportunity to evaluate all of the investments we will make before we make them. |
● | This is a “best efforts” offering and if we are unable to raise substantial funds, then we will be more limited in our investments. |
● | We may change our investment policies without stockholder notice or consent, which could result in investments that are different from those described in this report and in other filings we make with the SEC from time to time. |
● | The amount of distributions we may make is uncertain. Distributions have been and may continue to be paid from sources other than cash flows from operating activities, including, without limitation, from borrowings, the sale of assets or offering proceeds. Our distributions may exceed our taxable income, which would represent a return of capital for tax purposes. A return of capital is a return of our stockholders’ investment rather than a return of earnings or gains and will be made after deductions of fees and expenses payable in connection with our offering. Some or all of our future distributions may be paid from these sources as well as from the sales of assets, cash resulting from a waiver or deferral of fees, and from our cash balances. There is no limit on distributions that may be made from these sources, however, our Advisor and its affiliates are under no obligation to defer or waive fees in order to support our distributions. The use of these sources for distributions may decrease the amount of cash we have available for new investments, share redemptions and other corporate purposes, and could reduce our stockholders’ overall return. |
● | If we fail to qualify as a REIT, it would adversely affect our operations and our ability to make distributions to our stockholders. |
● | Our use of leverage, such as mortgage indebtedness and other borrowings, increases the risk of loss on our investments. |
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PART I
ITEM 1. BUSINESS
The Company
Ares Industrial Real Estate Income Trust Inc. is a Maryland corporation formed on August 12, 2014. As used herein, the terms “Ares Industrial Real Estate Income Trust,” “AIREIT,” the “Company,” “we,” “our,” or “us” refer to Ares Industrial Real Estate Income Trust Inc. and its consolidated subsidiaries, except where otherwise indicated.
We were formed to make equity and debt investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate customers throughout the U.S. Although we will continue to focus our investment activities primarily on distribution warehouses and other industrial properties, our charter and bylaws do not preclude us from investing in other types of commercial property, real estate debt, or real estate-related equity securities.
We have operated and elected to be treated as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2017, and we intend to continue to operate in accordance with the requirements for qualification as a REIT. We utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through our operating partnership, AIREIT Operating Partnership LP (the “Operating Partnership”), a Delaware limited partnership of which we are the sole general partner and a limited partner.
We intend to conduct a continuous offering that will not have a predetermined duration, subject to continued compliance with the rules and regulations of the SEC and applicable state laws. In order to execute this strategy in compliance with federal securities laws, we intend to file new registration statements to replace existing registration statements, such that there will not be any lag from one offering to the next. On August 4, 2021, the SEC declared our registration statement on Form S-11 with respect to our third public offering of up to $5.0 billion of shares of our common stock effective, and the third public offering commenced the same day. Under the third public offering, we are offering up to $3.75 billion of shares of our common stock in the primary offering and up to $1.25 billion of shares of our common stock pursuant to our distribution reinvestment plan, in any combination of Class T shares, Class D shares and Class I shares. We may reallocate amounts between the primary offering and distribution reinvestment plan.
Pursuant to our public offering, we offered and continue to offer shares of our common stock at the “transaction price,” plus applicable selling commissions and dealer manager fees. The “transaction price” generally is equal to the net asset value (“NAV”) per share of our common stock most recently disclosed. Our NAV per share is calculated as of the last calendar day of each month for each of our outstanding classes of common stock, and is available generally within 15 calendar days after the end of the applicable month. Shares issued pursuant to our distribution reinvestment plan are offered at the transaction price, as indicated above, in effect on the distribution date. We may update a previously disclosed transaction price in cases where we believe there has been a material change (positive or negative) to our NAV per share relative to the most recently disclosed monthly NAV per share. See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Estimated Net Asset Value Per Share” for further detail.
Additionally, we have a program to raise capital through private placement offerings by selling beneficial interests (“DST Interests”) in specific Delaware statutory trusts holding real properties (the “DST Program”). These private placement offerings are exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act. Under the DST Program, each private placement will offer interests in one or more real properties placed into one or more Delaware statutory trust(s) by the Operating Partnership or its affiliates (“DST Properties”). DST Properties may be sourced from properties currently indirectly owned by the Operating Partnership or newly acquired properties. We anticipate that these interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”). We expect that the DST Program will give us the opportunity to expand and diversify our capital raise strategies by offering what we believe to be an attractive and unique investment product for investors that may be seeking replacement properties to complete like-kind exchange transactions. We also make loans (“DST Program Loans”) to finance no more than 50% of the purchase price of the DST Interests to certain purchasers of the interests in the Delaware statutory trusts payable upon their acquisition of such interests. During the year ended December 31, 2022, we sold $768.6 million of gross interests related to the DST Program, $83.6 million of which were financed by DST Program Loans. Refer to “Note 6 to the Consolidated Financial Statements” in Item 8, “Financial Statements and Supplementary Data” for additional detail regarding the DST Program.
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During the year ended December 31, 2022, we raised gross proceeds of approximately $1.0 billion from the sale of 71.3 million shares of our common stock, including shares issued pursuant to our distribution reinvestment plan. See “Note 8 to the Consolidated Financial Statements” for information concerning our public offering.
As of December 31, 2022, we directly owned and managed a real estate portfolio that included 243 industrial buildings totaling 50.2 million square feet located in 29 markets throughout the U.S., with 418 customers, and was 98.1% occupied (98.9% leased) with a weighted-average remaining lease term (based on square feet) of approximately 4.2 years. The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced. During the year ended December 31, 2022, we transacted over 5.7 million square feet of new and renewal leases, and rent growth on comparable leases averaged 47.2% (calculated using cash basis rental rates). We experienced significantly higher acquisition volume in the first and second quarters of 2022 as compared to the third and fourth quarters of 2022 as the industrial property market adjusted to the impact of recent interest rate increases on acquisition pricing. Industrial market fundamentals remain favorable and we continue to evaluate acquisition opportunities within the industrial market to effectively execute our business strategy. As of December 31, 2022, our real estate portfolio included:
● | 240 industrial buildings totaling approximately 49.7 million square feet comprised our operating portfolio, which includes stabilized properties, and was 99.0% occupied (99.1% leased) with a weighted-average remaining lease term (based on square feet) of approximately 4.2 years; and |
● | Three industrial buildings totaling approximately 0.5 million square feet comprised our value-add portfolio, which includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached stabilization. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s shell completion or a building achieving 90% occupancy. |
Additionally, as of December 31, 2022, we owned and managed 11 buildings either under construction or in the pre-construction phase totaling approximately 3.1 million square feet. Unless otherwise noted, these buildings are excluded from the presentation of our portfolio data herein.
Concurrently with the BTC II Partnership Transaction (as defined and described in “Note 4 to the Consolidated Financial Statements”) on February 15, 2022, we and our joint venture partners formed a new joint venture partnership (the “BTC II B Partnership”), through which we co-own five properties that were part of the original Build-To-Core Industrial Partnership II LP (the “BTC II Partnership”) portfolio and were not part of the BTC II Partnership Transaction. As of December 31, 2022, we owned and managed five buildings that were either under construction or in the pre-construction phase totaling approximately 1.8 million square feet, through our 8.0% minority ownership interest in the BTC II B Partnership. Unless otherwise noted, these buildings are excluded from the presentation of our portfolio data herein.
See Item 2, “Properties,” for further details on our real estate portfolio. See “Note 4 to the Consolidated Financial Statements” for detail regarding our acquisition activity for the year ended December 31, 2022.
We rely on the Advisor, a related party, to manage our day-to-day operating and acquisition activities and to implement our investment strategy pursuant to the terms of that certain Amended and Restated Advisory Agreement (2022), effective as of May 1, 2022 (the “Advisory Agreement”), by and among us, the Operating Partnership, and the Advisor. The current term of the Advisory Agreement ends April 30, 2023, subject to renewal by our board of directors for an unlimited number of successive one-year periods. The Advisor performs its duties and responsibilities under the Advisory Agreement as a fiduciary of us and our stockholders. The Advisor may, but is not required to, establish working capital reserves from proceeds from our public offerings, from cash flow generated by operating assets or from proceeds from the sale of assets. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions, and major capital expenditures. Our lenders also may require working capital reserves.
Investment Objectives
Our primary investment objectives include the following:
● | preserving and protecting our stockholders’ capital contributions; |
● | providing current income to our stockholders in the form of regular distributions; and |
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● | realizing capital appreciation in our NAV from active investment management and asset management. |
There is no assurance that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our stockholders.
Investment Strategy
We have and will continue to focus our investment activities on and use the proceeds raised in the offerings principally for building a national industrial warehouse operating company. Our investment activities include the acquisition, development and/or financing of income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate customers. Creditworthiness does not necessarily mean investment grade and the majority of our customers do not have a public credit rating. Furthermore, it is anticipated that much of our portfolio will be leased to non-investment grade customers going forward. We evaluate creditworthiness and financial strength of prospective customers based on financial, operating and business plan information that is provided to us by such prospective customers, as well as other market and economic information that is generally publicly available.
The number and type of properties we may acquire or develop will depend upon real estate market conditions and other circumstances existing at the time we make our investments. Although we intend to continue to focus our investment activities primarily on distribution warehouses and other industrial properties, our charter and bylaws do not preclude us from investing in other types of commercial property or real estate debt investments. However, we will not invest more than 25% of net proceeds we receive from the sale of shares of our common stock in the offerings in other types of commercial property or real estate-related debt. As of December 31, 2022, our portfolio was comprised entirely of industrial properties. See Item 2, “Properties,” for further detail.
Our investment in any distribution warehouse, other industrial property, or other property type will be based upon the best interests of our company and our stockholders as determined by the Advisor and our board of directors. Real estate assets in which we may invest may be acquired or developed either directly by us or through joint venture partnerships or other co-ownership arrangements with affiliated or unaffiliated third parties, and may include: equity investments in commercial properties; mortgage, mezzanine, construction, bridge, and other loans related to real estate; and investments in other real estate-related entities, including REITs, private real estate funds, real estate management companies, real estate development companies, and debt funds, both foreign and domestic. Subject to the 25% limitation described above, we may invest in any of these asset classes, including those that may present greater risk than industrial properties.
Our real estate-related debt investments strategy is focused on generating liquidity, current income and contributing to our overall net returns. Alongside our credit facilities and operating cash flow, our real estate debt investments, which are currently comprised of debt securities, may provide an additional source of liquidity. These liquidity sources may collectively be used for cash management, satisfying any stock repurchases under our share repurchase plan and other purposes.
Business Strategy
We seek to provide income in the form of regular distributions to our stockholders by generating sustained internal growth in rental income. The keys to long-term rental income growth are maintaining a stabilized occupancy rate (generally above 90%) through active leasing efforts, negotiating contractual rent increases on existing leases and renewals on expiring leases, cultivating strong customer relationships, and controlling operating expenses.
Financing Objectives
We use secured and unsecured debt as a means of providing additional funds for the acquisition of assets, to pay distributions, and for other corporate purposes. While a large percentage of our debt financings may typically be comprised of long-term, fixed-rate loans, our use of leverage generally increases the risk of default on loan payments and the resulting foreclosure on a particular asset or group of assets. Upon a default, our lenders may also have recourse to assets other than those specifically securing the repayment of the indebtedness. Our ability to enhance our investment returns and to increase our diversification by acquiring assets using additional funds provided through borrowings could be adversely impacted if the credit markets are closed or limited and banks and other lending institutions impose severe restrictions on the amount of funds available for the types of loans we seek. We have sourced, and may continue
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to source, institutional or other capital through joint venture partnerships or other co-partnerships to help diversify risk associated with development and value-add opportunities. See Item 1A, “Risk Factors—Risks Related to Debt Financing” for further detail.
Competition
The market for the acquisition of industrial real estate is highly competitive. We compete for real property investments with other REITs and institutional investors, such as pension funds and their advisors, private real estate investment funds, insurance company investment accounts, private investment companies, individuals and other entities engaged in real estate investment activities, including certain other entities sponsored or advised by affiliates of the Sponsor, some of which may have greater financial resources than we do and generally may be able to accept more risk, including risks relating to the creditworthiness of potential customers, the breadth of the markets in which to invest, or the level of leverage they are willing to take on. They also may possess significant competitive advantages that result from, among other things, a lower cost of capital or greater operating efficiencies associated with a larger platform.
The market for the leasing of industrial real estate is also very competitive. We experience competition for customers from other existing assets in proximity to our buildings, as well as from proposed new developments. As a result, we may have to provide free rental periods, incur charges for tenant improvements, or offer other inducements, all of which may have an adverse impact on our results of operations.
Significant Customers
We are dependent upon the ability of current customers to pay their contractual rent amounts as the rents become due. As of December 31, 2022, there was one customer that individually represented more than 5.0% of total annualized base rent, and our 10 largest customers represented approximately 22.0% of total annualized base rent of our portfolio. We are not aware of any current customers whose inability alone to pay their contractual rental amounts would have a material adverse impact on our results of operations. See Item 2, “Properties,” for further detail about customer diversification.
Conflicts of Interest
We are subject to various potential conflicts of interest that could arise out of our relationship with the Advisor and other affiliates and related parties, including: conflicts related to the compensation arrangements among the Advisor, certain affiliates and related parties, and us; conflicts with respect to the allocation of the Advisor’s and its key personnel’s time; conflicts related to our potential acquisition of assets from affiliates of the Advisor; and conflicts with respect to the allocation of investment and leasing opportunities. Further, entities currently sponsored by or that in the future may be advised by affiliates of the Sponsor, and those in which Sponsor-affiliated entities own interests, may compete with us or may be given priority over us with respect to the acquisition of certain types of investments. As a result of our potential competition with these entities, certain investment and leasing opportunities that would otherwise be available to us may not in fact be available. See Item 1A, “Risk Factors—Risks Related to the Advisor and Its Affiliates,” for additional detail. The independent directors have an obligation to function on our behalf in all situations in which a conflict of interest may arise and have a fiduciary obligation to act on behalf of our stockholders.
Compliance with Federal, State and Local Environmental Laws
Properties that we acquire, and the properties underlying our investments, are subject to various federal, state, and local environmental laws, ordinances, and regulations. Under these laws, ordinances, and regulations, a current or previous owner of real estate (including, in certain circumstances, a secured lender that succeeds to ownership or control of a property) may become liable for the costs of removal or remediation of certain hazardous or toxic substances or petroleum product releases at, on, under, or in its property. These laws typically impose cleanup responsibility and liability without regard to whether the owner or control party knew of or was responsible for the release or presence of the hazardous or toxic substances. The costs of investigation, remediation, or removal of these substances may be substantial and could exceed the value of the property. An owner or control party of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Certain environmental laws also impose liability in connection with the handling of or exposure to materials containing asbestos. These laws allow third parties to seek recovery from owners of properties for personal injuries associated with materials containing asbestos. Our operating costs and the values of these assets may be adversely affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances, and regulations, as well as the cost of complying with future legislation, and our income and ability to make distributions to our stockholders could be affected adversely by the existence of an environmental liability with respect to our properties.
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We will endeavor to ensure our properties are in compliance in all material respects with all federal, state and local laws, ordinances, and regulations regarding hazardous or toxic substances or petroleum products.
Employees
We have no employees. Pursuant to the terms of the Advisory Agreement, the Advisor assumes principal responsibility for managing our affairs and we compensate the Advisor for certain services.
Additional Information
Our internet address is www.areswmsresources.com/investment-solutions/AIREIT. Through a link on our website, we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and prospectus, along with any amendments to those filings, as soon as reasonably practicable after we file or furnish them to the SEC.
ITEM 1A. RISK FACTORS
RISKS RELATED TO INVESTING IN OUR PUBLIC OFFERING
There is no assurance that we will be able to successfully achieve our investment objectives; the prior performance of other entities affiliated with our Advisor may not be an accurate barometer of our future results.
We may not be able to achieve our investment objectives. We have experienced net loss, as defined by GAAP. As a result, an investment in our shares of common stock may entail more risk than the shares of common stock of a real estate investment trust with a substantial operating history. In addition, stockholders should not rely on the past performance of investments by other entities affiliated with our Advisor to predict our future results. Our investment strategy and key employees may differ from the investment strategies and key employees of other programs affiliated with our Advisor in the past, present and future.
Because we generally do not mark to market our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity, or our associated interest rate hedges that are intended to be held to maturity, the realizable value of our company or our assets that are encumbered by debt may be higher or lower than the value used in the calculation of our NAV.
In accordance with our valuation procedures, our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity (which for fixed rate debt not subject to interest rate hedges may be the date near maturity at which time the debt will be eligible for prepayment at par for purposes herein), including those subject to interest rates hedges, are valued at par (i.e. at their respective outstanding balances). Because we often utilize interest rate hedges to stabilize interest payments (i.e. to fix all-in interest rates through interest rate swaps or to limit interest rate exposure through interest rate caps) on individual loans, each loan and associated interest rate hedge is treated as one financial instrument, which is valued at par if intended to be held to maturity. This policy of valuing at par applies regardless of whether any given interest rate hedge is considered an asset or liability for GAAP purposes. Notwithstanding the foregoing, if we acquire an investment and assume associated in-place debt from the seller that is above or below market, then consistent with how we recognize assumed debt for GAAP purposes when acquiring an asset with pre-existing debt in place, the liabilities used in the determination of our NAV will include the market value of such debt; the associated premium or discount on such debt will then be amortized through loan maturity. As a result of this policy, the realizable value of our company or our assets that are encumbered by debt used in the calculation of our NAV may be higher or lower than the value that would be derived if such debt instruments were marked to market. For example, if we decide to sell one or more assets, we may re-classify those assets as held-for-sale, which could then have a positive or negative impact on our calculation of NAV to the extent any associated debt is definitively intended to be prepaid. In some cases, such difference may be significant. As of December 31, 2022, we classified all of our debt as intended to be held to maturity, and our liability included mark-to-market adjustments for pre-existing debt that we assumed upon acquisition. We currently estimate the fair value of our debt (inclusive of associated interest rate hedges) that was intended to be held to maturity as of December 31, 2022 was $192.7 million lower than the carrying value used for purposes of calculating our NAV (as described above) for such debt in aggregate, meaning that if we used the fair value of our debt rather than the carrying value used for purposes of calculating our NAV (and treated the associated hedge as part of the same financial instrument), our NAV as of December 31, 2022 would have been higher by approximately $192.7 million, or $0.61 per share, not taking into account all of the other items that impact our monthly NAV.
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There is no public trading market for the shares of our common stock and we do not anticipate that there will be a public trading market for our shares; therefore, our stockholders’ ability to dispose of their shares will likely be limited to redemption by us. If our stockholders do sell their shares to us, they may receive less than the price they paid.
There is no public market for the shares of our common stock and we currently have no obligation or plans to apply for listing on any public securities market. Therefore, redemption of the shares of our common stock by us will likely be the only way for our stockholders to dispose of their shares. We will redeem shares at a price equal to the transaction price on the last calendar day of the applicable month, and not based on the price at which our stockholders initially purchased their shares. We may redeem our stockholders’ shares if they fail to maintain a minimum balance of $2,000 of shares, even if their failure to meet the minimum balance is caused solely by a decline in our NAV. Since Class T shares are sold at the transaction price plus applicable upfront selling commissions and dealer manager fees, holders of Class T shares may receive less than the price they paid for their shares upon redemption by us. Subject to limited exceptions, holders of our common stock that have not held their shares for at least one year will be eligible for redemption at 95% of the transaction price on the redemption date, which will inure indirectly to the benefit of our remaining stockholders. As a result of this and the fact that our NAV will fluctuate, holders of our common stock may receive less than the price they paid for their shares upon redemption by us.
Our ability to redeem our stockholders’ shares may be limited. In addition, our board of directors may modify or suspend our share redemption program at any time.
Our share redemption program contains significant restrictions and limitations. For example, if holders of our common stock do not hold their shares for a minimum of one year, then they will only be eligible for redemption at 95% of the transaction price on the redemption date.
We may redeem fewer shares than have been requested in any particular month to be redeemed under our share redemption program, or none at all, in our discretion at any time. We may redeem fewer shares due to lack of readily available funds because of adverse market conditions beyond our control, the need to maintain liquidity for our operations or because we have determined that investing in real property or other illiquid investments is a better use of our capital than redeeming our shares. In addition, the total amount of aggregate redemptions of Class T, Class D, and Class I shares (based on the price at which the shares are redeemed) will be limited for each calendar month to 2% of the aggregate NAV of all classes as of the last calendar day of the previous quarter and for each calendar quarter will be limited to 5% of the aggregate NAV of all classes of shares as of the last calendar day of the previous calendar quarter. With respect to the limitations described above, (i) provided that this share redemption program has been operating and not suspended for the first month of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for that month will carry over to the second month and (ii) provided that this share redemption program has been operating and not suspended for the first two months of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for those two months will carry over to the third month. In no event will such carry-over capacity permit the redemption of shares with aggregate value (based on the redemption price per share for the month the redemption is effected) in excess of 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter (provided that for these purposes redemptions may be measured on a net basis as described in the paragraph below).
We currently measure the foregoing redemption allocations and limitations based on net redemptions during a month or quarter, as applicable. The term “net redemptions” means, during the applicable period, the excess of our share redemptions (capital outflows) over the proceeds from the sale of our shares (capital inflows). For purposes of measuring our redemption capacity pursuant to our share redemption program, proceeds from new subscriptions in a month are included in capital inflows on the first day of the next month because that is the first day on which such stockholders have rights in the Company. Also for purposes of measuring our redemption capacity pursuant to our share redemption program, redemption requests received in a month are included in capital outflows on the last day of such month because that is the last day stockholders have rights in the Company. We record these redemptions in our financial statements as having occurred on the first day of the next month following receipt of the redemption request because shares redeemed in a given month are outstanding through the last day of the month. With respect to future periods, our board of directors may choose whether the allocations and limitations will be applied to “gross redemptions,” i.e., without netting against capital inflows, rather than to net redemptions, which could limit the amount of shares redeemed in a given month or quarter despite our receiving a net capital inflow for that month or quarter.
The vast majority of our assets will consist of properties which cannot generally be readily liquidated on short notice without impacting our ability to realize full value upon their disposition. Therefore, we may not always have a sufficient amount of cash to immediately satisfy redemption requests. Our board of directors may modify or suspend our share redemption program. In addition, limited partners in
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our Operating Partnership have different redemption rights with respect to partnership interests in the Operating Partnership (“OP Units”) and are treated differently than our stockholders requesting redemption under our share redemption program. Further, we may invest in real estate-related securities and other securities with the primary goal of maintaining liquidity in support of our share redemption program. Any such investments may result in lower returns than an investment in real estate assets, which could adversely impact our ability to pay distributions and our stockholders’ overall return. Further, if redemption requests, in the business judgment of our board of directors, place an undue burden on our liquidity, adversely affect our operations, risk having an adverse impact on stockholders whose shares are not redeemed, or should we otherwise determine that investing our liquid assets in real properties or other investments rather than repurchasing our shares is in the best interests of the Company as a whole, then our board of directors may make exceptions to, modify or suspend our share redemption program if in its reasonable judgment it deems such action to be in our best interest and the best interest of our stockholders. Although our board of directors has the discretion to suspend our share redemption program, our board of directors will not terminate our share redemption program other than in connection with a liquidity event which results in our stockholders receiving cash or securities listed on a national securities exchange or where otherwise required by law. Our board of directors may determine that it is in our best interests and the interest of our stockholders to suspend the share redemption program as a result of regulatory changes, changes in law, if our board of directors becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are redeemed, a lack of available funds, a determination that redemption requests are having an adverse effect on our operations or other factors. Upon suspension of our share redemption program, our share redemption program requires our board of directors to consider at least quarterly whether the continued suspension of the program is in our best interest and the best interest of our stockholders; however, we are not required to authorize the re-commencement of the share redemption program within any specified period of time and any suspension may be for an indefinite period, which would be tantamount to a termination. As a result, our stockholders’ ability to have their shares redeemed by us may be limited, our shares should be considered as having only limited liquidity and at times may be illiquid.
Our capacity to redeem shares may be further limited if we experience a concentration of investors.
The current limitations of our share redemption program are based, in part, on the number of outstanding shares. Thus, the ability of a single investor, or of a group of investors acting similarly, to redeem all of their shares may be limited if they own a large percentage of our shares. Similarly, if a single investor, or a group of investors acting in concert or independently, owns a large percentage of our shares, a significant redemption request by such investor or investors could significantly further limit our ability to satisfy redemption requests of other investors of such classes. Such concentrations could arise in a variety of circumstances. For example, we could sell a large number of our shares to one or more institutional investors, either in a public offering or in a private placement. In addition, we may issue a significant number of our shares in connection with an acquisition of another company or a portfolio of properties to a single investor or a group of investors that may request redemption at similar times following the acquisition.
Purchases and redemptions of our common shares will not be made based on the current NAV per share of our common stock.
We are offering shares of our common stock at the transaction price, plus applicable selling commissions and dealer manager fees. The transaction price generally will be equal to the NAV per share of our common stock most recently disclosed by us, however, we may offer shares at a price that we believe reflects the NAV per share of such stock more appropriately than the most recently disclosed NAV per share, including by updating a previously disclosed transaction price, in cases where we believe there has been a material change (positive or negative) to our NAV per share relative to the most recently disclosed NAV per share. The transaction price generally will be based on our most recently disclosed monthly NAV of each class of common stock (subject to material changes as described above) and will not be based on any public market. Further, our board of directors may amend our NAV procedures from time to time. For example, if our stockholders wish to subscribe for shares of our common stock in October, their subscription request must be received in good order at least five business days before November 1. Generally, the offering price per share would equal the transaction price of the applicable class as of the last calendar day of September, plus applicable upfront selling commissions and dealer manager fees. If accepted, their subscription would be effective on the first calendar day of November. Conversely, if our stockholders wish to submit their shares for redemption in October, their redemption request and required documentation must be received in good order by 4:00 p.m. (Eastern time) on the second to last business day of October. If accepted, their shares would be redeemed as of the last calendar day of October and, generally, the redemption price would equal the transaction price of the applicable class as of the last calendar day of September, subject to a 5.0% reduction, for early redemption of shares of our common stock that have not been outstanding for at least one year. In each of these cases, the NAV that is ultimately determined as of the last day of October may be higher or lower than the NAV as of the last day of September used for determining the transaction price. Therefore, the price at which our stockholders purchase shares may be higher than the current NAV per share at the time of sale and the price at which our stockholders redeem shares may be lower than the current NAV per share at the time of redemption.
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In order to maintain what we deem to be sufficient liquidity for our share redemption program, we may keep more of our assets in securities, cash, cash equivalents and other short-term investments than we would otherwise like which would affect returns.
In order to provide liquidity for share redemptions, we intend to, subject to any limitations and requirements relating to our intention to qualify as a REIT, maintain a number of sources of liquidity including (i) cash equivalents (e.g. money market funds), other short-term investments, U.S. government securities, agency securities and liquid real estate-related securities and (ii) one or more borrowing facilities. We may fund redemptions from any available source of funds, including operating cash flows, borrowings, proceeds from this offering and/or sales of our assets. This could adversely affect our results of operations, financial condition, NAV and ability to pay distributions to our stockholders.
Economic events that may cause our stockholders to request that we redeem their shares may materially adversely affect our cash flow and our results of operations and financial condition.
Economic events affecting the U.S. economy, such as the general negative performance of the real estate sector, could cause our stockholders to seek to sell their shares to us pursuant to our share redemption program at a time when such events are adversely affecting the performance of our assets. The redemptions of Class T, Class D, and Class I shares are subject to the 2% and 5% limits (as described above) (subject to potential carry-over capacity). Even if we are able to and determine to satisfy all resulting redemption requests, our cash flow could be materially adversely affected. In addition, if we determine to sell assets to satisfy redemption requests, we may not be able to realize the return on such assets that we may have been able to achieve had we sold at a more favorable time, and our results of operations and financial condition, including, without limitation, breadth of our portfolio by property type and location, could be materially adversely affected.
A portion of the proceeds raised in our public offering is expected to be used to satisfy redemption requests, and such portion of the proceeds may be substantial.
We currently expect to use a portion of the proceeds from our public offering to satisfy redemption requests with respect to our share redemption program. Using the proceeds from our public offering for redemptions will reduce the net proceeds available to retire debt or acquire additional investments, which may result in reduced liquidity and profitability or restrict our ability to grow our NAV.
Our public offering is a “blind pool” offering and stockholders will not have the opportunity to evaluate our future investments prior to purchasing shares of our common stock.
Stockholders will not be able to evaluate the economic merits, transaction terms or other financial or operational data concerning our future investments that we have not yet identified prior to purchasing shares of our common stock. Stockholders must rely on the Advisor and our board of directors to implement our investment policies, to evaluate our investment opportunities and to structure the terms of our investments. We may invest in any asset class, including those that present greater risk than industrial assets. Because stockholders cannot evaluate our future investments in advance of purchasing shares of our common stock, a “blind pool” offering may entail more risk than other types of offerings. This additional risk may hinder stockholders’ ability to achieve their own personal investment objectives related to portfolio diversification, risk-adjusted investment returns and other objectives.
Our public offering is a “best efforts” offering and if we are unable to raise substantial funds, we will be limited in the number and type of investments we may make which could negatively impact an investment in shares of our common stock.
Our public offering is being made on a “best efforts” basis, whereby the broker dealers participating in the offering are only required to use their best efforts to sell shares of our common stock and have no firm commitment or obligation to purchase any of the shares of our common stock. As a result, the amount of proceeds we raise in our public offering may be substantially less than the amount we would need to achieve a diversified industrial portfolio. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, and our financial condition and ability to make distributions could be adversely affected. If we are unable to raise substantially more funds in our public offering, we will be thinly capitalized and will make fewer investments in properties, and will more likely focus on making investments in loans and real estate-related entities, resulting in less diversification in terms of the number of investments owned, the geographic regions in which our property investments are located and the types of investments that we make. As a result, the likelihood increases that any single investment’s poor performance would materially affect our overall investment performance. During the year ended December 31, 2022, we raised gross proceeds of approximately $1.0 billion from the sale of 71.3 million shares of
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our common stock, including shares issued pursuant to our distribution reinvestment plan. See “Note 8 to the Consolidated Financial Statements” for information concerning our public offering.
Historical returns may be presented over limited timeframes and are inherently limited in their applicability to the future.
In our prospectus, in our annual report, and in other investor communications, we disclose certain historical NAV and total return information. This information may be presented on a class-by-class basis or on a weighted-average basis across all our classes. The information may go back one month, one quarter, or longer periods. While we believe this historical information is useful, investors should understand that any historical return presentation is inherently limited in its applicability to the future, for a variety of reasons. We may have performed better in certain past time periods than others, and we cannot predict the future performance of our company specifically or the broader economy and real estate markets more generally. Furthermore, from time to time we may make changes to our portfolio, our investment focus, or structural aspects of our company that may make past returns less comparable. Over time, we have made changes to the fees and reimbursements we pay to the Advisor (in connection with managing our operations) and the Dealer Manager and participating broker-dealers (in connection with our public offerings). Our share classes have different upfront fees and different class-specific fees that make their returns different from those of other classes and from average returns that may be shown. In some cases, we have changed the names of our share classes and the fees that affect their returns.
Even if we are able to raise substantial funds in our public offerings, investors in our common stock are subject to the risk that our offerings, business and operating plans may change.
Although we presently intend to operate on a perpetual basis with ongoing offering and share redemption program, this is not a requirement of our charter. Further, we may in the future consider various Liquidity Events and, given that our investment strategy is focused on a single asset class, it is possible that an opportunity to execute a Liquidity Event could arise. Even if we are able to raise substantial funds in our offerings, if circumstances change such that our board of directors believes it is in the best interest of our stockholders to terminate our offerings or to terminate our share redemption program, in connection with a Liquidity Event or otherwise, we may do so without stockholder approval. Our board of directors may also change our investment objectives, borrowing policies or other corporate policies without stockholder approval. In addition, we may change the way our fees and expenses are incurred and allocated to different classes of stockholders if the tax rules applicable to REITs change such that we could do so without adverse tax consequences. Our board of directors may decide that a Liquidity Event or certain other significant transactions that require stockholder approval are in the best interests of our stockholders. Holders of all classes of our common stock have equal voting rights with respect to such matters and will vote as a single group rather than on a class-by-class basis. Accordingly, investors in our common stock are subject to the risk that our offerings, business and operating plans may change.
Valuations and appraisals of our properties, real estate-related assets and real estate-related liabilities are estimates of value and may not necessarily correspond to realizable value.
The primary component of our NAV is the value of our investments. The valuation methodologies used to value our properties and certain real estate-related assets involve subjective judgments regarding such factors as comparable sales, rental revenue and operating expense data, known contingencies, the capitalization or discount rate, and projections of future rent and expenses based on appropriate analysis. Additionally, appraisals of our properties are in part based on historical transaction data. As a result, valuations and appraisals of our properties, real estate-related assets and real estate-related liabilities are only estimates of current market value. Ultimate realization of the value of an asset or liability depends to a great extent on economic and other conditions beyond our control and the control of the Independent Valuation Advisor and other parties involved in the valuation of our assets and liabilities. Further, these valuations may not necessarily represent the price at which an asset or liability would sell, because market prices of assets and liabilities are best determined by negotiation between a willing buyer and seller. As such, the carrying value of an asset may not reflect the price at which the asset could be sold in the market, and the difference between carrying value and the ultimate sales price could be material. In addition, accurate valuations are more difficult to obtain in times of low transaction volume because there are fewer market transactions that can be considered in the context of the appraisal. Valuations used for determining our NAV also are generally made without consideration of the expenses that would be incurred by us in connection with disposing of assets and liabilities. Therefore, the valuations of our properties, our investments in real estate-related assets and our liabilities may not correspond to the timely realizable value upon a sale of those assets and liabilities. In addition, the value of our interest in any joint venture or partnership that is a minority interest or is restricted as to salability or transferability may reflect or be adjusted for a minority or liquidity discount. In addition to being a month old when share purchases and redemptions take place, our NAV does not currently represent enterprise value and may not accurately reflect the actual prices at which our assets could be liquidated on any given day, the value a third party would pay for all or substantially all of our shares, or the price that
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our shares would trade at on a national stock exchange. The stock price of shares of a publicly traded REIT may materially differ from the NAV of a non-traded REIT with comparable portfolios. While any changes in the value of our real estate portfolio will ultimately be reflected in future calculations of NAV, there will be no retroactive adjustment in the valuation of such assets or liabilities, the price of our shares of common stock, the price we paid to redeem shares of our common stock or NAV-based fees we paid to the Advisor and the Dealer Manager to the extent such valuations prove to not accurately reflect the true estimate of value and are not a precise measure of realizable value. Because the price you will pay for shares of our common stock in the offering, and the price at which your shares may be redeemed by us pursuant to our share redemption program, are generally based on our estimated NAV per share, you may pay more than realizable value or receive less than realizable value for your investment.
In order to disclose a monthly NAV, we are reliant on the parties that we engage for that purpose, in particular the Independent Valuation Advisor and the appraisers that we hire to value and appraise our real estate portfolio.
In order to disclose a monthly NAV, our board of directors, including a majority of our independent directors, has adopted valuation procedures that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV, including the engagement of independent third parties such as the Independent Valuation Advisor, to value our real estate portfolio on a monthly basis, and independent appraisal firms, to provide periodic appraisals with respect to our properties. We have also engaged a firm to act as the NAV Accountant and may engage other independent third parties or our Advisor to value other assets or liabilities. Although our board of directors, with the assistance of the Advisor, oversees all of these parties and the reasonableness of their work product, we will not independently verify our NAV or the components thereof, such as the appraised values of our properties. Our management’s assessment of the market values of our properties may also differ from the appraised values of our properties as determined by the Independent Valuation Advisor. If the parties engaged by us to determine our monthly NAV are unable or unwilling to perform their obligations to us, our NAV could be inaccurate or unavailable, and we could decide to suspend any ongoing public offering and our share redemption program.
Our NAV is not subject to GAAP, is not independently audited and involves subjective judgments by the Independent Valuation Advisor and other parties involved in valuing our assets and liabilities.
Our valuation procedures and our NAV are not subject to GAAP and are not subject to independent audit. Additionally, we are dependent on our Advisor to be reasonably aware of material events specific to our properties (such as tenant disputes, damage, litigation and environmental issues) that may cause the value of a property to change materially and to promptly notify the Independent Valuation Advisor so that the information may be reflected in our real estate portfolio valuation. In addition, the implementation and coordination of our valuation procedures include certain subjective judgments of our Advisor, such as whether the Independent Valuation Advisor should be notified of events specific to our properties that could affect their valuations, as well as of the Independent Valuation Advisor and other parties we engage, as to whether adjustments to asset and liability valuations are appropriate. Accordingly, our stockholders must rely entirely on our board of directors to adopt appropriate valuation procedures and on the Independent Valuation Advisor and other parties we engage in order to arrive at our NAV, which may not correspond to realizable value upon a sale of our assets.
No rule or regulation requires that we calculate our NAV in a certain way, and our board of directors, including a majority of our independent directors, may adopt changes to the valuation procedures.
There are no existing rules or regulatory bodies that specifically govern the manner in which we calculate our NAV. As a result, it is important that our stockholders pay particular attention to the specific methodologies and assumptions we will use to calculate our NAV. Other public REITs may use different methodologies or assumptions to determine their NAV. In addition, each year our board of directors, including a majority of our independent directors, will review the appropriateness of our valuation procedures and may, at any time, adopt changes to the valuation procedures. If we acquire real property assets as a portfolio, we may pay a premium over the amount that we would pay for the assets individually. See our valuation procedures, filed as Exhibit 99.2 to this Annual Report on Form 10-K, for more details regarding our valuation methodologies, assumptions and procedures.
Our NAV per share may suddenly change if the valuations of our properties materially change from prior valuations or the actual operating results or observed market transactions materially differ from what we originally budgeted.
It is possible that the annual appraisals of our properties may not be spread evenly throughout the year and may differ from the most recent monthly valuation. As such, when these appraisals are reflected in our Independent Valuation Advisor’s valuation of our real estate portfolio, there may be a sudden change in our NAV per share for each class of our common stock. Property valuation changes can occur for a variety of reasons, such as local real estate market conditions, market lease assumptions, rotation of different third-party appraisal
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firms, the financial condition of our customers, or leasing activity. For example, due to rapidly changing market conditions, such as tenant demand and resulting rental rates, the valuation of the underlying properties correspondingly may change suddenly. Such a valuation change can be particularly significant when closer to a lease expiration, especially for single tenant buildings or where an individual tenant occupies a large portion of a building. We will be at the greatest risk of these valuation changes during periods in which we have a large number of lease expirations as well as when the lease of a significant tenant is closer to expiration. Similarly, if a tenant will have an option in the future to purchase one of our properties from us at a price that is less than the current valuation of the property, then if the value of the property exceeds the option price, the valuation will be expected to decline and begin to approach the purchase price as the date of the option approaches. In addition, actual operating results or observed market transactions may differ from what we originally budgeted, which may cause a sudden increase or decrease in the NAV per share amounts. We will accrue estimated revenues and expenses on a monthly basis based on actual leases and expenses in that month. On a periodic basis, we will adjust the revenues and expense accruals we estimated to reflect the revenues and expenses actually earned and incurred. We will not retroactively adjust the NAV per share of each class for any adjustments. Therefore, because actual results from operations may be better or worse than what we previously budgeted, the adjustment to reflect actual operating results may cause the NAV per share for each class of our common stock to increase or decrease.
New acquisitions may be valued for purposes of our NAV at less than what we pay for them, which would dilute our NAV.
Pursuant to our valuation procedures, the acquisition price of newly acquired properties will serve as the basis for our appraised value for the year of acquisition, and thereafter will be part of the rotating appraisal cycle such that they are appraised at least every calendar year. This is true whether the acquisition is funded with cash, equity or a combination thereof. However, the Independent Valuation Advisor always has the ability to adjust property valuations for purposes of our NAV from the most recent appraised value. Similarly, if the Independent Valuation Advisor believes that the purchase price for a recent acquisition does not reflect the current value of the property, the Independent Valuation Advisor has the ability to adjust the valuation for purposes of our NAV downwards immediately after acquisition. Even if the Independent Valuation Advisor does not adjust the valuation downwards immediately following the acquisition, when we obtain an appraisal on the property, it may not appraise at a value equal to the purchase price. Accordingly, the value of a new acquisition as established under our valuation procedures could be less than what we pay for it, which could negatively affect our NAV. Large portfolio acquisitions, in particular, may require a “portfolio premium” to be paid by us in order to be a competitive bidder, and this “portfolio premium” may not be taken into consideration in calculating our NAV. In addition, acquisition expenses we incur in connection with new acquisitions will negatively impact our NAV. We may make acquisitions (with cash or equity) of any size without stockholder approval, and such acquisitions may be dilutive to our NAV.
The NAV per share that we publish may not necessarily reflect changes in our NAV that are not immediately quantifiable.
From time to time, we may experience events with respect to our investments that may have a material impact on our NAV. For example, and not by way of limitation, changes in governmental rules, regulations and fiscal policies, environmental legislation, natural disasters, pandemics, terrorism, war, social unrest, civil disturbances and major disturbances in financial markets may cause the value of a property to change materially. The NAV per share of each class of our common stock as published on any given month may not reflect such extraordinary events to the extent that their financial impact is not immediately quantifiable. As a result, the NAV per share that we publish may not necessarily reflect changes in our NAV that are not immediately quantifiable, and the NAV per share of each class published after the announcement of a material event may differ significantly from our actual NAV per share for such class until such time as the financial impact is quantified and our NAV is appropriately adjusted in accordance with our valuation procedures. The resulting potential disparity in our NAV may inure to the benefit of redeeming stockholders or non-redeeming stockholders and new purchasers of our common stock, depending on whether our published NAV per share for such class is overstated or understated.
The realizable value of specific properties may change before the value is adjusted by the Independent Valuation Advisor and reflected in the calculation of our NAV.
Our valuation procedures generally provide that the Independent Valuation Advisor will adjust a real property’s valuation, as necessary, based on known events that have a material impact on the most recent value (adjustments for non-material events may also be made). We are dependent on our Advisor to be reasonably aware of material events specific to our properties (such as lease expirations, customer disputes, damage, litigation and environmental issues, as well as positive events such as new lease agreements) that may cause the value of a property to change materially and to promptly notify the Independent Valuation Advisor so that the information may be reflected in our real estate portfolio valuation. Events may transpire that, for a period of time, are unknown to us or the Independent Valuation Advisor that may affect the value of a property, and until such information becomes known and is processed, the value of such asset may differ from the
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value used to determine our NAV. In addition, although we may have information that suggests a change in value of a property may have occurred, there may be a delay in the resulting change in value being reflected in our NAV until such information is appropriately reviewed, verified and processed. For example, we may receive an unsolicited offer from an unrelated third party to purchase one of our assets at a price that is materially different than the price included in our NAV. Or, we may be aware of a new lease, lease expiry, or entering into a contract for capital expenditure. Where possible, adjustments generally will be made based on events evidenced by proper final documentation. It is possible that an adjustment to the valuation of a property may occur prior to final documentation if the Independent Valuation Advisor determines that events warrant adjustments to certain assumptions (including probability of occurrence) that materially affect value. However, to the extent that an event has not yet become final based on proper documentation, its impact on the value of the applicable property may not be reflected (or may be only partially reflected) in the calculation of our NAV.
Our NAV and the NAV of our stockholders’ shares may be diluted in connection with this and future securities offerings.
In connection with our public offering, we incur fees and expenses, which will decrease the amount of cash we have available for operations and new investments. In addition, because the prices of shares sold in our public offering will be based on our monthly NAV per share, our public offering may be dilutive if our NAV procedures do not fully capture the value of our shares and/or we do not utilize the proceeds accretively.
In the future we may conduct other offerings of common stock (whether existing or new classes), preferred stock, debt securities or of interests in the Operating Partnership. We may also amend the terms of our public offering. We may structure or amend such offerings to attract institutional investors or other sources of capital. The costs of our public offering and future offerings may negatively impact our ability to pay distributions and our stockholders’ overall return.
Interest rate changes may cause volatility in our monthly NAV.
In accordance with our valuation procedures, we generally will use the fair value of our assets and liabilities related to assets held for sale, if any, to determine our monthly NAV. The fair value of certain of our assets and such liabilities may be very sensitive to interest rate changes, such as fixed rate borrowings and interest rate hedges that are not intended to be held to maturity. As a result, changes in projected forward interest rates may cause volatility in our monthly NAV.
Our stockholders will experience dilution in the net tangible book value of our stockholders’ shares equal to the upfront offering costs associated with their shares.
Our stockholders will incur immediate dilution equal to the upfront costs of the offering associated with the sale of their shares, including with respect to Class T shares sold in the primary offering, upfront selling commissions and dealer manager fees, and with respect to all shares sold in the offering, organization and offering expenses. This means that investors who purchase our shares of common stock will pay a price per share that exceeds the amount available to us to purchase assets and therefore, the value of these assets upon purchase.
Our stockholders may be at a greater risk of loss than the Sponsor or the Advisor since our primary source of capital is funds raised through the sale of shares of our common stock.
Because our primary source of capital is funds raised through the sale of shares of our common stock, any losses that may occur will be borne primarily by our stockholders, rather than by the Sponsor or the Advisor.
Stockholders will not have the benefit of an independent due diligence review in connection with our public offering, which increases the risk of their investment.
Because the Advisor and the Dealer Manager are affiliates of, or otherwise related to, the Sponsor, stockholders will not have the benefit of an independent due diligence review and investigation of the type normally performed by an independent underwriter in connection with a securities offering. This lack of an independent due diligence review and investigation increases the risk of the stockholders’ investment.
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The performance component of the advisory fee is calculated on the basis of the overall investment return provided to holders of Fund Interests over a calendar year, so it may not be consistent with the return on our stockholders’ shares.
The performance component of the advisory fee is calculated on the basis of the overall investment return provided to holders of Fund Interests (i.e., our outstanding shares and OP Units held by third parties) in any calendar year such that the Special Unit Holder, which is a wholly-owned subsidiary of our Advisor, will receive a performance component of the advisory fee equal to the lesser of (1) 12.5% of (a) the annual total return amount less (b) any loss carryforward, and (2) the amount equal to (x) the annual total return amount, less (y) any loss carryforward, less (z) the Hurdle Amount. Therefore, if the annual total return amount exceeds the Hurdle Amount plus the amount of any loss carryforward, then the Special Unit Holder will receive a performance component equal to 100% of such excess, but limited to 12.5% of the annual total return amount that is in excess of the loss carryforward. The foregoing calculations are performed based on the weighted-average number of outstanding Fund Interests during the year and the weighted-average total return per Fund Interest. The “annual total return amount” referred to above means all distributions paid or accrued per Fund Interest plus any change in NAV per Fund Interest since the end of the prior calendar year, adjusted to exclude the negative impact on annual total return resulting from our payment or obligation to pay, or distribute, as applicable, the performance component of the advisory fee as well as ongoing distribution fees (i.e., our ongoing class-specific fees). If the performance component is being calculated with respect to a year in which we complete a Liquidity Event (if any), for purposes of determining the “annual total return amount,” the change in NAV per Fund Interest will be deemed to equal the difference between the NAV per Fund Interest as of the end of the prior calendar year and the value per Fund Interest determined in connection with such Liquidity Event. The “loss carryforward” referred to above will track any negative annual total return amounts from prior years and offset the positive annual total return amount for purposes of the calculation of the performance component of the advisory fee. The loss carryforward was zero as of the effective date of the Advisory Agreement. Therefore, payment of the performance component of the advisory fee (1) is contingent upon the overall return to the holders of Fund Interests exceeding the Hurdle Amount plus the amount of any loss carryforward, (2) will vary in amount based on our actual performance and (3) cannot, in and of itself, cause the overall return to the holders of Fund Interests for the year to be reduced below 5.0%. In addition, if the performance component of the advisory fee is earned for any given year, the Advisor and the Special Unit Holder will not be obligated to return any portion of advisory fees based on our subsequent performance.
As a result of the manner in which the performance component is calculated, as described above, the performance component is not directly tied to the performance of the shares our stockholders purchase, the class of shares they purchase, or the time period during which they own their shares. The performance component may be payable to the Special Unit Holder even if the NAV of a stockholder’s shares at the time the performance component is calculated is below the stockholder’s purchase price, and the thresholds at which increases in NAV count towards the overall return to the holders of Fund Interests are not based on at stockholder’s purchase price. Because of the class-specific allocations of the ongoing distribution fee, which differ among classes, we do not expect the overall return of each class of Fund Interests to ever be the same. However, if and when the performance component of the advisory fee is payable, the expense will be allocated among all holders of Fund Interests ratably according to the NAV of their units or shares, regardless of the different returns achieved by different classes of Fund Interests during the year. Further, our stockholders who redeem their shares during a given year may redeem their shares at a lower NAV per share as a result of an accrual for the estimated performance component of the advisory fee, even if no performance component is ultimately payable to the Special Unit Holder for all or any portion of such calendar year.
The payment of fees and expenses to the Advisor and its affiliates and the Dealer Manager reduces the cash available for distribution and increases the risk that our stockholders will not be able to recover the amount of their investment in our shares.
The Advisor and the Dealer Manager perform services for us, including, among other things, the selection and acquisition of our investments, the management of our assets, the disposition of our assets, the financing of our assets and certain administrative services. We pay the Advisor and its affiliates and the Dealer Manager fees and expense reimbursements for these services, which will reduce the amount of cash available for further investments or distribution to our stockholders.
We will be required to pay substantial compensation to the Advisor and its affiliates or related parties, which may be increased or decreased during our public offering or future offerings by a majority of our board of directors, including a majority of the independent directors.
Subject to limitations in our charter, the fees, compensation, income, expense reimbursements, interest and other payments that we will be required to pay to the Advisor and its affiliates or related parties may increase or decrease during our public offering or future offerings if such change is approved by a majority of our board of directors, including a majority of the independent directors. These payments to the
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Advisor and its affiliates or related parties will decrease the amount of cash we have available for operations and new investments and could negatively impact our ability to pay distributions and our stockholders’ overall return.
We may have difficulty completely funding our distributions with funds provided by cash flows from operating activities; therefore, we may use cash flows from financing activities, which may include borrowings and net proceeds from primary shares sold in our public offering, proceeds from the issuance of shares under our distribution reinvestment plan, or other sources to fund distributions to our stockholders. The use of these sources to pay distributions and the ultimate repayment of any liabilities incurred could adversely impact our ability to pay distributions in future periods, decrease the amount of cash we have available for operations and new investments and/or potentially impact the value or result in dilution of our stockholders’ investment by creating future liabilities, reducing the return on their investment or otherwise.
Until the proceeds from our public offering are fully invested, and from time to time thereafter, we may not generate sufficient cash flows from operating activities, as determined on a GAAP basis, to fully fund distributions to our stockholders. To date, we have funded, and expect to continue to fund, distributions to our stockholders, with cash flows from financing activities, which may include borrowings and net proceeds from primary shares sold in our public offering, proceeds from the issuance of shares under our distribution reinvestment plan, proceeds from the sales of assets, or from our cash balances. Our charter does not prohibit our use of such sources to fund distributions. We may be required to fund distributions from a combination of some of these sources if our investments fail to perform as anticipated, if expenses are greater than expected or as a result of numerous other factors. We have not established a cap on the amount of our distributions that may be paid from any of these sources. Using certain of these sources may result in a liability to us, which would require a future repayment. For the year ended December 31, 2022, approximately 52.6% of our total gross distributions were paid from cash flows from operating activities, as determined on a GAAP basis and 47.4% of our total gross distributions were funded with proceeds from shares issued pursuant to our distribution reinvestment plan.
The use of the sources described above for distributions and the ultimate repayment of any liabilities incurred, as well as the payment of distributions in excess of our FFO, could adversely impact our ability to pay distributions in future periods, decrease the amount of cash we have available for operations and new investments and reduce our stockholders’ overall return and adversely impact and dilute the value of their investment in shares of our common stock. To the extent distributions in excess of current and accumulated earnings and profits (i) do not exceed a stockholder’s adjusted basis in our stock, such distributions will not be taxable to a stockholder, but rather a stockholder’s adjusted basis in our stock will be reduced; and (ii) exceed a stockholder’s adjusted tax basis in our stock, such distributions will be included in income as long-term capital gain if the stockholder has held its shares for more than one year and otherwise as short-term capital gain.
In addition, the Advisor or its affiliates could choose to receive shares of our common stock or interests in the Operating Partnership in lieu of cash or deferred fees or the repayment of advances to which they are entitled, and the issuance of such securities may dilute our stockholders’ investment in shares of our common stock.
There is very limited liquidity for our shares of common stock. If we do not effect a Liquidity Event, it will be very difficult for our stockholders to have liquidity for their investment in shares of our common stock.
Although we presently intend to operate on a perpetual basis with an ongoing offering and share redemption program, in the future we may also consider various Liquidity Events and, given that our investment strategy is focused on a single asset class, it is possible that an opportunity to execute a Liquidity Event could arise. There can be no assurance that we will ever seek to effect, or be successful in effecting, a Liquidity Event. Our charter does not require us to pursue a Liquidity Event or any transaction to provide liquidity to our stockholders. If we do not effect a Liquidity Event, it will be very difficult for our stockholders to have liquidity for their investment in shares of our common stock other than limited liquidity through any share redemption program.
We currently do not have research analysts reviewing our performance.
We do not have research analysts reviewing our performance or our securities on an ongoing basis. Therefore, we do not have an independent review of our performance and value of our common stock relative to publicly traded companies.
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Our investors may be at a greater risk of loss than the Advisor and members of our management team.
We have taken certain actions to increase the stock ownership in our Company by our management team, the Advisor and our directors over the past couple of years, including the implementation of certain stock-based awards. The current level of ownership by management may be less than the management teams of other public real estate companies and, as a result, our investors may be at a greater risk of loss than the Advisor and other members of our management, especially as compared to these other companies in which stock ownership by management and directors may be significantly greater.
The availability and timing of cash distributions to our stockholders is uncertain.
We bear all expenses incurred in our operations, which are deducted from cash funds generated by operations prior to computing the amount of cash from operations available for distributions to our stockholders. In addition, there are ongoing distribution fees payable on Class T shares and Class D shares, which will reduce the amount of cash available for distribution to holders of Class T shares and Class D shares. Distributions could also be negatively impacted by the failure to deploy available cash on an expeditious basis, the inability to find suitable investments that are not dilutive to distributions, potential poor performance of our investments, an increase in expenses for any reason (including expending funds for redemptions in excess of the proceeds from our distribution reinvestment plan) and due to numerous other factors. Any request by the holders of our OP Units to redeem some or all of their OP Units for cash may also impact the amount of cash available for distribution to our stockholders. In addition, our board of directors, in its discretion, may retain any portion of such funds for working capital. There can be no assurance that sufficient cash will be available to make distributions to our stockholders or that the amount of distributions will increase and not decrease over time. Should we fail for any reason to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain), we would not qualify for the favorable tax treatment accorded to REITs.
If we internalize our management functions, the percentage of our outstanding shares of common stock owned by our other stockholders could be reduced, we could incur other significant costs associated with being self-managed, and any internalization could have other adverse effects on our business and financial condition.
At some point in the future, we may internalize the functions performed for us by the Advisor. The method by which we could internalize these functions could take many forms. We may hire our own group of executives and other employees or we may acquire the Advisor or its assets, including its existing workforce. Any internalization transaction could result in significant payments to the owners of the Advisor, including in the form of our stock which could reduce the percentage ownership of our then existing stockholders and concentrate ownership in the Sponsor. In addition, there is no assurance that internalizing our management functions will be beneficial to us and our stockholders. For example, we may not realize the perceived benefits because of the costs of being self-managed or we may not be able to properly integrate a new staff of managers and employees or we may not be able to effectively replicate the services provided previously by the Advisor or its affiliates. Internalization transactions have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims which would reduce the amount of funds available for us to invest in real estate assets or to pay distributions.
If another investment program, whether sponsored by the Sponsor or otherwise, hires the current executives or key personnel of the Advisor in connection with an internalization transaction or otherwise, or if we were to internalize our management but cannot retain some or all of our current executives or key personnel of the Advisor, our ability to conduct our business may be adversely affected.
We will rely on key personnel of the Advisor to manage our day-to-day operating and acquisition activities. In addition, all of our current executives and other key personnel of the Advisor may provide services to one or more other investment programs, including other public investment programs sponsored or advised by affiliates of the Sponsor. These programs or third parties may decide to retain or hire some or all of our current executives and the Advisor’s other key personnel in the future through an internalization transaction or otherwise. If this occurs, we may not be able to retain some or all of our current executives and other key personnel of the Advisor who are most familiar with our business and operations, thereby potentially adversely impacting our business. If we were to effectuate an internalization of the Advisor, we may not be able to retain all of the current executives and the Advisor’s other key personnel or to maintain a relationship with the Sponsor, which also may adversely affect our ability to conduct our business.
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We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the value of an investment in shares of our common stock.
Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300% of the value of our net assets, provided that we may exceed this limit if a higher level of borrowing is approved by a majority of our independent directors. High debt levels could cause us to incur higher interest charges, could result in higher debt service obligations, could be accompanied by restrictive covenants, and generally could make us subject to the risks associated with higher leverage. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of an investment in shares of our common stock.
Black Creek Group was acquired by Ares in July 2021 and we could face challenges related to the integration of Black Creek into the business, operations and corporate culture of Ares, the allocation of corporate resources, and the retention of Black Creek personnel, which could adversely impact our business and reduce the synergies that we expect to benefit from as a result of the transaction.
On July 1, 2021, Ares closed on the acquisition of Black Creek Group’s U.S. real estate investment advisory and distribution business, including our former advisor, BCI IV Advisors LLC. The integration of Black Creek Group into the business of Ares could present challenges that are often encountered by the surviving companies of similar corporate transactions (e.g., issues involving the integration of corporate cultures or infrastructure), in addition to unanticipated challenges, which could divert time and attention away from the activities of our Company.
Some former employees of Black Creek Group, in their capacities at Ares, are expected to work on new projects or accounts that they were not involved in when Black Creek was a standalone business. As a result of the transaction and related integration of certain Black Creek personnel, conflicts may arise in the allocation of certain personnel and other resources. Different entities and persons may be performing different roles and devoting different levels of attention to our Company as compared to the individuals and entities performing these functions prior to the closing of the transaction.
There will not be a complete overlap in the team of management professionals, and the roles of various team members, as between our Company and prior investment vehicles sponsored by Ares and Black Creek Group, respectively. Investors should consider this when reviewing historical information about our Sponsor in this prospectus.
RISKS RELATED TO OUR GENERAL BUSINESS OPERATIONS AND OUR CORPORATE STRUCTURE
If we are delayed in finding or unable to find suitable investments, we may not be able to achieve our investment objectives and make distributions to our stockholders.
We could suffer from delays in identifying suitable investments due to, among other factors, competition we face for real property investments from other REITs and institutional investors, as well as from certain other entities sponsored or advised by affiliates of the Sponsor, which may have greater financial resources than we do, may be able to accept more risk than we can and may possess other significant competitive advantages over us, including a lower cost of capital. Because we are conducting our public offering on a “best efforts” basis over time, our ability to commit to purchase specific assets will also depend, in part, on the amount of proceeds we have received at a given time. If we are delayed in finding or unable to find suitable investments, we may not be able to achieve our investment objectives, make distributions to our stockholders or continue to fund distributions from sources other than cash flows from operating activities. In addition, such delays in our ability to find suitable investments would increase the length of time that offering proceeds are held in short term liquid investments that are expected to only produce minimal returns.
We anticipate that our investments will continue to be concentrated in the industrial real estate sector and primarily in the largest distribution and logistics markets in the U.S., and our business could be adversely affected by an economic downturn in that sector or in those geographic areas.
We anticipate that our investments will continue to be concentrated in the industrial real estate sector and primarily in the largest distribution and logistics markets in the U.S. Such industry concentration may expose us to the risk of economic downturns in this sector, such as downturns that may result from economic uncertainty with respect to imports and international trade or changes to trade agreements, to a greater extent than if our business activities included investing a more significant portion of the net proceeds of our public offering in other sectors of the real estate industry; and such market concentrations may expose us to the risk of economic downturns in these areas. As of December 31, 2022, 10.0% of our total annualized base rent of properties was concentrated in the New Jersey market.
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As a result of this geographic concentration, our business is dependent on the economy in this market generally, and on the respective markets for industrial property demand in particular, which could expose us to greater economic risks than if we were invested in a more geographically diverse portfolio. In addition, if our customers are concentrated in any particular industry, any adverse economic developments in such industry could expose us to additional risks. These concentration risks could negatively impact our operating results and affect our ability to make distributions to our stockholders.
Compliance with the SEC’s Regulation Best Interest by participating broker dealers may negatively impact our ability to raise capital in this offering, which would harm our ability to achieve our investment objectives.
Commencing June 30, 2020, broker dealers are required to comply with Regulation Best Interest, which, among other requirements, establishes a new standard of conduct for broker dealers and their associated persons when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. The full impact of Regulation Best Interest on participating broker dealers cannot be determined at this time, and it may negatively impact whether participating broker dealers and their associated persons recommend this offering to certain retail customers. In particular, under SEC guidance concerning Regulation Best Interest, a broker dealer recommending an investment in our shares should consider a number of factors, including but not limited to cost and complexity of the investment and reasonably available alternatives in determining whether there is a reasonable basis for the recommendation. Broker dealers may recommend a more costly or complex product as long as they have a reasonable basis to believe it is in the best interest of a particular retail customer. However, if broker dealers instead choose alternatives to our shares, many of which likely exist, our ability to raise capital may be adversely affected. If Regulation Best Interest reduces our ability to raise capital in this offering, it would harm our ability to further expand and diversify our portfolio of investments, as well as our ability to achieve our investment objectives.
Inflation, rising interest rates or deflation may adversely affect our financial condition and results of operations.
We are affected by the fiscal and monetary policies of the United States Government and its agencies, including the policies of the Federal Reserve, which regulates the supply of money and credit in the United States. Changes in fiscal and monetary policies are beyond our control and are difficult to predict. In an effort to combat rising inflation levels, the Federal Reserve steadily began increasing the target federal funds rate in the first quarter of 2022, in seven consecutive rate hikes, including, four straight three-quarter point increases, and announced that it would continue to do so in 2023. Changes in the federal funds rate as well as the other policies of the Federal Reserve affect interest rates, which may have a significant impact on our financial condition.
The Federal Reserve’s action, coupled with other macroeconomic factors, may trigger a recession in the United States, globally, or both. Increased inflation and interest rates could have an adverse impact on our floating rate mortgages, our ability to borrow money, and general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. Increases in the costs of owning and operating our properties due to inflation could reduce our net operating income and our NAV to the extent such increases are not reimbursed or paid by our customers. If we are materially impacted by increasing inflation because, for example, inflationary increases in costs are not sufficiently offset by the contractual rent increases and operating expense reimbursement provisions or escalations in the leases with our customers, we may implement measures to conserve cash or preserve liquidity. Such measures could include deferring investments, reducing or suspending the number of shares redeemed under our share redemption program and reducing or suspending distributions we make to our stockholders, which may adversely and materially affect our net operating income and NAV. In addition, due to rising interest rates, we may experience restrictions in our liquidity based on certain financial covenant requirements as well as our inability to refinance maturing debt in part or in full as it comes due depending on rates at such time and higher debt service costs and reduced yields relative to cost of debt. If we are unable to find alternative credit arrangements or other funding in a high interest environment, our business needs may not be adequately met.
In addition, customers and potential customers of our properties may be adversely impacted by inflation and rising interest rates, which could negatively impact our customers’ ability to pay rent and demand for our properties. Such adverse impacts on our customers may cause increased vacancies, which may add pressure to lower rents and increase our expenditures for re-leasing. Inflation could also have an adverse effect on consumer spending, which could impact our customers’ operations and, in turn, demand for our properties. Conversely, deflation could lead to downward pressure on rents and other sources of income.
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We are dependent on customers for revenue and our inability to lease our properties or to collect rent from our customers will adversely affect our results of operations and returns to our stockholders.
Our revenues from our real property investments are dependent on our ability to lease our real properties and on the creditworthiness of our customers and would be adversely affected by the loss of or default by significant customers. Much of our customer base is comprised of non-rated and non-investment grade customers. The success of our real properties depends on the financial stability of such customers. The financial results of our customers can depend on several factors, including but not limited to the general business environment, interest rates, inflation, the availability of credit, taxation and overall consumer confidence. In addition, our ability to increase our revenues and operating income partially depends on steady growth of demand for the products and services offered by the customers located in the assets that we own and manage. A drop in demand, as a result of a slowdown in the U.S. and global economy or otherwise, could result in a reduction in performance of our customers and consequently, adversely affect our results of operations, NAV and returns to our stockholders. If indicators of impairment exist in any of our real properties, for example, we experience negative operating trends such as prolonged vacancies or operating losses, we may not recover some or all of our investment.
Lease payment defaults by customers could impact operating results, causing us to lower our NAV, reduce the amount of distributions to our stockholders, or could force us to find an alternative source of funding to pay any mortgage loan interest or principal, taxes, or other obligations relating to the property. In the event of a customer default, we may also experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. If a lease is terminated, the value of the property may be immediately and negatively affected and we may be unable to lease the property for the rent previously received or at all or sell the property without incurring a loss.
As of December 31, 2022, our top five customers represented 16.8% of our total annualized base rent of our portfolio, our top ten customers represented 22.0% of our total annualized base rent of our portfolio and there was one customer that individually represented more than 5.0% of our total annualized base rent of our portfolio. Our results of operations are currently substantially dependent on our top customers, and any downturn in their businesses could have a material adverse effect on our operations. In addition, certain of our properties are occupied by a single customer, and as a result, the success of those properties depends on the financial stability of that customer. Adverse impacts to such customers, businesses or operators, including as a result of changes in market or economic conditions, natural disasters, outbreaks of an infectious disease, pandemic or any other serious public health concern, political events or other factors that may impact the operation of these properties, may have negative effects on our business and financial results. As a result, some of our customers have been, and may in the future be, required to suspend operations at our properties for what could be an extended period of time. Further, if such customers default under their leases, we may not be able to promptly enter into a new lease or operating arrangement for such properties, rental rates or other terms under any new leases or operating arrangement may be less favorable than the terms of the current lease or operating arrangement or we may be required to make capital improvements to such properties for a new customer, any of which could adversely impact our operating results.
A global economic slowdown, a recession or declines in real estate values could impair our investments and have a significant adverse effect on our business, financial condition and results of operations.
Geopolitical instability, including the conflict between Russia and Ukraine, actual and potential shifts in U.S. and foreign, trade, economic and other policies, and rising trade tensions between the United States and China, as well as other global events have significantly increased macroeconomic uncertainty at a global level. The current macroeconomic environment is characterized by record-high inflation, supply chain challenges, labor shortages, high interest rates, foreign currency exchange volatility, volatility in global capital markets and growing recession risk. Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. There is no assurance that market disruptions, including the increased cost of funding for certain governments and financial institutions, will not impact the global economy. The risks associated with our business are more severe during periods of economic slowdown or recession and if these periods are accompanied by declining real estate values, our business can be materially adversely affected.
We believe the risks associated with our business are more severe during periods of economic downturn if these periods are accompanied by declining values in real estate. For example, a prolonged economic downturn could negatively impact our property investments as a result of increased customer delinquencies and/or defaults under our leases, generally lower demand for rentable space, potential oversupply of rentable space leading to increased concessions, and/or tenant improvement expenditures, or reduced rental rates to maintain occupancies. Our operations could be negatively affected to a greater extent if an economic downturn occurs, is prolonged or becomes
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more severe, which could significantly harm our revenues, results of operations, financial condition, liquidity, business prospects and our ability to make distributions to our stockholders.
Moreover, concerns over the United States’ debt ceiling and budget-deficit have increased the possibility of downgrades by rating agencies to the U.S. government’s credit rating, which could cause interest rates and borrowing costs to rise further, negatively impacting both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms. Market conditions may also make it difficult for us to extend the maturity of or refinance our existing indebtedness or to access or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business.
We are highly dependent on the information systems of Ares and systems failures could significantly disrupt our business, which may, in turn, negatively affect our operating results and our ability to pay distributions.
Our business is highly dependent on communications and information systems of Ares. Any failure or interruption of Ares’ systems could cause delays or other problems in our business, which could have a material adverse effect on our operating results and negatively affect our ability to pay distributions to our stockholders.
Our business could be adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 pandemic.
Our business could be adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 global pandemic, the evolution of which continues to be uncertain. As the COVID-19 pandemic continues to evolve, its ultimate impact on our business is subject to change. A severe outbreak of COVID-19 or another pandemic can disrupt our business and adversely materially impact our financial condition, results of operations and ability to pay distributions to our stockholders. The extent of the impact from COVID-19 on the commercial real estate sector has varied dramatically across real estate property types and markets, with certain property segments such as hospitality, gaming, shopping malls, senior housing, and student living being impacted particularly hard last year. While not immune to the effects of COVID-19, we did not incur significant disruptions during the years ended December 31, 2022 or 2021 from the COVID-19 pandemic, however, any resurgence of the COVID-19 pandemic or other epidemics may negatively impact our results of operations, financial condition, NAV and cash flows.
Yields on and safety of deposits may be lower due to the extensive decline in the financial markets.
Until we invest the proceeds of the offerings in properties, debt and other investments, we generally plan to hold those funds in permitted investments. Subject to applicable REIT rules, such investments include money market funds, bank money market accounts and CDs or other accounts at third-party depository institutions. Continuous or unusual declines in the financial markets may result in a loss of some or all of these funds. In particular, during times of economic distress, money market funds have experienced intense redemption pressure and have had difficulty satisfying redemption requests. As such, we may not be able to access the cash in our money market investments. In addition, income from these investments is minimal.
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments.
We will seek to diversify our excess cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. However, the Federal Deposit Insurance Corporation generally only insures amounts up to $250,000 per depositor per insured bank. It is likely that we will have cash and cash equivalents and restricted cash deposited in certain financial institutions substantially in excess of federally insured levels. If any of the banking institutions in which we deposit funds ultimately fails, we may lose our deposits over $250,000. The loss of our deposits could reduce the amount of cash we have available to distribute or invest and could result in a decline in the value of our stockholders’ investment.
Terrorist attacks and other acts of violence, civilian unrest, military conflict, or war may affect the markets in which we operate, our operations and our profitability.
Terrorist attacks and other acts of violence, civilian unrest, military conflict or war may negatively affect our operations and our stockholders’ investment. We may acquire real estate assets located in areas that are susceptible to attack. In addition, any kind of terrorist activity or violent criminal acts, including terrorist acts against public institutions or buildings or modes of public transportation (including airlines, trains or buses) could have a negative effect on our business. These events may directly impact the value of our assets through
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damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.
More generally, any terrorist attack, other act of violence or war, including military conflicts, such as the escalating conflict between Russia and Ukraine, could result in increased volatility in, or damage to, the worldwide financial markets and economy. This risk may be magnified in the case of the conflict between Russia and Ukraine, due to the significant sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response to Russia’s February 2022 invasion of Ukraine, as well as the cessation of all business in Russia by many global companies. Increased economic volatility and trade restrictions could adversely affect our customers’ ability to pay rent on their leases or our ability to borrow money or issue capital stock at acceptable prices and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations or the operations of the Advisor, the Dealer Manager, our transfer agent or any other party that provides us with services essential to our operations, which could negatively impact our business, financial condition and operating results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of the information resources of us or the Advisor, the Dealer Manager, our transfer agent or any other party that provides us with services essential to our operations. A cyber incident may be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state affiliated actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception. The efficient operation of our business is dependent on computer hardware and software systems, as well as data processing systems and the secure processing, storage and transmission of information, all of which are potentially vulnerable to security breaches and cyber incidents or other data security breaches. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems or those of the Advisor, the Dealer Manager, our transfer agent or any other party that provides us with services for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-states or nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, fines or penalties, investigations, increased cybersecurity protection and insurance costs, litigation, and damage to our business relationships and reputation, causing our business and results of operations to suffer.
The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. As reliance on technology has increased, so have the risks posed to our information systems, those provided by service providers, and the information systems of such service providers. The Adviser has implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, do not guarantee that a cyber-incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected. Moreover, our systems, servers and platforms and those of our third-party service providers may be vulnerable to computer viruses or physical or electronic break-ins and similar disruptions that our or their security measures may not detect, which could cause system interruptions, website slowdown or unavailability, delays in communication or loss of data. Accordingly, we and our service providers may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us and our service providers to entirely mitigate this risk. We may need to expend significant resources and make significant capital investment to protect against security breaches or to mitigate the impact of any such breaches. There can be no assurance that we or our third party service providers will be successful in preventing cyber-attacks or successfully mitigate their effects. Cybersecurity risks require continuous and increasing attention and other resources from us to, among other actions, identify and quantify these risks, upgrade and expand our technologies, systems and processes to adequately address such risks. Such attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective.
In addition, cybersecurity has become a top priority for regulators around the world, and some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. In particular, state and federal laws and
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regulations related to cybersecurity compliance continue to evolve and change, which may require substantial investments in new technology, software and personnel, which could affect our profitability. These changes may also result in enhanced and unforeseen consequences for cyber-related breaches and incidents, which may further adversely affect our profitability. If we fail to comply with the relevant laws and regulations, we could suffer financial loss, a disruption of our business, liability to investors, regulatory intervention or reputational damage.
Our board of directors determines our major policies and operations which increases the uncertainties faced by our stockholders.
Our board of directors determines our major policies, including our policies regarding acquisitions, dispositions, financing, growth, debt capitalization, REIT qualification, listing, redemptions and distributions. Our board of directors may amend or revise these and other policies without providing notice to or obtaining the consent of our stockholders, which could result in investments that are different than those described in our prospectus. Under the Maryland General Corporation Law and our charter, our stockholders have a right to vote only on limited matters. Our board of directors’ broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks our stockholders face, especially if our board of directors and our stockholders disagree as to what course of action is in our stockholders’ best interests.
Our board of directors adopted a delegation of authority policy and pursuant to such policy, has established the Combined Industrial Advisors Committee, which is not a committee of our board of directors, but consists of certain of our officers and officers of the Advisor. Our board of directors has delegated to the Combined Industrial Advisors Committee certain responsibilities with respect to certain acquisition, disposition, leasing, capital expenditure and borrowing decisions, which may result in our making riskier investments and which could adversely affect our results of operations, financial condition, NAV and cash flows.
Our board of directors has delegated to the Combined Industrial Advisors Committee the authority to execute certain transactions and make certain decisions on our behalf. The Combined Industrial Advisors Committee has the authority to approve certain transactions, including acquisitions, dispositions and leases, as well as to make decisions with respect to capital expenditures and borrowings, in each case so long as such investments and decisions meet certain board-approved parameters (that include limitations regarding the dollar amount of the transactions, among others) and are consistent with the requirements of our charter. There can be no assurance that the Combined Industrial Advisors Committee will be successful in applying any strategy or discretionary approach to our investment activities pursuant to this delegation of authority. Our board of directors will review the investment decisions made pursuant to this delegation of authority periodically. The prior approval of our board of directors or a committee of our independent directors will be required as set forth in our charter (including for transactions with affiliates of the Advisor) or for transactions or decisions that are outside of the board-approved parameters placed on this delegation of authority. Transactions entered into and decisions made by the Combined Industrial Advisors Committee on our behalf may be costly, difficult or impossible to unwind if our board of directors later reviews them and determines that they should not have been entered into or made.
Tax protection agreements could limit our ability to sell or otherwise dispose of property contributed to the Operating Partnership.
In connection with contributions of property to the Operating Partnership, our Operating Partnership may enter into a tax protection agreement with the contributor of such property that provides that if we dispose of any interest in the contributed property in a taxable transaction within a certain time period, subject to certain exceptions, we may be required to indemnify the contributor for its tax liabilities attributable to the built in gain that exists with respect to such property interests, and the tax liabilities incurred as a result of such tax protection payment. Therefore, although it may be in our stockholders’ best interests that we sell the contributed property, it may be economically prohibitive for us to do so because of these obligations or similar considerations.
Tax protection agreements may require our Operating Partnership to maintain certain debt levels that otherwise would not be required to operate our business.
Under a tax protection agreement, our Operating Partnership may provide the contributor of property the opportunity to guarantee debt or enter into a deficit restoration obligation. If we fail to make such opportunities available, we may be required to deliver to such contributor a cash payment intended to approximate the contributor’s tax liability resulting from our failure to make such opportunities available to that contributor and the tax liabilities incurred as a result of such tax protection payment. These obligations may require the Operating Partnership to maintain more or different indebtedness than we would otherwise require for our business.
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Certain provisions in the partnership agreement of the Operating Partnership may delay, defer or prevent an unsolicited acquisition of us or a change of our control.
Provisions in the partnership agreement of the Operating Partnership may delay, defer or prevent an unsolicited acquisition of us or a change of our control. These provisions include, among others:
● | redemption rights of qualifying parties; |
● | a requirement that we may not be removed as the general partner of the operating partnership without our consent; |
● | transfer restrictions on our OP Units; |
● | our ability, as general partner, in some cases, to amend the partnership agreement without the consent of the limited partners; and |
● | the right of the limited partners to consent to transfers of the general partnership interest and mergers under specified circumstances. |
These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or a change of our control, although some stockholders might consider such proposals, if made, desirable. Our charter and bylaws, the partnership agreement of the Operating Partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control of us that might involve a premium price for our common stock or that our stockholders otherwise might believe to be in their best interests.
Our UPREIT structure may result in potential conflicts of interest with limited partners in the Operating Partnership whose interests may not be aligned with those of our stockholders.
Limited partners in the Operating Partnership have the right to vote on certain amendments to the tenth amended and restated limited operating partnership agreement of the Operating Partnership, or the “Operating Partnership Agreement,” as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with our stockholders’ interests. In addition, conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and the Operating Partnership or any partner thereof, on the other hand. Our directors and officers have duties to our company and our stockholders under Maryland law in connection with their management of our company.
We may acquire co-ownership interests in property that are subject to certain co-ownership agreements which may have an adverse effect on our results of operations, relative to if the co-ownership agreements did not exist.
We may acquire co-ownership interests, especially in connection with the Operating Partnership’s potential private placements, such as tenancy-in-common interests in property, interests in Delaware statutory trusts that own property and/or similar interests, which are subject to certain co-ownership agreements. The co-ownership agreements may limit our ability to encumber, lease, or dispose of our co-ownership interest. Such agreements could affect our ability to turn our investments into cash and could affect cash available for distributions to our stockholders. The co-ownership agreements could also impair our ability to take actions that would otherwise be in the best interest of our stockholders and, therefore, may have an adverse effect on our results of operations, relative to if the co-ownership agreements did not exist.
The Operating Partnership’s private placements of beneficial interests in specific Delaware statutory trusts under our DST Program could cause our leverage ratio to increase or subject us to liabilities from litigation or otherwise.
We, through the Operating Partnership, have commenced a program to raise capital in private placements exempt from registration under Section 506(b) of the Securities Act through the sale of beneficial interests in specific Delaware statutory trusts holding real properties, including properties currently indirectly owned by the Operating Partnership. These interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Code. All of the interests sold to investors pursuant to such private placements will be leased-back by the Operating Partnership or a wholly owned subsidiary thereof, as applicable, and fully guaranteed by the Operating Partnership, although there can be no assurance that the Operating Partnership can or will fulfill
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these guarantee obligations. Additionally, the Operating Partnership will be given a fair market value purchase option (the “FMV Option”) giving it the right, but not the obligation, to acquire the interests in the Delaware statutory trust from the investors at a later time in exchange for OP Units. In the event the Operating Partnership elects not to exercise the FMV Option our leverage ratio could increase based on remaining master lease obligations. This may result in both increased costs to us and a negative impact on our overall debt covenants. In addition, in the event the Operating Partnership elects not to exercise the FMV Option and the DST Property is sold to a third party, the master lease will terminate, triggering an obligation on the part of a subsidiary of the Operating Partnership, as master tenant, to pay to the trust an amount equal to the positive difference, if any, between the fair market value of the DST Property with the master lease in place as if such automatic termination had not occurred, and the gross purchase price to be paid by the third party buyer to the trust to acquire the DST Property. However, if the gross purchase price for the DST Property exceeds the fair market value of the DST Property subject to the master lease, no payment to the trust by the master tenant will be required. Further, investors who acquired interests pursuant to such private placements may have been seeking certain tax benefits that depend on the interpretation of, and compliance with, federal and state income tax laws and regulations. As the general partner of the Operating Partnership, we may become subject to liability, from litigation or otherwise, as a result of such transactions, including in the event an investor fails to qualify for any desired tax benefits.
The Operating Partnership’s private placements of beneficial interests in specific Delaware statutory trusts under our DST Program will not shield us from risks related to the performance of the real properties held through such structures.
Pursuant to the DST Program, the Operating Partnership intends to place certain of its existing real properties and/or acquire new properties to place into specific Delaware statutory trusts and then sell interests, via its taxable REIT subsidiary (TRS), in such trusts to third-party investors. We will hold long-term leasehold interests in the property pursuant to master leases that are fully guaranteed by our Operating Partnership, while the third-party investors indirectly hold some or all of the interests in the real estate. There can be no assurance that the Operating Partnership can or will fulfill these guarantee obligations. Although we will hold the FMV Option to reacquire the real estate through a purchase of interests in the Delaware statutory trust, the purchase price will be based on the then-current fair market value of the third-party investor’s interest in the real estate, which will be greatly impacted by the rental terms fixed by the long-term master lease. Under the lease we are responsible for subleasing the property to occupying customers until the earlier of the expiration of the master lease or our exercise of the FMV Option, which means that we bear the risk that the underlying cash flow from the property and all capital expenditures may be less than the master lease payments at such time. Therefore, even though we will no longer own the underlying real estate, because of the fixed terms of the long-term master lease guaranteed by our Operating Partnership, negative performance by the underlying properties could affect cash available for distributions to our stockholders and will likely have an adverse effect on our results of operations and NAV.
We may own beneficial interests in trusts owning real property that will be subject to the agreements under our DST Program, which may have an adverse effect on our results of operations, relative to if the DST Program agreements did not exist.
In connection with the launch of our DST Program, we may own beneficial interests in trusts owning real property that are subject to the terms of the agreements provided by our DST Program. The DST Program agreements may limit our ability to encumber, lease or dispose of our beneficial interests. Such agreements could affect our ability to turn our beneficial interests into cash and could affect cash available for distributions to our stockholders. The DST Program agreements used in connection with the DST Program could also impair our ability to take actions that would otherwise be in the best interests of our stockholders and, therefore, may have an adverse effect on our results of operations and NAV, relative to if the DST Program agreements did not exist.
Properties that are placed into the DST Program and later reacquired may be less liquid than other assets, which could impair our ability to utilize cash proceeds from sales of such properties for other purposes such as paying down debt, distributions, or additional investments.
Properties that are placed into the DST Program (the “DST Program Asset”) may later be reacquired through exercise of the option granted to our Operating Partnership. In such cases the investors who become limited partners in the Operating Partnership (the “DST Investors”) will generally remain tied to the applicable DST Program Asset in terms of basis and built-in-gain. As a result, if the applicable DST Program Asset is subsequently sold, unless we effectuate a like-kind exchange under Section 1031 of the Code, then tax will be triggered on the DST Investors’ built-in-gain. Although we are not contractually obligated to do so, we have generally sought to execute 1031 exchanges in such situations rather than trigger gain. Any replacement property acquired in connection with a 1031 exchange will similarly be tied to the DST Investors with similar considerations if such replacement property ever is sold. As a result of these factors, placing properties into the DST Program may limit our ability to access liquidity from such properties or replacement properties through sale
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without triggering taxes due to the built-in-gain tied to DST Investors. Such reduced liquidity could impair our ability to utilize cash proceeds from sales for other purposes such as paying down debt, paying distributions, funding redemptions or making additional investments.
Investors who use DST Investor Loans to acquire interests in Delaware Statutory Trusts as part of the DST Program may default on such loans.
As part of the DST Program, the AIREX Lender will provide DST Program Loans to certain DST Program investors who acquire interests in Delaware Statutory Trusts. DST Program Loans will be secured by the DST Program Investor’s interests in the Delaware Statutory Trust acquired using the DST Program Loan, and will be non-recourse to the borrowing DST Program investor subject to commercially customary recourse carveouts. We may suffer losses if the fair market value of the asset underlying the DST interests acquired by the DST Program investor declines after the DST Program investor borrowing with respect to a DST Program Loan, or if there is otherwise a default on a DST Program Loan.
If we invest in a limited partnership as a general partner, we could be responsible for all liabilities of such partnership.
We may invest in limited partnership entities through joint ventures or other co-ownership arrangements, in which we acquire all or a portion of our interest in such partnership as a general partner. Such general partner status could expose us to all the liabilities of such partnership. Additionally, we may take a non-managing general partner interest in the limited partnership, which would limit our rights of management or control over the operation of the partnership but would still make us potentially liable for all liabilities of the partnership. Therefore, we may be held responsible for all of the liabilities of an entity in which we do not have full management rights or control, and our liability may be greater than the amount or value of our initial, or then current, investment in the entity.
Cash redemptions to holders of OP Units will reduce cash available for distribution to our stockholders or to honor their redemption requests under our share redemption program.
The holders of OP Units (other than us and including both third parties and affiliates of the Sponsor) generally have the right to cause the Operating Partnership to redeem all or a portion of their OP Units for, at our sole discretion, shares of our common stock, cash, or a combination of both. Our election to redeem OP Units for cash may reduce funds available for distribution to our stockholders or to honor our stockholders’ redemption requests under our share redemption program.
We may be limited or restricted in engaging in like-kind exchanges.
We may dispose of properties in transactions intended to qualify as like-kind exchanges under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange could require us to pay U.S. federal income tax, possibly including the 100% prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.
Maryland law and our organizational documents limit our stockholders’ rights to bring claims against our officers and directors.
Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify and advance expenses to our directors, our officers, the Advisor and its affiliates for losses they may incur by reason of their service in those capacities unless their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, they actually received an improper personal benefit in money, property or services or, in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. Moreover, we have entered into separate indemnification agreements with each of our officers and directors. As a result, we and our stockholders have more limited rights against these persons than might otherwise exist under common law.
In addition, we are obligated to fund the defense costs incurred by these persons in some cases. However, our charter provides that we may not indemnify our directors, the Advisor and its affiliates for any liability or loss suffered by them or hold our directors, the Advisor and its affiliates harmless for any liability or loss suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability or loss was not the result of
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negligence or misconduct by our non-independent directors, the Advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification or agreement to hold harmless is recoverable only out of our net assets or the proceeds of insurance and not from our stockholders.
We may issue preferred stock, additional shares of common stock or other classes of common stock, which issuance could adversely affect the holders of our common stock issued pursuant to our public offering.
Holders of our common stock do not have preemptive rights to any shares issued by us in the future. We may issue additional shares of common stock, without stockholder approval, including through the declaration of stock dividends, at a price which could dilute the value of existing stockholders’ shares. Further, we may issue, without stockholder approval, preferred stock or other classes of common stock with voting and conversion rights which could adversely affect the voting power of the common stockholders and with rights that could dilute the value of our stockholders’ shares of common stock. This would increase the number of stockholders entitled to distributions without simultaneously increasing the size of our asset base. Under our charter, we have authority to issue a total of 1.7 billion shares of capital stock. Of the total number of shares of capital stock authorized (a) 1.5 billion shares are designated as common stock, including 225.0 million classified as Class I shares, 1.2 billion classified as Class T shares and 75.0 million classified as Class D shares, and (b) 200.0 million shares are designated as preferred stock. Our board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series that we have authority to issue without stockholder approval. Investors will also experience dilution if we issue equity compensation pursuant to our equity incentive plans, issue shares or OP Units to the Advisor in lieu of cash payments or reimbursements under the Advisory Agreement, or redeem OP Units for shares of common stock. In addition, we may cause the Operating Partnership to issue a substantial number of additional OP Units in order to raise capital in relation to the DST Program or otherwise, acquire properties, consummate a merger, business combination or another significant transaction. OP Units may generally be converted into shares of our common stock, thereby diluting the percentage ownership interest of other stockholders. Ultimately, any additional issuance by us of equity securities or by the Operating Partnership of OP Units will dilute our stockholders’ indirect interest in the Operating Partnership, through which we own all of our interests in our investments. If we ever created and issued preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. Holders of preferred stock or new classes of OP Units could be given other preferential rights, such as preferential redemption rights or preferential tax protection agreements, that could reduce the amount of funds available for the payment of distributions on our common stock or otherwise negatively affect our stockholders. In addition, under certain circumstances, the issuance of preferred stock, a new class of OP Units, or a separate class or series of common stock may render more difficult or tend to discourage:
● | A merger, tender offer or proxy contest; |
● | The assumption of control by a holder of a large block of our securities; and/or |
● | The removal of incumbent management. |
The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that could benefit our stockholders.
Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. This ownership restriction may also prohibit business combinations that would have otherwise been approved by our board of directors and our stockholders. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell their shares of our common stock.
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Maryland law and our organizational documents limit our stockholders’ ability to amend our charter or terminate our company without the approval of our board of directors.
Although the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association, or the Statement of Policy, indicates that stockholders are permitted to amend our charter or terminate our company without the necessity for concurrence by our board of directors, we are required to comply with the Maryland General Corporation Law, which provides that any amendment to our charter or any termination of our company must first be declared advisable by our board of directors. Therefore, our charter provides that stockholders may vote to authorize the amendment of our charter or the termination of our company, but only after such action has been declared advisable by our board of directors. Accordingly, the only proposals to amend our charter or to terminate our company that will be presented to our stockholders will be those that have been declared advisable by our board of directors.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland shall be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders with respect to our company, our directors, our officers or our employees (we note we currently have no employees). This choice of forum provision will not apply to claims arising under the Securities Act or the Exchange Act. Similarly, this choice of forum provision will not apply to actions arising out of, or in connection with, the sale of securities in, or the violation of the laws of, the states and U.S. territories and districts, in which our shares are sold pursuant to the offering; provided that the inapplicability of this choice of forum provision to such actions will not cause this provision to be inapplicable to other types of claims, whether they are brought concurrently with or before or after actions arising out of, or in connection with, the sale of securities in, or the violation of the laws of, the states and U.S. territories and districts in which the Issuer’s shares are sold pursuant to the offering. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers or employees, which may discourage meritorious claims from being asserted against us and our directors, officers and employees. Alternatively, if a court were to find this provision of our charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations. We adopted this provision because we believe it makes it less likely that we will be forced to incur the expense of defending duplicative actions in multiple forums and less likely that plaintiffs’ attorneys will be able to employ such litigation to coerce us into otherwise unjustified settlements, and we believe the risk of a court declining to enforce this provision is remote, as the General Assembly of Maryland has specifically amended the Maryland General Corporation Law to authorize the adoption of such provisions.
We are subject to risks related to corporate social responsibility.
Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities, which are increasingly considered to contribute to reducing a company’s operational risk, market risk and reputational risk, which may in turn impact the long-term sustainability of a company’s performance. A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions.
We risk damage to our reputation if we fail to act responsibly in a number of areas, including, but not limited to diversity, equity and inclusion, human rights, climate change and environmental stewardship, corporate governance and considering ESG factors in our investment processes. Adverse incidents with respect to ESG activities could adversely affect our business and results of operations.
However, regional and investor specific sentiment may differ in what constitutes a material positive or negative ESG corporate practice. There is no guarantee that our corporate social responsibility practices will uniformly fit every investors’ definition of best practices for all ESG considerations across geographies and investor types.
There is also a growing regulatory interest across jurisdictions in improving transparency regarding the definition, measurement and disclosure of ESG factors in order to allow investors to validate and better understand sustainability claims. In addition, in 2021 the SEC
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established an enforcement task force to look into ESG practices and disclosures by public companies and investment managers and has started to bring enforcement actions based on ESG disclosures not matching actual investment processes.
In addition, the SEC has also announced that it is working on proposals for mandatory disclosure of certain ESG-related matters, including with respect to corporate and fund carbon emissions, board diversity and human capital management. At this time, there is uncertainty regarding the scope of such proposals or when they would become effective (if at all). Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we conduct our business and adversely affect our profitability.
If we fail to comply with laws, regulations and market standards regarding the privacy, use and security of customer and stockholder information, we may be subject to legal and regulatory actions and our reputation would be harmed, which would materially adversely affect us.
We receive, maintain and store the non-public personal information of our stockholders and certain of our customers. The technology and other controls and processes designed to secure our stockholder and customer information and to prevent, detect and remedy any unauthorized access to that information were designed to obtain reasonable, not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. Accordingly, such controls may not have detected, and may in the future fail to prevent or detect, unauthorized access to our non-public personal information. If this information is inappropriately accessed and used by a third party or an employee for illegal purposes, we may be responsible to the affected individual or entity for any losses that may have been incurred as a result of misappropriation. In such an instance, we may be liable to a governmental authority for fines or penalties associated with a lapse in the integrity and security of material non-public information, which could materially adversely affect us.
We intend to disclose funds from operations (“FFO”) and adjusted funds from operations (“AFFO”), each a non-GAAP financial measure, in future communications with investors, including documents filed with the SEC. However, FFO and AFFO are not equivalent to our net income or loss as determined under GAAP, and do not represent a complete measure of our financial position and results of operations.
We use, and we disclose to investors, FFO and AFFO, which are considered non-GAAP financial measures. For a discussion of FFO and AFFO, including definitions, reconciliation to GAAP net income (loss), and the inherent limitations of FFO and AFFO, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K. FFO and AFFO are not equivalent to our net income or loss as determined in accordance with GAAP. FFO and GAAP net income differ because FFO excludes gains or losses from sales of property and impairment of depreciable real estate, and adds back real estate-related depreciation and amortization. AFFO further adjusts FFO by removing the impact of (i) performance-based incentive fee (income) expense, (ii) unrealized (gain) loss from changes in fair value of financial instruments, and (iii) financing obligation liability appreciation (depreciation).
No single measure can provide investors with sufficient information and investors should consider all of our disclosures as a whole in order to adequately understand our financial position, liquidity and results of operations. Because of the differences between FFO, AFFO and GAAP net income or loss, FFO and AFFO may not be accurate indicators of our operating performance, especially during periods in which we are acquiring properties. In addition, FFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO and AFFO as alternatives to cash flows from operations or as indications of our liquidity, or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders. Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO and AFFO. Also, because not all companies calculate FFO and AFFO the same way, comparisons with other companies may not be meaningful.
Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us.
The financial markets recently have encountered volatility associated with concerns about the balance sheets of banks, especially small and regional banks who may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks have already failed and others may be materially and adversely impacted. Our business is dependent on bank relationships and continued strain on the banking system may adversely impact our operations and the economy more broadly, and in turn our cash flow, distributions and NAV.
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RISKS RELATED TO INVESTMENTS IN PROPERTY
Adverse economic and other conditions in the regions where our assets are located may adversely affect our levels of occupancy, the terms of our leases, and our ability to lease available areas, which could have an adverse effect on our results of operations.
Our results of operations depend substantially on our ability to lease the areas available in the properties that we own as well as the price at which we lease such space. Adverse conditions in the regions and specific markets where we operate may reduce our ability to lease our properties, reduce occupancy levels, restrict our ability to increase rental rates and force us to lower rental rates and/or offer customer incentives. Should our assets fail to generate sufficient revenues for us to meet our obligations, our financial condition and results of operations, as well as our ability to make distributions, could be adversely affected. The following factors, among others, may adversely affect the operating performance of our properties:
● | Economic downturn and turmoil in the financial markets may preclude us from leasing our properties or increase the vacancy level of our assets; |
● | Periods of increased interest rates could result in, among other things, an increase in defaults by customers, a decline in our property values, and make it more difficult for us to dispose of our properties at an attractive price; |
● | Rising vacancy rates for commercial property, particularly in large metropolitan areas; |
● | Our inability to attract and maintain quality customers; |
● | Default or breaches by our customers of their contractual obligations; |
● | Increases in our operating costs, including the need for capital improvements; |
● | Increases in the taxes levied on our business; |
● | Regulatory changes affecting the real estate industry, including zoning rules; and |
● | Susceptibility of certain areas to natural disasters. |
We anticipate that our investments in real estate assets will be concentrated in industrial properties, and the demand for industrial space in the U.S. is related to the level of economic activity. Accordingly, reduced economic activity may lead to lower occupancy and/or rental rates for our properties.
Properties that we may own or acquire that incur vacancies for a significant period of time could be difficult to sell, which could diminish the return to our stockholders.
A property may incur a vacancy either by the continued default of a customer under its lease or the expiration of the lease. We may have difficulty obtaining a new customer for any vacant space we have in our real properties, including properties we acquire with vacancies. If property vacancies continue for a long period of time, we may suffer reduced revenues, which could materially and adversely affect our liquidity and NAV, or result in lower cash distributions to our stockholders. In addition, because properties’ market values depend principally upon the cash flow generated by the properties’ leases, the resale value of properties with prolonged vacancies could suffer, which could further reduce returns to our stockholders.
Risks related to the development of properties may have an adverse effect on our results of operations and returns to our stockholders.
The risk associated with development and construction activities carried out by real estate companies like ours include, among others, the following:
● | Long periods of time may elapse between the commencement and the completion of our projects; |
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● | Construction and development costs may exceed original estimates; |
● | The developer/builder may be unable to index costs or receivables to inflation indices prevailing in the industry; |
● | The level of interest of potential customers for a recently launched development may be low; |
● | There could be delays in obtaining necessary permits; |
● | The supply and availability of construction materials and equipment may decrease and the price of construction materials and equipment may increase; |
● | Construction and sales may not be completed on time, resulting in a cost increase; |
● | It may be difficult to acquire land for new developments or properties; |
● | Labor may be in limited availability; |
● | Changes in tax, real estate and zoning laws may be unfavorable to us; and |
● | Unforeseen environmental or other site conditions. |
In addition, our reputation and the construction quality of any future real estate developments, whether operated individually or through partnerships, may be determining factors for our ability to lease space and grow. The timely delivery of real estate projects and the quality of our developments, however, will depend on certain factors beyond our full control, including the quality and timeliness of construction materials delivered to us and the technical capabilities of our contractor. If one or more problems affect our real estate developments, our reputation and future performance may be negatively affected and we may be exposed to civil liability.
Companies in the real estate industry, including us, depend on a variety of factors outside of their control to develop, build and operate real estate projects. These factors include, among others, the availability of market resources for financing, land acquisition and project development. We may be unable to obtain financing for construction and development activities under favorable terms, including but not limited to interest rates, maturity dates and/or loan to value ratios, or at all, which could cause us to delay or even abandon potential development projects. Further, any scarcity of market resources, including human capital, may decrease our development capacity due to either difficulty in obtaining credit for land acquisition or construction financing or a need to reduce the pace of our growth. The combination of these risks may adversely affect our revenues, results of operations, financial condition and our ability to make distributions to our stockholders which may adversely affect the value of our stockholders’ investment.
Delays in the acquisition, development and construction of properties or debt investments may have adverse effects on portfolio diversification, results of operations, and returns on our stockholders’ investment.
Delays we encounter in the acquisition, development and construction of properties could adversely affect our stockholders’ returns. To the extent that such disruptions continue, we may be delayed in our ability to invest our capital in property investments that meet our acquisition criteria. Such delays would result in our maintaining a relatively higher cash balance than expected, which could have a negative effect on our stockholders’ returns until the capital is invested.
In addition, where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months or longer to complete construction, to rent available space, and for rent payments to commence. If these delays occur, or if we are required to abandon construction, we may not receive any income from these properties and distributions to our stockholders could suffer. Delays in the completion of construction could give customers the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks when we make periodic progress payments or other advances to builders prior to completion of construction. Each of those factors could result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Furthermore, the price we agree to pay for a property will be based on our projections of rental income and expenses and estimates of the fair market value of the property upon completion of construction. If our projections are inaccurate, we may pay too much for a property.
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Changes in supply of or demand for similar properties in a particular area may increase the price of real estate assets we seek to purchase or adversely affect the value of the properties we own.
The real estate industry is subject to market forces and we are unable to predict certain market changes including changes in supply of or demand for similar properties in a particular area. For example, if demand for the types of real estate assets in which we seek to invest were to sharply increase or supply of those assets were to sharply decrease, the prices of those assets could rise significantly. Any potential purchase of an overpriced asset could decrease our rate of return on these investments and result in lower operating results and overall returns to our stockholders. Likewise, a sharp decrease in demand or increase in supply could adversely affect leasing rates and occupancy, which could impact operating results, our NAV or overall returns to our stockholders.
Actions of joint venture partners could adversely impact our performance.
We have entered, and may continue to enter, into joint venture partnerships with third parties, including entities that are affiliated with the Advisor. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with a direct investment in real estate, including, for example:
● | The possibility that our venture partner, co-tenant or partner in an investment might become bankrupt or otherwise be unable to meet its capital contribution obligations; |
● | That such venture partner, co-tenant or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals; |
● | That such venture partner, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; or |
● | That actions by such venture partner could adversely affect our reputation, negatively impacting our ability to conduct business. |
Actions by such a joint venture partner or co-tenant, which are generally out of our control, might have the result of subjecting the property to liabilities in excess of those contemplated and may have the effect of reducing our stockholders’ returns, particularly if the joint venture agreement provides that the joint venture partner is the managing partner or otherwise maintains a controlling interest that could allow it to take actions contrary to our interests.
Under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could be reached, which might have a negative influence on the joint venture and decrease potential returns to our stockholders. In the event that a venture partner has a right of first refusal to buy out the other partner, it may be unable to finance such a buy-out at that time. For example, certain actions by the joint venture partnership may require joint approval of our affiliated partners, on the one hand, and our joint venture partner, on the other hand. An impasse among the partners could result in a “deadlock event”, which could trigger a buy-sell mechanism under the partnership agreement and, under certain circumstances, could lead to a liquidation of all or a portion of the partnership’s portfolio. In such circumstances, we may also be subject to the 100% penalty tax on “prohibited transactions.” It may also be difficult for us to sell our interest in any such joint venture or partnership or as a co-customer in a particular property. In addition, to the extent that our venture partner or co-customer is an affiliate of the Advisor, certain conflicts of interest will exist.
Properties are illiquid investments and we may be unable to adjust our portfolio in response to changes in economic or other conditions or sell a property if or when we decide to do so.
Properties are illiquid investments and we may be unable to adjust our portfolio in response to changes in economic or other conditions. In addition, 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. We cannot predict whether we will be able to sell any property 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 cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.
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We may also be required to expend funds to correct defects or to make improvements before a property can be sold. There can be no assurance that we will have funds available to correct such defects or to make such improvements.
In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. All of these provisions would restrict our ability to sell a property.
Our operating expenses may increase in the future and to the extent such increases cannot be passed on to our customers, our cash flow and our operating results would decrease.
Operating expenses, such as expenses for property and other taxes, fuel, utilities, labor, building materials and insurance are not fixed and may increase in the future. Furthermore, we may not be able to pass these increases on to our customers. To the extent such increases cannot be passed on to our customers, any such increases would cause our cash flow and our operating results to decrease.
We compete with numerous other parties or entities for property investments and customers and may not compete successfully.
We compete with numerous other persons or entities seeking to buy or develop real estate assets or to attract customers to properties we already own, including with entities sponsored or advised by affiliates of the Sponsor, which may have a negative impact on our ability to acquire real property assets or attract customers on favorable terms, if at all, and the returns on our properties. These persons or entities may have greater experience and financial strength than us. There is no assurance that we will be able to acquire or develop real estate assets or attract customers on favorable terms, if at all. For example, our competitors may be willing to offer space at rental rates below our rates, causing us to lose existing or potential customers and pressuring us to reduce our rental rates to retain existing customers or convince new customers to lease space at our properties. Similarly, the opening of new competing assets near the assets that we own may hinder our ability to renew our existing leases or to lease to new customers, because the proximity of new competitors may divert existing or new customers to such competitors. In addition, if market rental rates decline during the term of an existing lease, we may be unable to renew or find a new customer without lowering the rental rate. Each of these could adversely affect our results of operations, financial condition, value of our investments or ability to pay distributions to our stockholders.
The operating results of the assets that we own may be impacted by our customers’ financial condition.
Our income is derived primarily from lease payments made by our customers. As such, our performance is indirectly affected by the financial results of our customers, as difficulties experienced by our customers could result in defaults in their obligations to us. Furthermore, certain of our assets may utilize leases with payments directly related to customer sales, where the amount of rent that we charge a customer is calculated as a percentage of such customer’s revenues over a fixed period of time, and a reduction in sales can reduce the amount of the lease payments required to be made to us by customers leasing space in such assets.
The financial results of our customers can depend on several factors, including but not limited to the general business environment, interest rates, inflation, the availability of credit, taxation and overall consumer confidence. An economic downturn can be expected to negatively impact all of these factors, some to a greater degree than others.
In addition, our ability to increase our revenues and operating income partially depends on steady growth of demand for the products and services offered by the customers located in the assets that we own and manage. A drop in demand, as a result of a slowdown in the U.S. and global economy or otherwise, could result in a reduction in customer performance and consequently, adversely affect us.
If we enter into long-term leases with customers, those leases may not result in market rental rates over time, which could adversely affect our revenues and ability to make distributions to our stockholders.
We expect that the majority of our leases will be long-term operating leases. Long-term leases, as well as leases with renewal options that specify a maximum rent increase, may not allow for market-based or significant increases in rental payments during the term of the lease. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. These circumstances could negatively impact our operating results and affect our ability to make distributions to our stockholders.
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Lease agreements may have specific provisions that create risks to our business and may adversely affect us.
Our lease agreements are regulated by local, municipal, state and federal laws, which may grant certain rights to customers, such as the compulsory renewal of their lease by filing lease renewal actions when certain legal conditions are met. A lease renewal action may represent two principal risks for us: (i) if we plan to vacate a given unit in order to change or adapt an asset’s mix of customers, the customer could remain in that unit by filing a lease renewal action and interfere with our strategy; and (ii) if we desire to increase the lease price for a specific unit, this increase may need to be approved in the course of a lease renewal action, and the final value could be decided at the discretion of a judge. We would then be subject to the court’s interpretation and decision, and could be forced to accept an even lower price for the lease of the unit. The compulsory renewal of our lease agreements and/or the judicial review of our lease prices may adversely affect our cash flow and our operating results.
Certain of our lease agreements are not “triple net leases,” under which the customer undertakes to pay all the expenses of maintaining the leased property, including insurance, taxes, utilities and repairs. We may be exposed to higher maintenance, tax, and property management expenses with respect to all of our leases that are not “triple net.”
Operating expenses, such as expenses for fuel, utilities, labor, building materials and insurance are not fixed and may increase in the future. There is no guarantee that we will be able to pass such increases on to our customers. To the extent such increases cannot be passed on to our customers, any such increases could negatively impact our cash flow, NAV or operating results.
We depend on the availability of public utilities and services, especially for water and electric power. Any reduction, interruption or cancellation of these services may adversely affect us.
Public utilities, especially those that provide water and electric power, are fundamental for the sound operation of our assets. The delayed delivery or any material reduction or prolonged interruption of these services could allow certain customers to terminate their leases or result in an increase in our costs, as we may be forced to use backup generators, which also could be insufficient to fully operate our facilities and could result in our inability to provide services. Accordingly, any interruption or limitation in the provision of these essential services may adversely affect us.
Our industry is subject to extensive regulation, which may result in higher expenses or other negative consequences that could adversely affect us.
Our activities are subject to federal, state and municipal laws, and to regulations, authorizations and license requirements with respect to, among other things, zoning, environmental protection and historical heritage, all of which may affect our business. We may be required to obtain licenses and permits with different governmental authorities in order to acquire and manage our assets.
In addition, public authorities may enact new and more stringent standards, or interpret existing laws and regulations in a more restrictive manner, which may force companies in the real estate industry, including us, to spend funds to comply with these new rules, alter the use and occupancy of certain properties, or reduce revenue. Currently across the United States and elsewhere, owners of real property, especially those occupied by individuals (e.g., apartments), as well as industrial warehouses and distribution centers, are coming under increased scrutiny from local, state and federal authorities as well as tenant activist groups. Some are taking proactive measures, either in the form of legislation, administrative actions, or litigation, that could ultimately adversely affect our results from operations, cash flow, distributions and NAV.
In the event of noncompliance with such laws, regulations, licenses and authorizations, we may face the payment of fines, project shutdowns, cancellation of licenses, and revocation of authorizations, in addition to other civil and criminal penalties.
Our properties will be subject to property and other taxes that may increase in the future, which could adversely affect our cash flow.
Our properties will be subject to real and personal property and other taxes that may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. Certain of our leases provide that the property taxes, or increases therein, are charged to the lessees as an expense related to the properties that they occupy while other leases generally provide that we are responsible for such taxes. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable governmental authorities. If property taxes increase, our customers may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authorities may place a
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lien on the property and the property may be subject to a tax sale. In addition, we will generally be responsible for property taxes related to any vacant space.
Uninsured losses or premiums for insurance coverage relating to property may adversely affect our operating results.
There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders sometimes require commercial property owners to purchase specific coverage against terrorism as a condition for providing mortgage loans. These policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we could be held liable for indemnifying possible victims of an accident. There can be no assurance that funding will be available to us for repair or reconstruction of damaged property in the future or for liability payments to accident victims.
Environmentally hazardous conditions may adversely affect our operating results.
Under various federal, state and local environmental laws, a current or previous owner or operator of property may be liable for the cost of removing or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, natural resources or property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies or, in certain circumstances, private parties. In connection with the acquisition and ownership of our properties, we may be exposed to such costs. The cost of defending against environmental claims, of compliance with environmental regulatory requirements or of remediating any contaminated property could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to our stockholders.
Environmental laws in the U.S. also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of our properties may contain asbestos-containing building materials.
We intend to invest in properties historically used for industrial, manufacturing and commercial purposes. Some of these properties may contain at the time of our investment, or may have contained prior to our investment, underground storage tanks for the storage of petroleum products and other hazardous or toxic substances. All of these operations create a potential for the release of petroleum products or other hazardous or toxic substances. Some of the properties that we acquire may be adjacent to or near other properties that have contained or then currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. In addition, certain of the properties that we acquire may be on or adjacent to or near other properties upon which others, including former owners or customers of our properties, have engaged, or may in the future engage, in activities that may release petroleum products or other hazardous or toxic substances.
From time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions. In such an instance, we will underwrite the new anticipated costs of environmental investigation, clean-up and monitoring into the cost, as applicable. Further, in connection with property dispositions, we may agree to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.
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All of our properties will have been subject to a Phase I or similar environmental assessment by independent environmental consultants prior to or in connection with our acquisition of such properties. Phase I assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. Phase I assessments generally include a historical review, a public records review, an investigation of the surveyed site and surrounding properties, and preparation and issuance of a written report, but do not include soil sampling or subsurface investigations and typically do not include an asbestos survey. Nonetheless, an environmental liability that could have a material adverse effect on our business, financial condition or results of operations taken as a whole, may exist at the time of acquisition or may arise in the future, with respect to any properties that we acquire. Material environmental conditions, liabilities or compliance concerns may arise after an environmental assessment has been completed. Moreover, it is possible that (i) future laws, ordinances or regulations may impose a material environmental liability or (ii) the then current environmental condition of the properties that we acquire may be affected by customers, by the condition of land or operations in the vicinity of such properties (such as releases from underground storage tanks), or by third parties unrelated to us.
Costs of complying with environmental laws and regulations may adversely affect our income and the cash available for any distributions.
All property and the operations conducted on property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Customers’ ability to operate and to generate income to pay their lease obligations may be affected by permitting and compliance obligations arising under such laws and regulations. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. Leasing properties to customers that engage in industrial, manufacturing, and commercial activities will cause us to be subject to the risk of liabilities under environmental laws and regulations. In addition, the presence of hazardous or toxic substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our customers’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines or damages we must pay will reduce our ability to make distributions.
In addition, changes in these laws and governmental regulations, or their interpretation by agencies or the courts, could occur.
The costs associated with complying with the Americans with Disabilities Act may reduce the amount of cash available for distribution to our stockholders.
Investment in properties may also be subject to the Americans with Disabilities Act of 1990, as amended, or the “Disabilities Act.” Under this act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require us to remove access barriers and our failure to comply with the act’s requirements could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. Any monies we use to comply with the Disabilities Act will reduce our NAV and the amount of cash available for distribution to our stockholders.
We may not have funding for future customer improvements which may adversely affect the value of our assets, our results of operations and returns to our stockholders.
If a customer at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract one or more new customers, we will be required to expend substantial funds to construct new customer improvements in the vacated space. Substantially all of the net proceeds from our public offering will be used to acquire property, debt and other investments, and we do not anticipate that we will maintain permanent working capital reserves. We do not currently have an identified funding source to provide funds which may be required in the future for customer improvements and customer refurbishments in order to attract new customers. If we do not establish sufficient reserves for working capital or obtain adequate secured financing to supply
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necessary funds for capital improvements or similar expenses, we may be required to defer necessary or desirable improvements to our properties. If we defer such improvements, the applicable properties may decline in value, and it may be more difficult for us to attract or retain customers to such properties or the amount of rent we can charge at such properties may decrease. There can be no assurance that we will have any sources of funding available to us for repair or reconstruction of damaged property in the future.
Investments made outside of the U.S. will be subject to currency rate exposure and risks associated with the uncertainty of foreign laws and markets.
We may invest outside of the U.S., most likely in Mexico or Canada, to the extent that opportunities exist that may help us meet our investment objectives. For example, to the extent that we invest in property located outside of the U.S., in addition to risks inherent in an investment in real estate generally discussed herein, we will also be subject to fluctuations in foreign currency exchange rates, changes in U.S. regulations concerning foreign investments, if any, and the uncertainty of foreign laws and markets including, but not limited to, unexpected changes in regulatory requirements, political and economic instability in certain geographic locations, difficulties in managing international operations, currency exchange controls, potentially adverse tax consequences, additional accounting and control expenses and the administrative burden associated with complying with a wide variety of foreign laws. Changes in foreign currency exchange rates may adversely impact the fair values and earnings streams of our international holdings and therefore the returns on our non-dollar denominated investments. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations.
RISKS RELATED TO DEBT FINANCING
We intend to continue to incur mortgage indebtedness, corporate indebtedness and other borrowings, which may increase our business risks, and could hinder our ability to make distributions to our stockholders.
As of December 31, 2022, we had approximately $2.9 billion of consolidated indebtedness outstanding. We intend to continue to finance a portion of the purchase price of our investments by borrowing funds. Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300% of the value of our net assets, provided that we may exceed this limit if a higher level of borrowing is approved by a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts or other non-cash reserves, less total liabilities. Generally speaking, the preceding limitation provides for borrowings of up to 75% of the aggregate cost of our real estate assets before non-cash reserves and depreciation. In addition, we may incur mortgage debt and pledge some or all of our properties or other assets as security for that debt to obtain funds to acquire additional property, debt or other investments. We may also borrow funds to make distributions, to redeem securities, to satisfy the REIT distribution requirements or for any working capital purposes. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes.
High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders could be adversely affected.
We may not be able to obtain debt financing necessary to run our business.
We do not anticipate that we will maintain any permanent working capital reserves. Accordingly, we expect to need to borrow capital for acquisitions, the improvement of our properties, and for other purposes. Under current or future market conditions, we may not be able to borrow all of the funds we may need. If we cannot obtain debt or equity financing on acceptable terms, our ability to acquire new
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investments to expand our operations will be adversely affected. As a result, we would be less able to achieve our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our stockholders.
Increases in mortgage interest rates and/or unfavorable changes in other financing terms may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.
If mortgage or corporate debt is unavailable on reasonable terms as a result of increased interest rates, increased credit spreads, decreased liquidity or other factors, we may not be able to finance the initial purchase of properties. In addition, when we incur debt, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher or other financing terms, such as principal amortization, are not as favorable when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or, with respect to mortgage debt could result in the foreclosure of such properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.
Increases in interest rates could increase the amount of our debt payments and therefore negatively impact our operating results.
Our debt may be subject to the fluctuation of market interest rates such as the Prime rate, Secured Overnight Financing Rate (“SOFR”), and other benchmark rates. Should such interest rates increase, our debt payments may also increase, reducing cash available for distributions. Furthermore, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times which may not permit realization of the maximum return on such investments. Additionally, as it relates to any real estate assets that we may own, an increase in interest rates may negatively impact activity in the consumer market and reduce consumer purchases, which could adversely affect us.
Lenders may require us to enter into restrictive covenants that relate to or otherwise limit our operations, which could limit our ability to make distributions to our stockholders, to replace the Advisor or to otherwise achieve our investment objectives.
When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage property, discontinue insurance coverage, or make distributions under certain circumstances. In addition, provisions of our loan documents may deter us from replacing the Advisor because of the consequences under such agreements and may limit our ability to replace the property manager or terminate certain operating or lease agreements related to the property. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.
Risks related to floating rate indebtedness rates could increase the amount of our debt payments and therefore negatively impact our operating results.
Borrowings under our line of credit and portions of our borrowings under our term loan are, and certain of our future debt may be, subject to the fluctuation of market interest rates such as the SOFR, Prime rate, and other benchmark rates. Should such interest rates increase, our debt payments may also increase, reducing cash available for distributions. Furthermore, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times which may not permit realization of the maximum return on such investments. Additionally, as it relates to any real estate assets that we may own, an increase in interest rates may negatively impact activity in the consumer market and reduce consumer purchases, which could adversely affect us.
Furthermore, U.S. and international regulators and law enforcement agencies have conducted investigations into a number of rates or indices which are deemed to be “reference rates.” Actions by such regulators and law enforcement agencies may result in changes to the manner in which certain reference rates are determined, their discontinuance, or the establishment of alternative reference rates.
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We may enter into financing arrangements that require us to use and pledge offering proceeds to secure and repay such borrowings, and such arrangements may adversely affect our ability to make investments and operate our business.
We may enter into financing arrangements that require us to use and pledge future proceeds from our public offering or future offerings, if any, to secure and repay such borrowings. Such arrangements may cause us to have less proceeds available to make investments or otherwise operate our business, which may adversely affect our flexibility and our ability to achieve our investment objectives.
We may enter into financing arrangements involving balloon payment obligations, which may adversely affect our ability to refinance or sell properties on favorable terms, and to make distributions to our stockholders.
Some of our financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity will be uncertain and may depend upon our ability to obtain additional financing or our ability to sell the particular property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to our stockholders and the projected time of disposition of our assets. In an environment of increasing mortgage rates, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt if mortgage rates are higher at a time a balloon payment is due. In addition, payments of principal and interest made to service our debts, including balloon payments, may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT.
The derivative instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on our stockholders’ investment.
We may use derivative instruments to hedge exposure to changes in interest rates on certain of our variable rate loans, but no hedging strategy can protect us completely. We cannot assure our stockholders that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging of these transactions will not result in losses. Any settlement charges incurred to terminate unused derivative instruments may result in increased interest expense, which may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income tests.
Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations and financial condition.
Subject to any limitations required to maintain qualification as a REIT, we manage or may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest rate cap or collar agreements and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements and that these arrangements may not be effective in reducing our exposure to interest rate changes. These interest rate hedging arrangements may create additional assets or liabilities from time to time that may be held or liquidated separately from the underlying property or loan for which they were originally established. Hedging may reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations and financial condition.
We assume the risk that our credit facility lenders may not honor their commitments to us.
We may enter into credit facility arrangements with lenders pursuant to which, subject to certain conditions, they commit to lend us money, provide us with letters of credit or provide other financial services to us. If we fail to comply with the covenants in such arrangements, the lenders could declare us in default, accelerate the maturities of our borrowings and refuse to make loans or provide other financial services to us. Or, if a lender becomes unable or unwilling to honor its commitments to us, we may not receive the loans and other financial services for which we negotiated. In such a situation, a replacement lender may be difficult or impossible to find quickly or at all. If we are unable to receive loans and other financial services, our liquidity and business could be negatively impacted.
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RISKS RELATED TO INVESTMENTS IN REAL ESTATE-RELATED DEBT AND SECURITIES
The mortgage loans in which we may invest, either directly or indirectly through real estate-related debt securities, will be subject to the risk of delinquency, foreclosure and loss, which could result in losses to us.
Commercial mortgage loans are secured by commercial property and are subject to risks of delinquency and foreclosure and risks of loss. The ability of a borrower to repay a loan secured by a property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income producing property can be affected by, among other things: customer mix, success of customer businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expenses or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, current and potential future capital markets uncertainty, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, natural disasters, terrorism, social unrest and civil disturbances.
In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any realized deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow and limit amounts available for distribution to our stockholders. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial adverse effect on our anticipated return on the foreclosed mortgage loan. In addition, if we foreclose on a particular property, we could become, as owner of the property, subject to liabilities associated with such property, including liabilities related to taxes and environmental matters.
The mezzanine loans, B-notes, and other junior financings in which we may invest would involve greater risks of loss than senior loans secured by income-producing properties.
We may invest in mezzanine loans, B-notes, and other junior financings that substantially take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or the entity that owns the interest in the entity owning the property. These types of investments involve a higher degree of risk than senior mortgage lending secured by income producing property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan in whole or in part. In addition, there may be significant delays and costs associated with the process of foreclosing on collateral securing or supporting these investments. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Further, even if we are successful in foreclosing on the equity interests serving as collateral for certain mezzanine loans, such foreclosure could result in us inheriting all of the liabilities of the underlying mortgage borrower, including the senior mortgage on the applicable property. This may result in both increased costs to us and a negative impact on our overall debt covenants and occupancy levels. In many cases a significant restructuring of the senior mortgage may be required in order for us to be willing to retain longer term ownership of the property. If we are unsuccessful in restructuring the underlying mortgage debt in these scenarios, the mortgage lender ultimately may foreclose on the property causing us to lose any of our remaining investment.
The B-notes in which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.
We may invest in B-notes. A B-note is a mortgage loan typically (i) secured by a first mortgage on a single large commercial property or group of related properties and (ii) subordinated to an A-note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining for B-note holders after payment to the A-note holders. Since each transaction is privately negotiated, B-notes can vary in their structural characteristics and risks. For example, the rights of holders of B-
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notes to control the process following a borrower default may be limited in certain B-note investments, particularly in situations where the A-note holders have the right to trigger an appraisal process pursuant to which control would shift from the holder of the B-note when it is determined, for instance, that a significant portion of the B-note is unlikely to be recovered. We cannot predict the terms of each B-note investment. Further, B-notes typically are secured by a single property, and, as a result, reflect the increased risks associated with a single property compared to a pool of properties. Our ownership of a B-note with controlling class rights may, in the event the financing fails to perform according to its terms, cause us to elect to pursue our remedies as owner of the B-note, which may include foreclosure on, or modification of, the note or the need to acquire or payoff the A-note. Acquiring or paying off the A-note could require a significant amount of cash, and we may not have sufficient cash to be able to do so.
Bridge loans may involve a greater risk of loss than conventional mortgage loans.
We may provide bridge loans secured by first lien mortgages on properties to borrowers who are typically seeking short-term capital to be used in an acquisition, development or refinancing of real estate. The borrower may have identified an undervalued asset that has been undermanaged or is located in a recovering market. If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we may not recover some or all of our investment.
In addition, owners usually borrow funds under a conventional mortgage loan to repay a bridge loan. We may, therefore, be dependent on a borrower’s ability to obtain permanent financing to repay our bridge loan, which could depend on market conditions and other factors. Bridge loans, like other loans secured directly or indirectly by property, are subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of any default under bridge loans held by us, we bear the risk of loss of principal and nonpayment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the bridge loan. Any such losses with respect to our investments in bridge loans could have an adverse effect on our NAV, results of operations and financial condition.
Investment in non-conforming and non-investment grade loans may involve increased risk of loss.
Loans we may acquire or originate may not conform to conventional loan criteria applied by traditional lenders and may not be rated or may be rated as non-investment grade. Non-investment grade ratings for these loans typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers’ credit history, the properties’ underlying cash flow or other factors. As a result, loans we acquire or originate may have a higher risk of default and loss than conventional loans. Any loss we incur may reduce distributions to stockholders and adversely affect our value.
Risks of cost overruns and non-completion of the construction or renovation of the properties underlying loans we make or acquire may materially adversely affect our investment.
The renovation, refurbishment or expansion by a borrower of a mortgaged or leveraged property involves risks of cost overruns and non-completion. Costs of construction or improvements to bring a property up to standards established for the market intended for that property may exceed original estimates, possibly making a project uneconomical. Other risks may include: environmental risks, permitting risks, other construction risks and subsequent leasing of the property not being completed on schedule or at projected rental rates. If such construction or renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged impairment of net operating income and may not be able to make payments of interest or principal to us.
Interest rate fluctuations, changes in prepayment rates and reinvestment risk could cause the value of our debt investments to decrease or could reduce our ability to generate income from such investments.
Interest rate risk is the risk that debt investments will decline in value because of changes in market interest rates. At such time as we may own debt investments, generally, when market interest rates rise, the market value of such investments will decline, and vice versa. Accordingly, the yield on debt investments may be sensitive to changes in prevailing interest rates and corresponding changes in prepayment rates. Therefore, changes in interest rates may affect our net interest income, which is the difference between the interest income we earn on our interest-earning investments and the interest expense we incur in financing these investments. Interest rate fluctuations could also cause a borrower to prepay a mortgage loan more quickly than we expect, which could lead to our expected return on the investment being adversely affected. Further, there is a risk that income from our portfolio will decline if we invest the proceeds
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from matured, traded or called securities at market interest rates that are below our real estate debt portfolio's current earnings rate. A decline in income could affect the NAV of our shares or their overall returns.
Our debt investments may be considered illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.
The debt investments we may make in connection with privately negotiated transactions may not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise registered in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine, B-note and bridge loans we may originate or purchase in the future may be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recovery in the event of a borrower’s default.
Delays in liquidating defaulted loans could reduce our investment returns.
If there are defaults under mortgage or other types of loans that we make, we may not be able to repossess and sell the underlying properties or equity collateral quickly. The resulting time delay could reduce the value of our investment in the defaulted loans. An action to foreclose on a property securing a loan is regulated by state statutes and regulations and is subject to many of the delays and expenses of other lawsuits if the defendant raises defenses or counterclaims. In the event of default by a mortgagor or other borrower, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or other equity collateral or to obtain proceeds sufficient to repay all amounts due to us on the mortgage or other type of loan.
We may make investments in non-U.S. dollar denominated securities, which will be subject to currency rate exposure and risks associated with the uncertainty of foreign laws and markets.
Some of our real estate-related securities may be denominated in foreign currencies and, therefore, we expect to have currency risk exposure to any such foreign currencies. A change in foreign currency exchange rates may have an adverse impact on returns on our non-U.S. dollar denominated investments. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations. To the extent that we invest in non-U.S. dollar denominated securities, in addition to risks inherent in this investment in securities as generally discussed herein, we will also be subject to risks associated with the uncertainty of foreign laws and markets including, but not limited to, unexpected changes in regulatory requirements, political and economic instability in certain geographic locations, difficulties in managing international operations, currency exchange controls, potentially adverse tax consequences, additional accounting and control expenses and the administrative burden of complying with a wide variety of foreign laws.
Investments in real estate-related debt securities are subject to risks including various creditor risks and early redemption features which may materially adversely affect our results of operations and financial condition.
The debt securities and other interests in which we may invest may include secured or unsecured debt at various levels of an issuer’s capital structure. The debt securities in which we may invest may not be protected by financial covenants or limitations upon additional indebtedness, may be illiquid or have limited liquidity, and may not be rated by a credit rating agency. Debt securities are also subject to other creditor risks, including (i) the possible invalidation of an investment transaction as a “fraudulent conveyance” under relevant creditors’ rights laws, (ii) so-called lender liability claims by the issuer of the obligation and (iii) environmental liabilities that may arise with respect to collateral securing the obligations. Our investments may be subject to early redemption features, refinancing options, pre-payment options or similar provisions which, in each case, could result in the issuer repaying the principal on an obligation held by us earlier than expected, resulting in a lower return to us than anticipated or reinvesting in a new obligation at a lower return to us.
We will depend on debtors for our revenue, and, accordingly, our revenue and our ability to make distributions to our stockholders will be dependent upon the success and economic viability of such debtors.
The success of our real estate-related investments will materially depend on the financial stability of the debtors underlying such investments. The inability of a single major debtor or a number of smaller debtors to meet their payment obligations could result in reduced revenue or losses. In the event of a debtor default or bankruptcy, we may experience delays in enforcing our rights as a creditor,
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and such rights may be subordinated to the rights of other creditors. These events could negatively affect the cash available for distribution to our stockholders.
We may invest in real estate-related preferred equity securities, which may involve a greater risk of loss than traditional debt financing.
We may invest in real estate-related preferred equity securities, which are currently volatile and which securities may involve a higher degree of risk than traditional debt financing due to a variety of factors, including that such investments are subordinate to traditional loans and are not secured. Furthermore, should the issuer default on our investment, we would only be able to proceed against the entity in which we have an interest, and not the property owned by such entity and underlying our investment. As a result, we may not recover some or all of our investment. Since there may be a number of debt obligations that have priority over our preferred stock investment, any determination by us to cure defaults could be costly and we may not have the cash to be able to do so. If we become the equity owner of the issuer, we would be responsible for other liabilities of the issuer, including liabilities relating to taxes and environmental matters.
Investments in real estate-related securities are subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate-related securities.
We may invest in real estate-related securities and our investments may consist of real estate-related common equity, preferred equity and debt securities of both publicly traded and private real estate companies. Our investments in such real estate-related securities will involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related debt investments discussed herein.
The value of real estate-related securities, including those of publicly listed REITs, fluctuates with general economic conditions. See “ –Debt-oriented real estate investments face a number of general market-related risks that can affect the creditworthiness of issuers, and modifications to certain loan structures and market terms make it more difficult to monitor and evaluate investments.”
Real estate-related securities may be unsecured and subordinated to other obligations of the issuer. As a result, investments in real estate-related securities are subject to risks of (i) limited liquidity in the secondary trading, (ii) substantial market price volatility, (iii) subordination to prior claims of banks and other senior lenders of the issuer and preferred equity holders (iv) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets, (v) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations and (vi) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic downturn. These risks may adversely affect the value of outstanding real estate-related securities and the ability of the issuers thereof to pay dividends.
We have and may in the future make open market purchases or invest in traded securities.
Although not anticipated to be a large component of our investment strategy, we have the ability to invest in securities that are traded (publicly or through other active markets (including through private transactions)) and are, therefore, subject to the risks inherent in investing in traded securities. When investing in traded securities, we may be unable to obtain financial covenants or other contractual governance rights, including management rights that it might otherwise be able to obtain in making privately negotiated investments. Moreover, we may not have the same access to information in connection with investments in traded securities, either when investigating a potential investment or after making the investment, as compared to privately negotiated investments. Furthermore, we may be limited in our ability to make investments, and to sell existing investments, in traded securities because Ares may be deemed to have material, non-public information regarding the issuers of those securities or as a result of other internal policies or requirements. The inability to sell traded securities in these circumstances could materially adversely affect the investment results. In addition, securities acquired of a public company may, depending on the circumstances and securities laws of the relevant jurisdiction, be subject to lock-up periods.
Debt-oriented real estate investments face a number of general market-related risks that can affect the creditworthiness of issuers, and modifications to certain loan structures and market terms make it more difficult to monitor and evaluate investments.
Any deterioration of real estate fundamentals generally, and in the United States in particular, could negatively impact our performance by making it more difficult for issuers to satisfy their debt payment obligations, increasing the default risk applicable to issuers, and/or making it relatively more difficult for us to generate attractive risk-adjusted returns. Changes in general economic conditions will affect the
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creditworthiness of issuers and/or real estate collateral relating to our investments and may include economic and/or market fluctuations, changes in environmental and zoning laws, casualty or condemnation losses, regulatory limitations on rents, decreases in property values, changes in the appeal of properties to tenants, changes in supply and demand for competing properties in an area (as a result, for instance, of overbuilding), fluctuations in real estate fundamentals, the financial resources of tenants, changes in availability of debt financing which may render the sale or refinancing of properties difficult or impracticable, changes in building, environmental and other laws, energy and supply shortages, various uninsured or uninsurable risks, natural disasters, political events, trade barriers, currency exchange controls, changes in government regulations, changes in real property tax rates and operating expenses, changes in interest rates, changes in the availability of debt financing and/or mortgage funds which may render the sale or refinancing of properties difficult or impracticable, increased mortgage defaults, increases in borrowing rates, outbreaks of an infectious disease, epidemics/pandemics or other serious public health concerns, negative developments in the economy or political climate that depress travel activity, environmental liabilities, contingent liabilities on disposition of assets, natural disasters, terrorist attacks, war, demand and/or real estate values generally. Such changes may develop rapidly and it may be difficult to determine the comprehensive impact of such changes on our investments, particularly for investments that may have inherently limited liquidity. These changes may also create significant volatility in the markets for our investments which could cause rapid and large fluctuations in the values of such investments. There can be no assurance that there will be a ready market for the resale of our debt investments because such investments may not be liquid. Illiquidity may result from the absence of an established market for the investments, as well as legal or contractual restrictions on their resale by us. The value of securities of companies which service the real estate business sector may also be affected by such risks.
We cannot predict whether economic conditions generally, and the conditions for real estate debt investing in particular, will deteriorate in the future. Declines in the performance of the U.S. and global economies or in the real estate debt markets could have a material adverse effect on our investment activities. In addition, market conditions relating to real estate debt investments have evolved since the financial crisis, which has resulted in a modification to certain loan structures and market terms. For example, it has become increasingly difficult for real estate debt investors in certain circumstances to receive full transparency with respect to underlying investments because transactions are often effectuated on an indirect basis through pools or conduit vehicles rather than directly with the borrower. These and other similar changes in loan structures or market terms may make it more difficult for us to monitor and evaluate investments.
Political changes may affect the real estate debt markets.
The current regulatory environment in the United States may be impacted by future legislative developments and the regulatory agenda of the then-current U.S. President.
The outcome of congressional and other elections creates uncertainty with respect to legal, tax and regulatory regimes in which we and our investments will operate. Any significant changes in, among other things, economic policy (including with respect to interest rates and foreign trade), the regulation of the investment management industry, tax law, immigration policy and/or government entitlement programs could have a material adverse impact on us and our investments.
Some of our securities investments may become distressed, which securities would have a high risk of default and may be illiquid.
While it is generally anticipated that our real estate-related investments will focus primarily on investments in non-distressed real estate-related interests (based on our belief that there is not a low likelihood of repayment), our investments may become distressed following our acquisition thereof. Additionally, we may invest in real estate debt investments that we believe are available to purchase at “discounted” rates or “undervalued” prices. Purchasing real estate debt at what may appear to be “undervalued” or “discounted” levels is no guarantee that these investments will generate attractive returns to us or will not be subject to further reductions in value. There is no assurance that such investments can be acquired at favorable prices, that such investments will not default, or that the market for such interests will improve. In addition, the market conditions for real estate debt investments may deteriorate further, which could have an adverse effect on the performance of our investments.
During an economic downturn or recession, securities of financially troubled or operationally troubled issuers are more likely to go into default than securities of other issuers. Securities of financially troubled issuers and operationally troubled issuers are less liquid and more volatile than securities of companies not experiencing financial difficulties. The market prices of such securities are subject to erratic and abrupt market movements and the spread between bid and asked prices may be greater than normally expected. Investment in the securities of financially troubled issuers and operationally troubled issuers involves a high degree of credit and market risk. There is no assurance that we will correctly evaluate the value of the assets collateralizing such investments or the prospects for a successful reorganization or similar action.
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These financial difficulties may never be overcome and may cause issuers to become subject to bankruptcy or other similar administrative proceedings, or may require a substantial amount of workout negotiations or restructuring, which may entail, among other things, an extension of the term, a substantial reduction in the interest rate, a substantial write down of the principal of such investment and other concessions which could adversely affect our returns on the investment. There is a possibility that we may incur substantial or total losses on our investments and in certain circumstances, subject us to certain additional potential liabilities that may exceed the value of our original investment therein.
For example, under certain circumstances, a lender who has inappropriately exercised control over the management and policies of a debtor may have its claims subordinated or disallowed or may be found liable for damages suffered by parties as a result of such actions. In any reorganization or liquidation proceeding relating to our investments, we may lose our entire investment, may be required to accept cash or securities with a value less than our original investment and/or may be required to accept different terms, including payment over an extended period of time. In addition, under certain circumstances payments to us may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance, preferential payment, or similar transactions under applicable bankruptcy and insolvency laws. Furthermore, bankruptcy laws and similar laws applicable to administrative proceedings may delay our ability to realize on collateral for loan positions we held, or may adversely affect the economic terms and priority of such loans through doctrines such as equitable subordination or may result in a restructure of the debt through principles such as the “cramdown” provisions of the bankruptcy laws.
However, even if a restructuring were successfully accomplished, a risk exists that, upon maturity of such investment, replacement “takeout” financing will not be available, resulting in an inability by the issuer to repay the investment. Although unlikely, it is possible it may be necessary or desirable to foreclose on collateral securing one or more real estate debt we acquire. The foreclosure process varies jurisdiction by jurisdiction and can be lengthy and expensive. Issuers often resist foreclosure actions by asserting numerous claims, counterclaims and defenses against the holder of a real estate loan, including, without limitation, lender liability claims and defenses, even when such assertions may have no basis in fact, in an effort to prolong the foreclosure action, which often prolongs and complicates an already difficult and time-consuming process. In some states or other jurisdictions, foreclosure actions can take up to several years or more to conclude. During the foreclosure proceedings, an issuer may have the ability to file for bankruptcy, potentially staying the foreclosure action and further delaying the foreclosure process. Foreclosure litigation tends to create a negative public image of the collateral property and may result in disrupting ongoing leasing, management, development and other operations of the property. In the event we foreclose on an investment, we will be subject to the risks associated with owning and operating real estate.
Investments in structured products or similar products may include structural, legal and liquidity risks that may adversely affect our results of operations and financial condition.
We may invest from time to time in structured products, including pools of mortgages, inclusive of commercial mortgage-backed securities (“CMBS”) secured by loans made to multiple entities and/or single asset single borrower (“SASB”) loans, as well as other real estate-related interests. Our investments in structured products are subject to a number of risks, including risks related to the fact that the structured products may be leveraged, and other structural and legal risks related thereto. Utilization of leverage is a speculative investment technique and will generally magnify the opportunities for gain and risk of loss borne by an investor investing in debt securities. Many structured products contain covenants designed to protect the providers of debt financing to such structured products. A failure to satisfy those covenants could result in the untimely liquidation of the structured product and a complete loss of our investment therein. In addition, if the particular structured product is invested in a security in which we are also separately invested, this would tend to increase our overall exposure to the credit of the issuer of such securities, at least on an absolute, if not on a relative basis. The value of an investment in a structured product will depend on the investment performance of the assets in which the structured product invests and will, therefore be subject to all of the risks associated with an investment in those assets. These risks include the possibility of a default by, or bankruptcy of, the issuers of such assets or a claim that the pledging of collateral to secure any such asset constituted a fraudulent conveyance or preferential transfer that can be subordinated to the rights of other creditors of the issuer of such asset or nullified under applicable law.
The credit markets, including the CMBS market, have periodically experienced decreased liquidity on the primary and secondary markets during periods of increased market volatility. Such market conditions could re-occur and could impact the valuations of our investments and impair our ability to sell such investments if we were required to liquidate all or a portion of our CMBS investments quickly. Additionally, certain of our securities investments, such as horizontal or other risk retention investments in CMBS, may have certain holding period and other restrictions that limit our ability to sell such investments.
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Certain risks associated with CMBS may adversely affect our results of operations and financial condition.
We invest a portion of our assets in pools or tranches of CMBS, including horizontal and other risk retention investments. The collateral underlying CMBS generally consists of commercial mortgages on real property that has an industrial use. CMBS have been issued in a variety of issuances, with varying structures including senior and subordinated classes.
Mortgage-backed securities may also have structural characteristics that distinguish them from other securities. The interest rate payable on these types of securities may be set or effectively capped at the weighted average net coupon of the underlying assets themselves. As a result of this cap, the return to investors in such a security would be dependent on the relevant timing and rate of delinquencies and prepayments of mortgage loans bearing a higher rate of interest. In general, early prepayments will have a greater impact on the yield to investors. Federal and state law may also affect the return to investors by capping the interest rates payable by certain mortgagors. Certain mortgage-backed securities may provide for the payment of only interest for a stated period of time. In addition, in a bankruptcy or similar proceeding involving the originator or the servicer of the CMBS (often the same entity or an affiliate), the assets of the issuer of such securities could be treated as never having been truly sold to the originator to the issuer and could be substantively consolidated with those of the originator, or the transfer of such assets to the issuer could be voided as a fraudulent transfer.
The credit markets, including the CMBS market, have periodically experienced decreased liquidity on the primary and secondary markets during periods of market volatility. Such market conditions could re-occur and would impact the valuations of our investments and impair our ability to sell such investments if we were required to liquidate all or a portion of our CMBS investments quickly. Additionally, certain of our securities investments, such as horizontal or other risk retention investments in CMBS, may have certain holding period and other restrictions that limit our ability to sell such investments.
Concentrated CMBS investments may pose specific risks that may adversely affect our results of operations and financial condition.
Default risks with respect to CMBS investments may be further pronounced in the case of single-issuer CMBSs or CMBSs secured by a small or less diverse collateral pool, such as SASB loans. At any one time, a portfolio of CMBS may be backed by commercial mortgage loans disproportionately secured by properties in only a few states, regions or foreign countries. As a result, such investments may be more susceptible to geographic risks relating to such areas, including adverse economic conditions, declining home values, adverse events affecting industries located in such areas and other factors beyond our control relative to investments in multi-issuer CMBS or a pool of mortgage loans having more diverse property locations.
The quality of the CMBS is dependent on the credit quality and selection of the mortgages for each issuance.
CMBS are also affected by the quality of the credit extended. As a result, the quality of the CMBS is dependent upon the selection of the commercial mortgages for each issuance and the cash flow generated by the commercial real estate assets, as well as the relative diversification of the collateral pool underlying such CMBS and other factors such as adverse selection within a particular tranche or issuance.
Our CMBS investments face risks associated with extensions that may adversely affect our results of operations and financial condition.
Our CMBS and other investments may be subject to extension, resulting in the term of the securities being longer than expected. Extensions are affected by a number of factors, including the general availability of financing in the market, the value of the related mortgaged property, the borrower’s equity in the mortgaged property, the financial circumstances of the borrower, fluctuations in the business operated by the borrower on the mortgaged property, competition, general economic conditions and other factors. Such extensions may also be made without our consent.
There are certain risks associated with the servicers of commercial real estate loans underlying CMBS and other investments.
The exercise of remedies and successful realization of liquidation proceeds relating to commercial real estate loans underlying CMBS and other investments may be highly dependent on the performance of the servicer or special servicer. The servicer may not be appropriately staffed or compensated to immediately address issues or concerns with the underlying loans. Such servicers may exit the business and need to be replaced, which could have a negative impact on the portfolio due to lack of focus during a transition. Special servicers frequently are
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affiliated with investors who have purchased the most subordinate bond classes, and certain servicing actions, such as a loan extension instead of forcing a borrower pay off, may benefit the subordinate bond classes more so than the senior bonds. While servicers are obligated to service the portfolio subject to a servicing standard and maximize the present value of the loans for all bond classes, servicers with an affiliate investment in the CMBS or other investments may have a conflict of interest. There may be a limited number of special servicers available, particularly those which do not have conflicts of interest. In addition, to the extent any such servicers fail to effectively perform their obligations pursuant to the applicable servicing agreements, such failure may adversely affect our investments.
There are certain risks associated with CMBS interest shortfalls.
Our CMBS investments may be subject to interest shortfalls due to interest collected from the underlying loans not being sufficient to pay accrued interest to all of the MBS interest holders. Interest shortfalls to the CMBS trust will occur when the servicer does not advance full interest payments on defaulted loans. The servicer in a CMBS trust is required to advance monthly principal and interest payments due on a delinquent loan. Once a loan is delinquent for a period of time (generally 60 days), the servicer is required to obtain a new appraisal to determine the value of the property securing the loan. The servicer is only required to advance interest based on the lesser of the loan amount or 90%, generally, of the appraised value. Interest shortfalls occur when 90%, generally, of the appraised value is less than the loan amount and the servicer does not advance interest on the full loan amount. The resulting interest shortfalls impact interest payments on the most junior class in the trust first. As interest shortfalls increase, more senior classes may be impacted. Over time, senior classes may be reimbursed for accumulated shortfalls if the delinquent loans are resolved, but there is no guarantee that shortfalls will be collected. Interest shortfalls to the CMBS trust may also occur as a result of accumulated advances and expenses on defaulted loans. When a defaulted loan or foreclosed property is liquidated, the servicer will be reimbursed for accumulated advances and expenses prior to payments to CMBS bond holders. If proceeds are insufficient to reimburse the servicer or if a defaulted loan is modified and not foreclosed, the servicer is able to make a claim on interest payments that is senior to the bond holders to cover accumulated advances and expenses. If the claim is greater than interest collected on the loans, interest shortfalls could impact one or more bond classes in a CMBS trust until the servicer’s claim is satisfied.
There are certain risks associated with the insolvency of obligations backing CMBS and other investments.
The real estate loans backing the CMBS and other investments may be subject to various laws enacted in the jurisdiction or state of the borrower for the protection of creditors. If an unpaid creditor files a lawsuit seeking payment, the court may invalidate all or part of the borrower’s debt as a fraudulent conveyance, subordinate such indebtedness to existing or future creditors of the borrower or recover amounts previously paid by the borrower in satisfaction of such indebtedness, based on certain tests for borrower insolvency and other facts and circumstances, which may vary by jurisdiction. There can be no assurance as to what standard a court would apply in order to determine whether the borrower was “insolvent” after giving effect to the incurrence of the indebtedness constituting the mortgage backing the CMBS and other investments, or that regardless of the method of valuation, a court would not determine that the borrower was “insolvent” after giving effect to such incurrence. In addition, in the event of the insolvency of a borrower, payments made on such mortgage loans could be subject to avoidance as a “preference” if made within a certain period of time (which may be as long as one year and one day) before insolvency.
We will face “spread widening” risk related to our investment in securities.
For reasons not necessarily attributable to any of the risks set forth herein (for example, supply/demand imbalances or other market forces), the market spreads of the securities in which we invest may increase substantially causing the securities prices to fall. It may not be possible to predict, or to hedge against, such “spread widening” risk. The perceived discount in pricing described under “—Some of our securities investments may become distressed, which securities would have ahigh risk of default and may be illiquid.” may still not reflect the true value of the real estate assets underlying such real estate debt in which we may invest, and therefore further deterioration in value with respect thereto may occur following our investment therein. In addition, mark-to-market accounting of our investments will have an interim effect on the reported value prior to realization of an investment.
Absent our ability to rely upon available guidance from the CFTC that we are not a commodity pool, we, our board of directors or our Adviser, would be subject to additional regulation and required to comply with applicable CFTC disclosure, reporting, and record-keeping requirements.
Registration with the U.S. Commodity Futures Trading Commission (the “CFTC”) as a “commodity pool operator” or any change in our operations (including, without limitation, any change that causes us to be subject to certain specified covered statutory disqualifications)
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necessary to maintain our ability to rely upon CFTC Letter No. 12-13 or other exclusion from the definition of, or exemption from the requirement to register as, a “commodity pool operator” with the CFTC could adversely affect our ability to implement our investment program, conduct our operations or achieve our objectives and subject us to certain additional costs, expenses and administrative burdens. Furthermore, any determination by us to cease or to limit trading in interests that may be treated as “commodity interests” in order to comply with the regulations of the CFTC may have an adverse effect on our ability to implement our investment objectives and to hedge risks associated with our operations.
RISKS RELATED TO THE ADVISOR AND ITS AFFILIATES
Our Advisor faces conflicts of interest because certain of the fees it receives for services performed are based on our NAV, the procedures for which the Advisor will assist our board of directors in developing, overseeing, implementing and coordinating.
The Advisor assists our board of directors in developing, overseeing, implementing and coordinating our NAV procedures. It will assist our Independent Valuation Advisor in valuing our real property portfolio by providing the firm with property-level information, including (i) historical and projected operating revenues and expenses of the property; (ii) lease agreements on the property; and (iii) the revenues and expenses of the property. Our Independent Valuation Advisor assumes and relies upon the accuracy and completeness of all such information, does not undertake any duty or responsibility to verify independently any of such information and relies upon us and our Advisor to advise if any material information previously provided becomes inaccurate or was required to be updated during the period of its review. In addition, the Advisor may have some discretion with respect to valuations of certain assets and liabilities, which could affect our NAV. Because the Advisor is paid certain fees for its services based on our NAV, the Advisor could be motivated to influence our NAV and NAV procedures such that they result in an NAV exceeding realizable value, due to the impact of higher valuations on the compensation to be received by the Advisor. If our NAV is calculated in a way that is not reflective of our actual NAV, then the purchase price of shares of our common stock on a given date may not accurately reflect the value of our portfolio, and our stockholder’s shares may be worth less than the purchase price.
Advisory fees may not create proper incentives or may induce the Advisor and its affiliates to make certain investments, including speculative investments, that increase the risk of our real estate portfolio.
The advisory fees we pay the Advisor are made up of a fixed component and a performance component. We will pay the Advisor the fixed component regardless of the performance of our portfolio. The Advisor’s entitlement to the fixed component, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio. We will be required to pay the Advisor the fixed component in a particular period despite experiencing a net loss or a decline in the value of our portfolio during that period. The performance component, which is based on our total distributions plus the change in NAV per share, may create an incentive for the Advisor to make riskier or more speculative investments on our behalf than it would otherwise make in the absence of such performance-based compensation. Because the performance component is based on our NAV, the Advisor may be motivated to accelerate acquisitions in order to increase NAV or, similarly, delay or curtail dispositions of assets or share redemptions to maintain a higher NAV, which would, in each case, increase amounts payable to the Advisor.
The Advisor’s management personnel, other employees and affiliates face conflicts of interest relating to time management and, accordingly, the Advisor’s management personnel, other employees and affiliates may not be able to devote significant time to our business activities and the Advisor may not be able to hire adequate additional employees.
All of the Advisor’s management personnel, other personnel, affiliates and related parties may also provide services to other Sponsor affiliated entities and related parties. We are not able to estimate the amount of time that such management personnel, other personnel, affiliates and related parties will devote to our business. As a result, the Advisor’s management personnel, other personnel, affiliates and related parties may have conflicts of interest in allocating their time between our business and their other activities, which may include advising and managing various other real estate programs and ventures, which may be numerous and may change as programs are closed or new programs are formed. During times of significant activity in other programs and ventures, the time they devote to our business may decline. Accordingly, there is a risk that the Advisor’s affiliates and related parties may not devote significant time to our business activities and the Advisor may not be able to hire adequate additional personnel.
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The Advisor and its affiliates, including our officers and three of our directors, face conflicts of interest caused by compensation arrangements with us, and other entities sponsored or advised by affiliates of our Sponsor, which could result in actions that are not in our stockholders’ best interests.
Some of our executive officers, three of our directors and other key personnel are also officers, directors, managers, and key personnel in the Advisor, the Dealer Manager and/or other entities related to our Sponsor. Our Advisor and its affiliates receive substantial fees from us in return for their services and these fees could influence their advice to us. Among other matters, the compensation arrangements could affect their judgment with respect to:
● | the continuation, renewal or enforcement of our agreements with the Advisor and its affiliates, including the Advisory Agreement and the agreement with the Dealer Manager; |
● | recommendations to our board of directors with respect to developing, overseeing, implementing and coordinating our NAV procedures, or the decision to adjust the value of certain of our assets or liabilities if the Advisor is responsible for valuing them; |
● | public offerings of equity by us, which may result in increased fees for the Advisor and other related parties; |
● | competition for customers from entities sponsored or advised by affiliates of our Sponsor that own properties in the same geographic area as us; and |
● | investments through joint ventures or other co-ownership arrangements, which may result in increased fees for the Advisor. |
We will be responsible for our proportionate share of certain fees and expenses, including due diligence costs, as determined by our Advisor, including legal, accounting and financial advisor fees and related costs, incurred in connection with evaluating and consummating investment opportunities, regardless of whether such transactions are ultimately consummated by the parties thereto.
In addition, we reimburse the Advisor and its affiliates for the salaries and other compensation of its personnel in accordance with the Advisory Agreement based on the percentage of such personnel’s time spent on our affairs. Pursuant to the terms of our Advisory Agreement, we reimburse our Advisor and its affiliates for personnel (and related employment) costs and overhead (including, but not limited to, allocated rent paid, equipment, utilities, insurance, travel and entertainment, and other costs) incurred by the Advisor or its affiliates in performing the services under the Advisory Agreement, including, but not limited to, total compensation, benefits and other overhead of all employees involved in the performance of such services; provided, that we will not reimburse the Advisor or its affiliates for services for which the Advisor or its affiliates are entitled to compensation in the form of a separate fee.
Considerations relating to compensation to our Advisor and its affiliates from us and other entities sponsored or advised by affiliates of our Sponsor could result in decisions that are not in our stockholders’ best interests, which could hurt our ability to pay our stockholders distributions or result in a decline in the value of our stockholders’ investment. Conflicts of interest such as those described above have contributed to stockholder litigation against certain other externally managed REITs that are not affiliated with our Advisor or the Sponsor.
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Our Advisor may manage other investment vehicles (including public, non-listed REITs) that have investment objectives that compete or overlap with, and may from time to time invest in, our target asset classes.
Affiliates of our Advisor may manage other investment vehicles (including public, non-listed REITs) that have investment objectives that compete or overlap with, and may from time to time invest in, our target asset classes. This may apply to existing investment vehicles or investment vehicles that may be organized, or with respect to which affiliates of our Advisor may acquire and assume the role of management in the future. Consequently, we, on the one hand, and these other investment vehicles, on the other hand, may from time to time pursue the same or similar investment opportunities. To the extent such existing vehicles or other future investment vehicles managed by our Advisor or its affiliates seek to acquire the same target assets as our Company, the scope of opportunities otherwise available to us may be adversely affected and/or reduced. Our Advisor or its affiliates may also give advice to investment vehicles managed by our Advisor or its affiliates that may differ from the advice given to us even though their investment objectives may be the same or similar to ours.
The time and resources that Sponsor affiliated entities and related parties devote to us may be diverted and we may face additional competition due to the fact that Sponsor affiliated entities and related parties are not prohibited from raising money for another entity that makes the same types of investments that we target.
Sponsor affiliated entities and related parties are not prohibited from raising money for another investment entity that makes the same types of investments as those we target. As a result, the time and resources they could devote to us may be diverted. For example, the Dealer Manager is currently involved in separate public offerings for one other entity sponsored by the Sponsor. In addition, we may compete with other entities sponsored or advised by the Sponsor or affiliates of the Sponsor for the same investors and investment opportunities.
We may co-invest or joint venture an investment with a Sponsor affiliated entity or related party.
We have entered into and in the future may enter into additional joint ventures, co-investment or other arrangements with affiliates of the Sponsor or entities sponsored or advised by affiliates of the Sponsor to acquire, develop and/or manage property, debt and other investments. Such investments may raise potential conflicts of interest between us and such other investment vehicles managed by our Advisor or its affiliates, including determining which of such entities should enter into any particular joint venture, co-investment or other arrangement agreement. Joint venture, co-investment or other arrangement partners affiliated with the Advisor or sponsored or advised by affiliates of the Sponsor may have economic or business interests or goals which are or that may become inconsistent with our business interests or goals. In addition, should any such joint venture, co-investment or other arrangement be consummated, the Advisor and its affiliates may face a conflict in structuring the terms of the relationship between our interests and the interests of other parties, in managing the joint venture, co-investment or other arrangement, and in resolving any conflicts or exercising any rights in connection with the joint venture, co-investment or other arrangement. Since the Advisor will make various decisions on our behalf, agreements and transactions between us and the Advisor’s affiliates or entities sponsored or advised by affiliates of the Sponsor will not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties. Furthermore, when such other investment vehicles managed by our Advisor or its affiliates have interests or requirements that do not align with our interests, including differing liquidity needs or desired investment horizons, conflicts may arise in the manner in which any voting or control rights are exercised with respect to the relevant investment, potentially resulting in an adverse impact on us. We may enter into joint ventures with affiliates of the Sponsor or entities sponsored or advised by affiliates of the Sponsor for the acquisition of investments, but only if (i) a majority of our directors not otherwise interested in the transaction, including a majority of the independent directors, approve the transaction as being fair and reasonable to us and (ii) the investment by us and such affiliate are on terms and conditions that are no less favorable than those that would be available to unaffiliated parties.
With respect to any joint venture, we may enter into an advisory or sub-advisory agreement with an affiliate of the Advisor. We may also enter into arrangements with the Advisor in which the Advisor receives fees (directly or indirectly, including through a subsidiary of ours) from the joint venture entity or from the joint venture partner. Fees received from joint venture entities or partners and paid, directly or indirectly (including without limitation, through us or our subsidiaries), to the Advisor may be more or less than similar fees that we pay to the Advisor pursuant to the Advisory Agreement.
In addition, the Advisor may, with respect to any investment in which we are a participant, also render advice and service to others in that investment, and earn fees for rendering such advice and service. Specifically, it is contemplated that we may enter into joint venture or other similar co-investment arrangements with certain individuals, corporations, partnerships, trusts, joint ventures, limited liability
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companies or other entities, with respect to which the Advisor or one of its affiliates may be engaged to provide advice and service to such individuals, corporations, partnerships, trusts, joint ventures, limited liability companies or other entities. The Advisor or its affiliate will earn fees for rendering such advice and service pursuant to the agreements governing such joint ventures or arrangements.
We may invest in, acquire, sell assets to or provide financing to investment vehicles managed by our Advisor or its affiliates.
We may invest in, acquire, sell assets to or provide financing to investment vehicles managed by our Advisor or its affiliates and their portfolio companies or purchase assets from, sell assets to, or arrange financing from any such investment vehicles and their portfolio companies. Any such transactions will require approval by a majority of our independent directors. There can be no assurance that any procedural protections will be sufficient to ensure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s-length transaction.
We depend on the Advisor and its key personnel; if any of such key personnel were to cease employment with the Advisor or its affiliates, our business could suffer.
Our ability to make distributions and achieve our investment objectives is dependent upon the performance of the Advisor in the acquisition, disposition and management of our investments, the selection of customers for our properties, the determination of any financing arrangements and other factors. In addition, our success depends to a significant degree upon the continued contributions of certain of the Advisor’s key personnel, including, in alphabetical order, William S. Benjamin, Rajat Dhanda, David M. Fazekas, Andrea L. Karp, Brian R. Lange, Thomas G. McGonagle, Dwight L. Merriman III, Lainie P. Minnick, Taylor M. Paul, Scott W. Recknor, David A. Roth, Scott A. Seager, Jeffrey W. Taylor, and Joshua J. Widoff, each of whom would be difficult to replace. We currently do not have, nor do we expect to obtain, key man life insurance on any of the Advisor’s key personnel. If the Advisor were to lose the benefit of the experience, efforts and abilities of one or more of these individuals through their resignation, retirement, or due to an internalization transaction effected by another investment program sponsored by the Sponsor or its affiliates, or due to such individual or individuals becoming otherwise unavailable because of other activities on behalf of the Sponsor or its affiliates, our operating results could suffer.
Our Advisor is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business.
Our Advisor is subject to regulation as an investment adviser by various regulatory authorities that are charged with protecting the interests of its clients, including us. Instances of criminal activity and fraud by participants in the investment management industry and disclosures of trading and other abuses by participants in the financial services industry have led the United States Government and regulators to increase the rules and regulations governing, and oversight of, the United States financial system. This activity resulted in changes to the laws and regulations governing the investment management industry and more aggressive enforcement of the existing laws and regulations. Our Advisor could be subject to civil liability, criminal liability, or sanction, including revocation of its registration as an investment adviser, revocation of the licenses of its employees, censures, fines, or temporary suspension or permanent bar from conducting business, if it is found to have violated any of these laws or regulations. Any such liability or sanction could adversely affect our Advisor’s ability to manage our business. Our Advisor must continually address conflicts between its interests and those of its clients, including us. In addition, the SEC and other regulators have increased their scrutiny of potential conflicts of interest. Our Advisor has procedures and controls that are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and difficult and if our Advisor fails, or appears to fail, to deal appropriately with conflicts of interest, it could face litigation or regulatory proceedings or penalties, any of which could adversely affect its ability to manage our business.
The fees we pay to entities sponsored or advised by affiliates of our Sponsor in connection with our offerings of securities and in connection with the management of our investments were not determined on an arm’s-length basis, and therefore, we do not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
The Advisor, affiliates of the Advisor and the Dealer Manager have earned and will continue to earn fees, performance allocations, commissions and expense reimbursements from us. The fees, performance allocations, commissions and expense reimbursements paid and to be paid to the Advisor, affiliates of the Advisor and the Dealer Manager for services they provided us in connection with past offerings and in connection with our public offering were not determined on an arm’s-length basis. As a result, the fees have been determined without the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
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We compete with entities sponsored or advised by affiliates of the Advisor, for whom affiliates of the Advisor provide certain advisory or management services, for opportunities to acquire, lease, finance, or sell investments, and for customers, which may have an adverse impact on our operations.
We compete with entities sponsored or advised by affiliates of the Advisor and may compete with any such entity created in the future, as well as entities for whom affiliates of the Advisor provide certain advisory or management services, for opportunities to acquire, lease, finance or sell certain types of properties. We may also buy, lease, finance or sell properties at the same time as these entities are buying, leasing, financing or selling properties. In this regard, there is a risk that we will purchase or lend on a property that provides lower returns to us than a property purchased or lent on by entities sponsored or advised by affiliates of the Advisor and entities for whom affiliates of the Advisor provide certain advisory or management services. Certain entities sponsored or advised by affiliates of the Advisor own and/or manage properties in geographical areas in which we expect to own properties. Therefore, our properties may compete for customers with other properties owned and/or managed by these entities. The Advisor may face conflicts of interest when evaluating customer leasing opportunities for our properties and other properties owned and/or managed by these entities and these conflicts of interest may have a negative impact on our ability to attract and retain customers.
The Advisor has implemented lease allocation guidelines to assist with the process of the allocation of leases when we and certain other entities to which affiliates of the Advisor are providing certain advisory services have potentially competing properties with respect to a particular customer. These guidelines, are designed to allow, where possible, each fund with a potentially competing property to bid on a lease with a prospective customer in a fair and equitable manner.
Because affiliates of the Advisor currently sponsor and advise, and in the future may sponsor and advise, other investment vehicles and clients (each, an “Advisory Client”) with overlapping investment objectives, strategies and criteria, potential conflicts of interest may arise with respect to real estate investment opportunities. In order to manage this potential conflict of interest, in allocating opportunities among the Advisory Clients, the Advisor follows an allocation policy (the “Allocation Policy”) which endeavors to allocate investment opportunities in a fair and equitable manner. The Advisor’s Allocation Policy, which may be amended without consent, is intended to enable us to share equitably with any other Advisory Clients that are managed by the Advisor and competing with us to acquire similar types of assets.
Under the Allocation Policy, real estate investments will be considered for Advisory Clients based on appropriateness and conformity with their respective investment objectives, as well as the suitability of the investment for each Advisory Client. Suitability is determined by a variety of factors related to the investment mandates of each Advisory Client, the nature of the investment opportunity and the composition of each client’s portfolio. In the circumstance where an investment is suitable for only one Advisory Client based on such factors, the investment will be allocated to that Advisory Client. Where an investment is suitable for more than one Advisory Client, the Advisor generally employs an allocation rotation process pursuant to the Allocation Policy that is designed to facilitate an equitable allocation of such opportunities over time. Nevertheless, it is possible that we may not be given the opportunity to participate in certain investments made by Advisory Clients managed by affiliates of the Advisor. In addition, the Advisor has and may from time to time limit the number of positions in a rotation and/or grant to certain Advisory Clients certain exclusivity, rotation or other priority (each, a “Rotational Priority”) with respect to industrial investments or other investment opportunities. This means that, depending on the number of Advisory Clients and number of positions in each such rotation and/or the Rotational Priorities that have been granted, we may be offered fewer investment opportunities. The Advisor or its affiliates may grant additional Rotational Priorities in the future and from time to time.
The Advisor may modify its overall allocation policies from time to time. Any changes to the Advisor’s allocation policies will be timely reported to our board of directors or our Conflicts Resolution Committee. The Advisor will be required to provide information to our board of directors on a quarterly basis to enable our board of directors, including the independent directors, to determine whether such policies are being fairly applied.
If we invest in joint venture or co-ownership arrangements with the Advisor or its affiliates, they may retain significant control over our investments even if our independent directors terminate the Advisor.
While a majority of our independent directors may terminate the Advisor upon 60 days’ written notice, our ability to remove co-general partners or advisors to any entities in which the Advisor or its affiliates serve in such capacities and in which we may serve as general partner or manager is limited. As a result, if we invest in such joint-venture or co-ownership arrangements; an affiliate of the Advisor may continue to maintain a substantial degree of control over our investments despite the termination of the Advisor.
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RISKS RELATED TO OUR TAXATION AS A REIT
Failure to qualify as a REIT could adversely affect our operations and our ability to make distributions.
We have elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2017, and we intend to continue to operate in accordance with the requirements for qualification as a REIT. Although we do not intend to request a ruling from the Internal Revenue Service, (“IRS”), as to our REIT status, we have received the opinion of our special U.S. federal income tax counsel, Morrison & Foerster LLP, with respect to our qualification as a REIT. This opinion was issued in connection with our public offering. Investors should be aware, however, that opinions of counsel are not binding on the IRS or on any court. The opinion of Morrison & Foerster LLP represents only the view of our counsel based on our counsel’s review and analysis of existing law and on certain representations as to factual matters and covenants made by us, including representations relating to the values of our assets, the sources of our income, the amount of distributions that we pay, the composition of our stockholders, and various other matters relating to the requirements for qualification as a REIT. Morrison & Foerster LLP has no obligation to advise us or the holders of our common stock of any subsequent change in the matters stated, represented or assumed in its opinion or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of Morrison & Foerster LLP and our qualification as a REIT will depend on our satisfaction of numerous requirements (some on an annual and quarterly basis) established under highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. The complexity of these provisions and of the applicable income tax regulations that have been promulgated under the Code is greater in the case of a REIT that holds its assets through a partnership, as we do. Moreover, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the U.S. federal income tax consequences of that qualification.
If we were to fail to qualify as a REIT for any taxable year, we would be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer be deductible in computing our taxable income and we would no longer be required to make distributions. However, any distributions made would be subject to the favorable tax rate applied to “qualified dividend income.” To the extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate some investments in order to pay the applicable corporate income tax. In addition, although we intend to operate in such a manner as to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to determine that it is no longer in our best interest to continue to be qualified as a REIT and recommend that we revoke our REIT election.
We believe that the Operating Partnership will be treated for U.S. federal income tax purposes as a partnership and not as an association or as a publicly traded partnership taxable as a corporation. If the IRS successfully determines that the Operating Partnership should be treated as a corporation, the Operating Partnership would be required to pay U.S. federal income tax at corporate rates on its net income, its partners would be treated as stockholders of the Operating Partnership and distributions to partners would constitute distributions that would not be deductible in computing the Operating Partnership’s taxable income. In addition, if the Operating Partnership were treated as a corporation, we could fail to qualify as a REIT, with the resulting consequences described above.
To qualify as a REIT, we must meet annual distribution requirements, which may result in us distributing amounts that may otherwise be used for our operations.
To obtain the favorable tax treatment accorded to REITs, in addition to other qualification requirements, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income (which may not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be invested in acquisitions of properties and it is possible that we might be required to borrow funds or sell assets to fund these distributions. It is possible that we might not always be able to continue to make distributions sufficient to meet the annual distribution requirements required to maintain our REIT status, avoid corporate tax on undistributed income and/or avoid the 4% excise tax.
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From time to time, we may generate taxable income greater than our income for financial reporting purposes, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect our value.
Recharacterization of sale-leaseback transactions may cause us to lose our REIT status.
We may purchase properties and lease them back to the sellers of such properties. There can be no assurance that the IRS will not challenge our characterization of any such sale-leaseback transaction as a ‘true lease.’ In the event that any such sale-leaseback transaction is challenged and successfully recharacterized as a financing or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the REIT qualification “asset tests,” the “income tests” or the “distribution requirements” and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year in the event we cannot make a sufficient deficiency distribution.
Our stockholders may have current tax liability on distributions if they elect to reinvest in shares of our common stock.
Stockholders who elect to participate in the distribution reinvestment plan, and who are subject to U.S. federal income taxation laws, will incur a tax liability on an amount equal to the fair market value on the relevant distribution date of the shares of our common stock purchased with reinvested distributions, to the extent such distribution is properly treated as being paid out of “earnings and profits,” even though such stockholders have elected not to receive the distributions used to purchase those shares of common stock in cash. As a result, each of our stockholders that is not a tax-exempt entity may have to use funds from other sources to pay such tax liability on the value of the common stock received.
Distributions payable by REITs do not qualify for the reduced tax rates that apply to other corporate distributions.
The maximum tax rate applicable to income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates is currently 20% plus a 3.8% “Medicare tax” surcharge. Distributions payable by REITs, however, generally continue to be taxed at the normal rate applicable to the individual recipient on ordinary income, rather than the 20% preferential rate and are also subject to the 3.8% Medicare tax; provided however, that all such distributions (other than distributions designated as capital gain distributions and distributions traceable to distributions from a taxable REIT subsidiary), which are received by a pass-through entity or an individual, are eligible for a 20% deduction from gross income under the current tax laws that will expire if not extended at the end of 2025. The more favorable rates applicable to regular corporate distributions could cause investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay distributions, which could adversely affect the value of our common stock.
In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available for distribution to our stockholders.
Even if we qualify and maintain our status as a REIT, we may be subject to U.S. federal income taxes or state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our properties and pay income tax directly on such income. In that event, our stockholders would be treated as if they had earned that income and paid the tax on it directly, would be eligible to receive a credit or refund of the taxes deemed paid on the income deemed earned, and shall increase the adjusted basis of its shares by the excess of such deemed income over the amount of taxes deemed paid. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any of these taxes we pay will reduce our cash available for distribution to our stockholders.
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Distributions to tax-exempt investors may be classified as unrelated business taxable income.
Neither ordinary nor capital gain distributions with respect to our common stock, or gain from the sale of common stock should generally constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:
● | Part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income; |
● | Part of the income and gain recognized by a tax-exempt investor with respect to our common stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the common stock; and |
● | Part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17), or (20) of the Code may be treated as unrelated business taxable income. |
Investments in other REITs and real estate partnerships could subject us to the tax risks associated with the tax status of such entities.
We may invest in the securities of other REITs and real estate partnerships. Such investments are subject to the risk that any such REIT or partnership may fail to satisfy the requirements to qualify as a REIT or a partnership, as the case may be, in any given taxable year. In the case of a REIT, such failure would subject such entity to taxation as a corporation, may require such REIT to incur indebtedness to pay its tax liabilities, may reduce its ability to make distributions to us, and may render it ineligible to elect REIT status prior to the fifth taxable year following the year in which it fails to so qualify. In the case of a partnership, such failure could subject such partnership to an entity level tax and reduce the entity’s ability to make distributions to us. In addition, such failures could, depending on the circumstances, jeopardize our ability to qualify as a REIT.
Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.
To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to forego attractive investments. We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Complying with the REIT requirements may force us to liquidate otherwise attractive investments.
To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investments (other than governmental securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences or, generally, must have “reasonable cause” for the failure and pay a penalty, in addition to satisfying such requirements. As a result, we may be required to liquidate otherwise attractive investments.
The stock ownership limit imposed by the Code for REITs and our charter may restrict our business combination opportunities.
To qualify as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year after our first year in which we qualify as a REIT. Our charter, with certain exceptions, authorizes our board of directors to take the actions that are necessary and desirable to preserve our qualification as a REIT. Unless an exemption is granted by our board of directors, no person (as defined to include entities) may own more than 9.8% in value of our capital stock or more than 9.8% in value or in number of shares, whichever is
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more restrictive, of our common stock. In addition, our charter generally prohibits beneficial or constructive ownership of shares of our capital stock by any person that owns, actually or constructively, an interest in any of our lessees that would cause us to own, actually or constructively, 10% or more of any of our lessees. Our board of directors may grant an exemption, prospectively or retroactively, in its sole discretion, subject to such conditions, representations and undertakings as it may determine. These ownership limitations in our charter are common in REIT charters and are intended, among other purposes, to assist us in complying with the tax law requirements and to minimize administrative burdens. However, these ownership limits might also delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
Our ownership of and relationship with our taxable REIT subsidiaries will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.
A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. A taxable REIT subsidiary may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries. A domestic taxable REIT subsidiary will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the taxable REIT subsidiary rules limit the deductibility of interest paid or accrued by a taxable REIT subsidiary to its parent REIT to assure that the taxable REIT subsidiary is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s-length basis. We cannot assure our stockholders that we will be able to comply with the 20% value limitation on ownership of taxable REIT subsidiary stock and securities on an ongoing basis so as to maintain REIT status or to avoid application of the 100% excise tax imposed on certain non-arm’s length transactions.
The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
The IRS has issued Revenue Procedure 2003-65, which provides a safe harbor pursuant to which a mezzanine loan that is secured by interests in a pass-through entity will be treated by the IRS as a real estate asset for purposes of the REIT 75% asset test, and interest derived from such loan will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We may make investments in loans secured by interests in pass-through entities in a manner that complies with the various requirements applicable to our qualification as a REIT. To the extent, however, that any such loans do not satisfy all of the requirements for reliance on the safe harbor set forth in the Revenue Procedure, there can be no assurance that the IRS will not challenge the tax treatment of such loans, which could jeopardize our ability to qualify as a REIT.
Liquidation of assets may jeopardize our REIT status.
To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our status as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.
Changes to the U.S. federal income tax laws, including the enactment of certain tax reform measures, could have an adverse impact on our business and financial results.
In recent years, numerous legislative, judicial and administrative changes have been made to the U.S. federal income tax laws applicable to investments in real estate and REITs, and it is possible that additional such legislation may be enacted in the future. There can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. The REIT rules are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.
We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding the effect of potential future changes to the federal tax laws on an investment in our shares.
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Foreign investors may be subject to FIRPTA on the sale of common stock if we are unable to qualify as a domestically controlled REIT.
A foreign person (other than a “qualified foreign pension plan”) disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax under FIRPTA on the gain recognized on the disposition. FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. There can be no assurance that we will qualify as a domestically controlled REIT. If we were to fail to so qualify, gain realized by a foreign investor (other than a “qualified foreign pension plan”) on a sale of our common stock would be subject to FIRPTA unless our common stock was traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock. We are not currently traded on an established securities market.
We may enter into certain hedging transactions which may have a potential impact on our REIT status.
From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate and/or foreign currency swaps, caps, and floors, options to purchase these items, and futures and forward contracts. Income and gain from “hedging transactions” that we enter into to hedge indebtedness incurred or to be incurred to acquire or carry real estate assets and that are clearly and timely identified as such will be excluded from both the numerator and the denominator for purposes of the gross income and asset tests that apply to REITs. Moreover, any income from a transaction entered into primarily to manage risk of currency fluctuations with respect to any item of income that would be qualifying REIT income under the REIT gross income tests, and any gain from the unwinding of any such transaction, does not constitute gross income for purposes of the REIT annual gross income tests. To the extent that we do not properly identify such transactions as hedges or we hedge with other types of financial instruments, or hedge other types of indebtedness, the income from those transactions may not be treated as qualifying income for purposes of the REIT gross income tests, and might also give rise to an asset that does not qualify for purposes of the REIT asset tests.
INVESTMENT COMPANY RISKS
We are not registered as an investment company under the Investment Company Act, and therefore we will not be subject to the requirements imposed on an investment company by the Investment Company Act which may limit or otherwise affect our investment choices.
We, the Operating Partnership, and our subsidiaries intend to conduct our businesses so that we are not required to register as “investment companies” under the Investment Company Act. The operation of a business in a manner so as not to be subject to regulation as an investment company requires an analysis of and compliance with complex laws, regulations and SEC staff interpretations, not all of which are summarized herein. Although we could modify our business methods at any time, at the present time we focus our activities on investments in real estate, buildings, and other assets that can be referred to as “sticks and bricks” and therefore we will not be an investment company under Section 3(a)(1)(A) of the Investment Company Act. We also may invest in other real estate investments, such as real estate-related securities, and will otherwise be considered to be in the real estate business.
Companies subject to the Investment Company Act are required to comply with a variety of substantive requirements such as requirements relating to:
● | Limitations on the capital structure of the entity; |
● | Restrictions on certain investments; |
● | Prohibitions on transactions with affiliated entities; and |
● | Public reporting disclosures, record keeping, voting procedures, proxy disclosure and similar corporate governance rules and regulations. |
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These and other requirements are intended to provide benefits or protections to security holders of investment companies. Because we and our subsidiaries do not expect to be subject to these requirements, stockholders will not be entitled to these benefits or protections. It is our policy to operate in a manner that will not require us to register as an investment company, and we do not expect to register as an “investment company” under the Investment Company Act.
We do not expect that we, the Operating Partnership, or other subsidiaries will be an investment company because, if we have any securities that are considered to be investment securities held by an entity, then we will seek to ensure that holdings of investment securities in such entity will not exceed 40% of the total assets of that entity (on a consolidated basis) and that no such entity holds itself out as being engaged primarily in the business of investing in securities. If an entity were to hold investment securities having a value exceeding 40% of the value of the entity’s total assets (on a consolidated basis), and no other exclusion from registration was available, that entity might be required to register as an investment company. In order to avoid such a result, we, the Operating Partnership, or a subsidiary may be unable to sell assets we would otherwise want to sell or we may need to sell assets we would otherwise wish to retain. In addition, we may also have to forgo opportunities to acquire certain investments or interests in companies or entities that we would otherwise want to acquire, or acquire assets we might otherwise not select for purchase.
If we, the Operating Partnership or any subsidiary owns assets that qualify as “investment securities” and the value of such assets exceeds 40% of the value of its total assets (on a consolidated basis), the entity would be deemed to be an investment company absent another exclusion from the Investment Company Act. Certain of the subsidiaries that we may form in the future could seek to rely upon the exclusion provided by Section 3(c)(5)(C) of that Act, which is available for entities, among other things, “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion, as interpreted by the staff of the SEC, generally requires that at least 55% of an entity’s portfolio be comprised of qualifying interests and an additional 25% of the entity’s portfolio be comprised of real estate-related interests although this percentage may be reduced to the extent that more than 55% of the entity’s assets are invested in qualifying interests, (as such terms have been interpreted by the staff of the SEC) and no more than 20% of such entity’s total assets are invested in miscellaneous investments. Qualifying interests for this purpose include actual interests in real estate, certain mortgage loans and other assets as interpreted in a manner consistent with SEC staff guidance. We intend to treat as real estate-related interests those assets that do not qualify for treatment as qualifying interests, including any securities of companies primarily engaged in real estate businesses that are not within the scope of SEC staff positions and/or interpretations regarding qualifying interests and securities issued by pass-through entities of which substantially all of the assets consist of qualifying interests and/or real estate-related interests. Due to the factual nature of this test, we, the Operating Partnership, or a subsidiary may be unable to sell assets we would otherwise want to sell or may need to sell assets we would otherwise wish to retain, if we deem it necessary to remain in compliance with the foregoing standards. In addition, we may have to forgo opportunities to acquire certain investments or interests in companies or entities that we would otherwise want to acquire, or acquire assets we might otherwise not select for purchase, if we deem it necessary to remain in compliance with the foregoing standards.
In addition, we, the Operating Partnership and/or our subsidiaries may rely upon other exclusions, including the exclusion provided by Section 3(c)(6) of the Investment Company Act (which excludes, among other things, parent entities whose primary business is conducted through majority-owned subsidiaries relying upon the exclusion provided by Section 3(c)(5)(C), discussed above), from the definition of an investment company and the registration requirements under the Investment Company Act.
There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs (and/or their subsidiaries), including actions by the SEC or its staff providing more specific or different guidance regarding these exclusions, will not change in a manner that adversely affects our operations. For example, on August 31, 2011, the SEC issued a concept release requesting comments regarding a number of matters relating to the exclusion provided by Section 3(c)(5)(C) of the Investment Company Act, including the nature of assets that qualify for purposes of the exclusion and whether mortgage REITs should be regulated in a manner similar to investment companies. To the extent that the SEC or the SEC staff provides more specific guidance regarding any of the matters bearing upon the exclusions discussed above or other exclusions from the definition of an investment company under the Investment Company Act upon which we may rely, we may be required to change the way we conduct our business or adjust our strategy accordingly. Any additional guidance from the SEC staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen. If we meet the definition of an investment company under the Investment Company Act and we fail to qualify for an exclusion therefrom, our ability to use leverage and other business strategies would be substantially reduced. Our business will be materially and adversely affected if we fail to qualify for an exemption or exclusion from regulation under the Investment Company Act.
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If we or the Operating Partnership are required to register as an investment company under the Investment Company Act, the additional expenses and operational limitations associated with such registration may reduce our stockholders’ investment return or impair our ability to conduct our business as planned.
If we become an investment company or are otherwise required to register as an investment company, we might be required to revise some of our current policies, or substantially restructure our business, to comply with the Investment Company Act. This would likely require us to incur the expense and delay of holding a stockholder meeting to vote on proposals for such changes. Further, if we were required to register as an investment company, but failed to do so, we would be prohibited from engaging in our business, criminal and civil actions could be brought against us, some of our contracts might be unenforceable, unless a court were to direct enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
ERISA RISKS
If our assets are deemed to be ERISA plan assets, the Advisor and we may be exposed to liabilities under Title I of ERISA and the Internal Revenue Code.
In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entire entity are deemed to be ERISA plan assets unless an exception applies. This is known as the “look-through rule.” Under those circumstances, the obligations and other responsibilities of plan sponsors, plan fiduciaries and plan administrators, and of parties in interest and disqualified persons, under Title I of ERISA and Section 4975 of the Code, as applicable, may be applicable, and there may be liability under these and other provisions of ERISA and the Code. We believe that our assets should not be treated as plan assets because the shares should qualify as “publicly-offered securities” that are exempt from the look-through rules under applicable Treasury Regulations. We note, however, that because certain limitations are imposed upon the transferability of shares so that we may qualify as a REIT, and perhaps for other reasons, it is possible that this exemption may not apply. If that is the case, and if the Advisor or we are exposed to liability under ERISA or the Code, our performance and results of operations could be adversely affected. Prior to making an investment in us, our stockholders should consult with their legal and other advisors concerning the impact of ERISA and the Code on their investment and our performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
As of December 31, 2022, we directly owned and managed a real estate portfolio that included 243 industrial buildings totaling approximately 50.2 million square feet located in 29 markets throughout the U.S., with 418 customers, and was 98.1% occupied (98.9% leased) with a weighted-average remaining lease term (based on square feet) of 4.2 years. The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced. During the year ended December 31, 2022, we transacted over 5.7 million square feet of new and renewal leases, and rent growth on comparable leases averaged 47.2% (calculated using cash basis rental rates). We experienced significantly higher acquisition volume in the first and second quarters of 2022 as compared to the third and fourth quarters of 2022 as the industrial property market adjusted to the impact of recent interest rate increases on acquisition pricing. Industrial market fundamentals remain favorable and we continue to evaluate acquisition opportunities within the industrial market to effectively execute our business strategy. As of December 31, 2022, our real estate portfolio included:
● | 240 industrial buildings totaling approximately 49.7 million square feet comprised our operating portfolio, which includes stabilized properties, and was 99.0% occupied (99.1% leased) with a weighted-average remaining lease term (based on square feet) of approximately 4.2 years; and |
● | Three industrial buildings totaling approximately 0.5 million square feet comprised our value-add portfolio, which includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached stabilization. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s shell completion or a building achieving 90% occupancy. |
Additionally, as of December 31, 2022, we owned and managed 11 buildings either under construction or in the pre-construction phase totaling approximately 3.1 million square feet. Unless otherwise noted, these buildings are excluded from the presentation of our portfolio data herein.
Concurrently with the BTC II Partnership Transaction (as described in “Note 4 to the Consolidated Financial Statements”) on February 15, 2022, we and our joint venture partners formed the BTC II B Partnership, through which we co-own five properties that were part of the original BTC II Partnership’s portfolio and were not part of the BTC II Partnership Transaction. As of December 31, 2022, we owned and managed five buildings that were either under construction or in the pre-construction phase totaling approximately 1.8 million square feet through our 8.0% minority ownership interest in the BTC II B Partnership. Unless otherwise noted, these buildings are excluded from the presentation of our portfolio data herein.
We have used, and intend to continue to use, the net proceeds from our offerings primarily to make investments in real estate assets. We may use the net proceeds from our offerings to make other real estate-related investments and debt investments and to pay distributions. The number and type of properties we may acquire and debt and other investments we may make will depend upon real estate market conditions, the amount of proceeds we raise in our offerings, and other circumstances existing at the time we make our investments.
Unless otherwise indicated, the term “property” as used herein refers to one or more buildings in the same market that were acquired by us in the same transaction.
Building Types. Our industrial buildings consist primarily of warehouse distribution facilities suitable for single or multiple customers. The following table summarizes our portfolio by building type as of December 31, 2022:
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Portfolio Overview and Market Diversification. As of December 31, 2022, the average effective annual rent of our total real estate portfolio (calculated by dividing total annualized base rent, which includes the impact of any contractual tenant concessions (cash basis), by total occupied square footage) was approximately $6.18 per square foot. The following table summarizes certain operating metrics of our portfolio by market as of December 31, 2022:
(1) | The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced. |
(2) | Annualized base rent is calculated as monthly base rent, including the impact of any contractual tenant concessions (cash basis) per the terms of the lease as of December 31, 2022, multiplied by 12. |
Lease Terms. Our industrial properties are typically subject to leases on a “triple net basis,” in which customers pay their proportionate share of real estate taxes, insurance, common area maintenance, and certain other operating costs. In addition, most of our leases include fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from one to 10 years, and often include renewal options.
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Lease Expirations. As of December 31, 2022, the weighted-average remaining lease term (based on square feet) of our total occupied portfolio was approximately 4.2 years, excluding renewal options. The following table summarizes the lease expirations of our occupied portfolio for leases in place as of December 31, 2022, without giving effect to the exercise of renewal options or termination rights, if any:
(1) | Excludes two leases of approximately 49,000 square feet that expired on December 31, 2022. |
(2) | Annualized base rent is calculated as monthly base rent, including the impact of any contractual tenant concessions (cash basis) per the terms of the lease as of December 31, 2022, multiplied by 12. |
Customer Diversification. As of December 31, 2022, there was one customer that individually represented more than 5.0% of total occupied square feet of our portfolio and one customer that individually represented more than 5.0% of total annualized base rent of our portfolio. The following table reflects the 10 largest customers of our portfolio, based on annualized base rent, which occupied a combined 9.7 million square feet as of December 31, 2022:
(1) | Annualized base rent is calculated as monthly base rent, including the impact of any contractual tenant concessions (cash basis) per the terms of the lease as of December 31, 2022, multiplied by 12. |
The majority of our customers do not have a public corporate credit rating. We evaluate creditworthiness and financial strength of prospective customers based on financial, operating and business plan information that is provided to us by such prospective customers, as well as other market, industry, and economic information that is generally publicly available.
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Industry Diversification. The table below illustrates the diversification of our portfolio by industry classifications of our customers as of December 31, 2022:
(1) | Annualized base rent is calculated as monthly base rent, including the impact of any contractual tenant concessions (cash basis) per the terms of the lease as of December 31, 2022, multiplied by 12. |
DST Program and DST Program Loans. Our DST Program raises capital through private placement offerings by selling DST Interests in specific Delaware statutory trusts holding real properties. The following table presents our DST Program activity for the years ended December 31, 2022, 2021 and 2020:
(1) The DST Program was not in place during the year ended December 31, 2020.
(2) DST Program Loans are presented net of repayments.
(3) Included in other income and expenses in the consolidated statements of operations.
(4) Included in interest expense on consolidated statements of operations.
As of December 31, 2022 and 2021, we had 114 and 46 DST Program Loans, respectively, with a combined carrying value of $152.4 million and $68.8 million, respectively, and a weighted-average interest rate of 4.63% and 4.10%, respectively, and a weighted-average maturity of 9.3 years and 9.8 years, respectively, related to the DST Program. Refer to “Note 6 to the Consolidated Financial Statements” in Item 8. “Financial Statements and Supplementary Data” for additional detail regarding the DST Program.
Debt Obligations. Our consolidated indebtedness is currently comprised of borrowings under our line of credit, term loans and mortgage notes. As of December 31, 2022, we had approximately $2.9 billion of consolidated indebtedness with a weighted-average interest rate of 3.55%, which includes the effect of interest rate swap and cap agreements. The weighted-average remaining term of our consolidated debt as of December 31, 2022 was 3.6 years, excluding extension options. The total gross book value of properties encumbered by our total consolidated debt as of December 31, 2022 was $2.4 billion. See “Note 5 to the Consolidated Financial Statements” for additional information.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, there are no material pending legal proceedings to which we are a party or of which any of our properties are the subject.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
There is no public trading market for our shares of common stock. On a limited basis, our stockholders may be able to have their shares redeemed through our share redemption program. In the future we may also consider various forms of additional liquidity, each of which we refer to as a “Liquidity Event,” including, but not limited to, a listing of our common stock on a national securities exchange (or the receipt by our stockholders of securities that are listed on a national securities exchange in exchange for our common stock); the sale, merger, or other transaction of our company in which our stockholders either receive, or have the option to receive, cash, securities redeemable for cash, and/or securities of a publicly traded company; and the sale of all or substantially all of our assets where our stockholders either receive, or have the option to receive, cash or other consideration. While we may consider a Liquidity Event, which may provide an additional source of value through the realization of capital appreciation, at any time in the future, we currently do not have a fixed time frame in which we intend to undertake such consideration and we are not obligated by our charter or otherwise to effect a Liquidity Event at any time. There can be no assurance that we will ever pursue a Liquidity Event. We believe that our structure as a non-exchange traded REIT that may continue to raise capital through a series of offerings with no targeted liquidity window enhances the potential to achieve our investment objectives by allowing us to acquire and manage our investment portfolio in a more flexible manner.
We commenced calculating a monthly NAV on June 15, 2018. The following table presents the high and low NAV per share of each class of common stock for each reported quarter within the two most recent fiscal years. Each class of common stock has had the same NAV for each reported period.
Net Asset Value
Our board of directors, including a majority of our independent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. With the approval of our board of directors, including a majority of our independent directors, we have engaged Altus Group U.S. Inc., a third-party valuation firm, to serve as our independent valuation advisor (“Altus Group” or the “Independent Valuation Advisor”) with respect to helping us administer the valuation and review process for the real properties in our portfolio, providing monthly real property appraisals, reviewing annual third-party real property appraisals, providing monthly valuations of our debt-related assets (excluding DST Program Loans), reviewing the internal valuations of DST Program Loans and debt-related liabilities performed by our Advisor, providing quarterly valuations of our properties subject to master lease obligations associated with the DST Program, and assisting in the development and review of our valuation procedures. As part of this process, our Advisor reviews the estimates of the values of our real property portfolio, real estate-related assets, and other assets and liabilities within our portfolio for consistency with our valuation guidelines and the overall reasonableness of the valuation conclusions, and informs our board of directors of its conclusions. Although third-party appraisal firms, the Independent Valuation Advisor, or other pricing sources may consider any comments received from us or our Advisor or other valuation sources for their individual valuations, the final estimated fair values of our real properties are determined by the Independent Valuation Advisor and the final estimates of fair values of our real estate-related assets, our other assets and our liabilities are determined by the applicable pricing source (which may, in certain instances, be our Advisor or an affiliate of Ares), subject to the oversight of our board of directors. With respect to the valuation of our real properties, the Independent Valuation Advisor provides our board of directors with
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periodic valuation reports and is available to meet with our board of directors to review valuation information, as well as our valuation guidelines and the operation and results of the valuation and review process generally. Excluding real properties that are bought or sold during a given calendar year, unconsolidated real properties held through joint ventures or partnerships are valued by a third-party appraiser at least once per calendar year. For valuations during interim periods, either our Advisor will determine the estimated fair value of the real properties owned by unconsolidated affiliates or we will utilize interim valuations determined pursuant to valuation policies and procedures for such joint ventures or partnerships. All parties engaged by us in connection with our valuation procedures, including the Independent Valuation Advisor, ALPS Fund Services Inc. (“ALPS”), and our Advisor, are subject to the oversight of our board of directors. Our board of directors has the right to engage additional valuation firms and pricing sources to review the valuation process or valuations, if deemed appropriate. At least once each calendar year our board of directors, including a majority of our independent directors, reviews the appropriateness of our valuation procedures with input from the Independent Valuation Advisor. From time to time our board of directors, including a majority of our independent directors, may adopt changes to the valuation procedures if it: (1) determines that such changes are likely to result in a more accurate reflection of NAV or a more efficient or less costly procedure for the determination of NAV without having a material adverse effect on the accuracy of such determination; or (2) otherwise reasonably believes a change is appropriate for the determination of NAV. We will publicly announce material changes to our valuation procedures. See Exhibit 99.2 of this Annual Report on Form 10-K for a more detailed description of our valuation procedures, including important disclosure regarding real property valuations provided by the Independent Valuation Advisor.
Our valuation procedures, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with GAAP, involve adjustments from historical cost. There are certain factors which cause NAV to be different from total equity or stockholders’ equity on a GAAP basis. Most significantly, the valuation of our real assets, which is the largest component of our NAV calculation, is provided to us by the Independent Valuation Advisor. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. Another example that will cause our NAV to differ from our GAAP total equity or stockholders’ equity is the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV. The fair values of our assets and certain liabilities are determined using widely accepted methodologies and, as appropriate, the GAAP principles within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification under Topic 820, Fair Value Measurements and Disclosures and are used by ALPS in calculating our NAV per share. However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. We did not develop our valuation procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP. The aggregate real property valuation of $8.92 billion compares to a GAAP basis of real properties (net of intangible lease liabilities and before accumulated amortization and depreciation) of $7.06 billion, representing a difference of approximately $1.9 billion, or 26.3%.
As used below, “Fund Interests” means our outstanding shares of common stock, along with OP Units, which may be or were held directly or indirectly by the Advisor, BCI IV Advisors Group LLC (the “Former Sponsor”), members or affiliates of the Former Sponsor, and third parties, and “Aggregate Fund NAV” means the NAV of all the Fund Interests.
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The following table sets forth the components of Aggregate Fund NAV as of December 31, 2022 and September 30, 2022:
The following table sets forth the NAV per Fund Interest as of December 31, 2022:
Under GAAP, we record liabilities for ongoing distribution fees that (i) we currently owe the Dealer Manager under the terms of our dealer manager agreement and (ii) we estimate we may pay to the Dealer Manager in future periods for our Fund Interests. As of December 31, 2022, we estimated approximately $94.6 million of ongoing distribution fees were potentially payable to the Dealer Manager. We do not deduct the liability for estimated future distribution fees in our calculation of NAV since we intend for our NAV to reflect our estimated value on the date that we determine our NAV. Accordingly, our estimated NAV at any given time does not include consideration of any estimated future distribution fees that may become payable after such date.
Financing obligations associated with our DST Program, as reflected in our NAV table above, represent outstanding proceeds raised from our private placements under the DST Program due to the fact that we have an option (which may or may not be exercised) to purchase the interests in the Delaware statutory trusts and thereby acquire the real property owned by the trusts. We may acquire these properties using OP Units, cash, or a combination of both. See “Note 6 to the Consolidated Financial Statements” for additional details regarding our DST Program. We may use proceeds raised from our DST Program for the repayment of debt, acquisition of properties and other investments, distributions to our stockholders, payments under our debt obligations and master lease agreements related to properties in our DST Program, redemption payments, capital expenditures, and other general corporate purposes. We pay our Advisor an annual, fixed component of our advisory fee of 1.25% of the consideration received for selling interests in DST Properties to third-party investors, net of upfront fees and expense reimbursements payable out of gross proceeds from the sale of such interests and DST Interests financed through DST Program Loans.
We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on our stockholders’ ability to redeem shares under our share redemption program and our ability to modify or suspend our share redemption program at any time. Our NAV generally does not reflect the potential impact of exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if our assets and liabilities were liquidated or sold today. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.
Our NAV is not a representation, warranty or guarantee that: (i) we would fully realize our NAV upon a sale of our assets; (ii) shares of our common stock would trade at our per share NAV on a national securities exchange; and (iii) a stockholder would be able to realize the per share NAV if such stockholder attempted to sell his or her shares to a third party.
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The valuations of our real properties as of December 31, 2022, excluding certain newly acquired properties that are currently held at cost, which we believe reflects the fair value of such properties, were provided by the Independent Valuation Advisor in accordance with our valuation procedures. Certain key assumptions that were used by the Independent Valuation Advisor in the discounted cash flow analysis are set forth in the following table:
| Weighted-Average Basis |
| |
Exit capitalization rate |
| 5.0 | % |
Discount rate / internal rate of return |
| 6.1 | % |
Average holding period (years) |
| 10.0 |
A change in the exit capitalization and discount rates used would impact the calculation of the value of our real property. For example, assuming all other factors remain constant, the changes listed below would result in the following effects on the value of our real properties, excluding certain newly acquired properties that are currently held at cost, which we believe reflects the fair value of such properties:
Prior to January 31, 2020, we valued our debt-related investments and real estate-related liabilities generally in accordance with fair value standards under GAAP. Beginning with our valuation for February 29, 2020, our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity (which for fixed rate debt not subject to interest rate hedges may be the date near maturity at which time the debt will be eligible for prepayment at par for purposes herein), including those subject to interest rate hedges, were valued at par (i.e. at their respective outstanding balances). In addition, because we utilize interest rate hedges to stabilize interest payments (i.e. to fix all-in interest rates through interest rate swaps or to limit interest rate exposure through interest rate caps) on individual loans, each loan and associated interest rate hedge is treated as one financial instrument which is valued at par if intended to be held to maturity. This policy of valuing at par applies regardless of whether any given interest rate hedge is considered as an asset or liability for GAAP purposes. Notwithstanding, if we acquire an investment and assume associated in-place debt from the seller that is above or below market, then consistent with how we recognize assumed debt for GAAP purposes when acquiring an asset with pre-existing debt in place, the liabilities used in the determination of our NAV will include the market value of such debt based on market value as of the closing date. The associated premium or discount on such debt as of closing that is reflected in our liabilities will then be amortized through loan maturity. Per our valuation policy, the corresponding investment is valued on an unlevered basis for purposes of determining NAV. Accordingly, all else equal, we would not recognize an immediate gain or loss to our NAV upon acquisition of an investment whereby we assume associated pre-existing debt that is above or below market. As of December 31, 2022, we classified all of our debt as intended to be held to maturity, and our liabilities included mark-to-market adjustments for pre-existing debt that we assumed upon acquisition. We currently estimate the fair value of our debt (inclusive of associated interest rate hedges) that was intended to be held to maturity as of December 31, 2022 was $192.7 million lower than the carrying value used for purposes of calculating our NAV (as described above) for such debt in aggregate; meaning that if we used the fair value of our debt rather than the carrying value used for purposes of calculating our NAV (and treated the associated hedge as part of the same financial instrument), our NAV would have been higher by approximately $192.7 million, or $0.61 per share, not taking into account all of the other items that impact our monthly NAV, as of December 31, 2022.
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Reconciliation of Stockholders’ Equity and Noncontrolling Interests to NAV
The following table reconciles stockholders’ equity and noncontrolling interests per our consolidated balance sheet to our NAV as of December 31, 2022.
(in thousands) | As of December 31, 2022 | ||
Total stockholder's equity |
| $ | 2,553,035 |
Noncontrolling interests | 312 | ||
Total equity under GAAP | 2,553,347 | ||
Adjustments: | |||
Accrued distribution fee (1) | 92,138 | ||
Unrealized net real estate, financing obligations, debt and interest rate hedge appreciation (depreciation) (2) | 1,720,956 | ||
Unrealized gain (loss) on investments in unconsolidated joint venture partnership(s) (3) | 3,147 | ||
Accumulated depreciation and amortization (4) | 421,849 | ||
Other adjustments (5) | 73,957 | ||
Aggregate Fund NAV | $ | 4,865,394 |
(1) | Accrued distribution fee represents the accrual for the full cost of the distribution fee for Class T and Class D shares. Under GAAP, we accrued the full cost of the distribution fee payable over the life of each share (assuming such share remains outstanding the length of time required to pay the maximum distribution fee) as an offering cost at the time we sold the Class T and Class D shares. For purposes of calculating the NAV, we recognize the distribution fee as a reduction of NAV on a monthly basis when such fee is paid and do not deduct the liability for estimated future distribution fees that may become payable after the date as of which our NAV is calculated. |
(2) | Our investments in real estate are presented as historical cost in our consolidated financial statements. Additionally, our mortgage notes, term loans and line of credit are presented at their carrying value in our consolidated financial statements. As such, any increases of decreases in the fair market value of our investments in real estate or our debt instruments are not included in our GAAP results. For purposes of determining our NAV, our investments in real estate and certain of debt are recorded at fair value. Notwithstanding, our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity, including those subject to interest rates hedges, are valued at par (i.e. at their respective outstanding balances). |
(3) | Our investments in unconsolidated joint venture partnerships are presented under historical cost in our consolidated financial statements. As such, any increases or decreases in the fair market value of the underlying investments or underlying debt instruments are not included in our GAAP results. For purposes of determining our NAV, the investments in the underlying real estate and certain of the underlying debt are recorded at fair value, and reflected in our NAV at our proportional ownership interest. |
(4) | We depreciate our investments in real estate and amortize certain other assets and liabilities in accordance with GAAP. Such depreciation and amortization is not recorded for purposes of determining our NAV. |
(5) | Includes (i) straight-line rent receivables, which are recorded in accordance with GAAP but not recorded for purposes of determining our NAV (ii) redeemable noncontrolling interests related to our OP Units, which are included in our determination of NAV but not included in total equity, and (iii) other minor adjustments. |
Performance
Our NAV increased from $12.50 per share as of December 31, 2021 to $15.26 per share as of December 31, 2022. The increase in NAV was primarily driven by the performance of our real estate portfolio as a result of demand in the industrial property sector which drove strong leasing and above-average market rent growth, offset in the third and fourth quarters of 2022 by the expansion of capital markets assumptions.
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As noted above, effective February 29, 2020, our board of directors approved amendments to our valuation procedures which revised the way we value property-level mortgages, corporate-level credit facilities and associated interest rate hedges when loans, including associated interest rate hedges, are intended to be held to maturity, effectively eliminating all mark-to-market adjustments for such loans and hedges from the calculation of our NAV. The following table summarizes the impact of interest rate movements on our returns assuming we continued to include the mark-to-market adjustments for all borrowing-related interest rate hedge and debt instruments beginning with the February 29, 2020 NAV:
(1) | Performance is measured by total return, which includes income and appreciation (i.e., distributions and changes in NAV) and reinvestment of all distributions (“Total Return”) for the respective time period. Past performance is not a guarantee of future results. Performance data quoted above is historical. Current performance may be higher or lower than the performance data quoted. Actual individual stockholder returns will vary. The returns have been prepared using unaudited data and valuations of the underlying investments in our portfolio, which are estimates of fair value and form the basis for our NAV. Valuations based upon unaudited or estimated reports from the underlying investments may be subject to later adjustments or revisions, may not correspond to realized value and may not accurately reflect the price at which assets could be liquidated on any given day. |
(2) | The inception date for Class I shares and Class T shares was November 1, 2017, which is when shares of our common stock were first issued to third-party investors in our initial public offering. The inception date for Class D shares was July 2, 2018, which is when Class D shares of common stock were first issued to third-party investors. |
(3) | The Total Returns presented are based on the actual NAVs at which stockholders transacted, calculated pursuant to our valuation procedures. With respect to the “Class T Share Total Return (with Sales Charge),” the Total Returns are calculated assuming the |
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stockholder also paid the maximum upfront selling commission, dealer manager fee and ongoing distribution fees in effect during the time period indicated. With respect to “Class T Share Total Return (without Sales Charge),” the Total Returns are calculated assuming the stockholder did not pay any upfront selling commission or dealer manager fee, but did pay the maximum ongoing distribution fees in effect during the time period indicated. From NAV inception to January 31, 2020, these NAVs reflected mark-to-market adjustments on our borrowing-related debt instruments and our borrowing-related interest rate hedge positions. |
(4) | The Adjusted Total Returns presented are based on adjusted NAVs calculated as if we had continued to mark our borrowing-related hedge and debt instruments to market following a policy change to largely exclude borrowing-related interest rate hedge and debt marks to market from our NAV calculations (except in certain circumstances pursuant to our valuation procedures), beginning with our NAV calculated as of February 29, 2020. Therefore, the NAVs used in the calculation of Adjusted Total Returns were calculated in the same manner as the NAVs used in the calculation of the unadjusted total return for periods through January 31, 2020. The Adjusted Total Returns include the incremental impact of the adjusted NAVs on advisory fees and performance fees; however, they do not include the incremental impact that the adjusted NAVs would have had on any expense support from our Advisor, or the prices at which shares were purchased in our public offerings or pursuant to our share redemption program. For calculation purposes, transactions in our common stock were assumed to occur at the adjusted NAVs. |
Unregistered Sales of Equity Securities
During the year ended December 31, 2022, we issued equity securities without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act, as described below. In March 2022, we issued 0.2 million restricted Class I shares to employees of the Advisor or its affiliates for services provided to us. In addition, the holder of the special operating partnership units (the “Special Units”) in the Operating Partnership is entitled to an annual performance participation allocation if certain performance hurdles are met. As further described in “Note 11 to the Consolidated Financial Statements,” the 2021 performance participation allocation became payable on December 31, 2021 and in January 2022, we issued 6.5 million Class I OP Units to the holder of the Special Units, AIREIT Incentive Fee LP (the “Special Unit Holder”). At the direction of the Advisor and in light of our Former Sponsor having been the holder of the Special Units for the first six months of 2021, the Special Unit Holder designated 3.2 million of these Class I OP Units to entities affiliated with our Former Sponsor. Subject to certain limitations set forth in the partnership agreement of the Operating Partnership, OP Units may be repurchased by the Operating Partnership for cash unless our board of directors determines that any such repurchase for cash would be prohibited by applicable law or our charter, in which case such OP Units will be repurchased for Class I shares of our common stock with an equivalent aggregate NAV. Certain restrictions on redemption may apply if certain liquidity requirements are not met.
Share Redemption Program
We expect that there will be no regular secondary trading market for shares of our common stock. While our stockholders should view their investment as long-term with limited liquidity, we have adopted a share redemption program applicable to all shares of our common stock, whereby stockholders may receive the benefit of limited liquidity by presenting for redemption to us all or any portion of those shares in accordance with the procedures and subject to certain conditions and limitations. All references herein to classes of shares of our common stock do not include the OP Units issued by our Operating Partnership, unless the context otherwise requires.
While stockholders may request on a monthly basis that we redeem all or any portion of their shares pursuant to our share redemption program, we are not obligated to redeem any shares and may choose to redeem only some, or even none, of the shares that have been requested to be redeemed in any particular month, in our discretion. In addition, our ability to fulfill redemption requests is subject to a number of limitations. As a result, share redemptions may not be available each month. Under our share redemption program, to the extent we determine to redeem shares in any particular month, we will only redeem shares as of the last calendar day of that month (each such date, a “Redemption Date”). Redemptions will be made at the transaction price in effect on the Redemption Date, except that shares that have not been outstanding for at least one year will be redeemed at 95% of the transaction price. The Early Redemption Deduction may be waived in certain circumstances including: (i) in the case of redemption requests arising from the death or qualified disability of the holder; (ii) in the event that a stockholder’s shares are redeemed because the stockholder has failed to maintain the $2,000 minimum account balance; or (iii) with respect to shares purchased through our distribution reinvestment plan or received from us as a stock dividend. In addition, shares of our common stock acquired through the redemption of OP Units will not be subject to the Early Redemption Deduction. To have your shares redeemed, your redemption request and required documentation must be received in good order by 4:00 p.m. (Eastern time) on the second to last business day of the applicable month. Settlements of share redemptions will be made within three business days of the Redemption Date. An investor may withdraw its redemption request by notifying the transfer agent before 4:00 p.m. (Eastern time) on the last business day of the applicable month.
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Under our share redemption program, we may redeem during any calendar month shares whose aggregate value (based on the price at which the shares are redeemed) is 2.0% of our aggregate NAV as of the last calendar day of the previous quarter and during any calendar quarter whose aggregate value (based on the price at which the shares are redeemed) is up to 5.0% of our aggregate NAV as of the last calendar day of the prior calendar quarter.
Provided that the share redemption program has been operating and not suspended for the first month of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for that month will carry over to the second month. Also, provided that the share redemption program has been operating and not suspended for the first two months of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for those two months will carry over to the third month. In no event will such carry-over capacity permit the redemption of shares with aggregate value (based on the redemption price per share for the month the redemption is effected) in excess of 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter (provided that for these purposes redemptions may be measured on a net basis as described in the paragraph below).
We currently measure the foregoing redemption allocations and limitations based on net redemptions during a month or quarter, as applicable. The term “net redemptions” means, during the applicable period, the excess of our share redemptions (capital outflows) over the proceeds from the sale of our shares (capital inflows). For purposes of measuring our redemption capacity pursuant to our share redemption program, proceeds from new subscriptions in a month are included in capital inflows on the first day of the next month because that is the first day on which such shareholders have rights in the Company. Also for purposes of measuring our redemption capacity pursuant to our share redemption program, redemption requests received in a month are included in capital outflows on the last day of such month because that is the last day shareholders have rights in the Company. We record these redemptions in our financial statements as having occurred on the first day of the next month following receipt of the redemption request because shares redeemed in a given month are outstanding through the last day of the month. Thus, for any given calendar quarter, the maximum amount of redemptions during that quarter will be equal to (1) 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter, plus (2) proceeds from sales of new shares in this offering (including purchases pursuant to our distribution reinvestment plan) since the beginning of the current calendar quarter. The same would apply for a given month, except that redemptions in a month would be subject to the 2% limit described above (subject to potential carry-over capacity), and netting would be measured on a monthly basis. With respect to future periods, our board of directors may choose whether the allocations and limitations will be applied to “gross redemptions,” i.e., without netting against capital inflows, rather than to net redemptions. If redemptions for a given month or quarter are measured on a gross basis rather than on a net basis, the redemption limitations could limit the amount of shares redeemed in a given month or quarter despite our receiving a net capital inflow for that month or quarter. In order for our board of directors to change the application of the allocations and limitations from net redemptions to gross redemptions or vice versa, we will provide notice to stockholders in a prospectus supplement or special or periodic report filed by us, as well as in a press release or on our website, at least 10 days before the first business day of the quarter for which the new test will apply. The determination to measure redemptions on a gross basis, or vice versa, will only be made for an entire quarter, and not particular months within a quarter.
If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no redemption requests will be accepted for such month and stockholders who wish to have their shares redeemed the following month must resubmit their redemption requests.
Although the vast majority of our assets consist of properties that cannot generally be readily liquidated on short notice without impacting our ability to realize full value upon their disposition, we intend to maintain a number of sources of liquidity including (i) cash equivalents (e.g. money market funds), other short-term investments, U.S. government securities, agency securities and liquid real estate-related securities and (ii) one or more borrowing facilities. We may fund redemptions from any available source of funds, including operating cash flows, borrowings, proceeds from our public offerings and/or sales of our assets.
Should redemption requests, in our judgment, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on the Company as a whole, or should we otherwise determine that investing our liquid assets in real properties or other illiquid investments rather than redeeming our shares is in the best interests of the company as a whole, then we may choose to redeem fewer shares than have been requested to be redeemed, or none at all. In the event that we determine to redeem some but not all of the shares submitted for redemption during any month for any of the foregoing reasons, shares submitted for redemption during such month will be redeemed on a pro rata basis. All unsatisfied redemption requests must be resubmitted after the start of the next month or quarter, or upon the recommencement of the share redemption program, as applicable. If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no redemption requests
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will be accepted for such month and stockholders who wish to have their shares redeemed the following month must resubmit their redemption requests.
Our board of directors may modify or suspend our share redemption program if in its reasonable judgment it deems such actions to be in our best interest and the best interest of our stockholders. Although our board of directors has the discretion to suspend our share redemption program, our board of directors will not terminate our share redemption program other than in connection with a liquidity event which results in our stockholders receiving cash or securities listed on a national securities exchange or where otherwise required by law. Our board of directors may determine that it is in our best interests and the interest of our stockholders to suspend the share redemption program as a result of regulatory changes, changes in law, if our board of directors becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are redeemed, a lack of available funds, a determination that redemption requests are having an adverse effect on our operations or other factors. Once the share redemption program has been suspended, our board of directors must affirmatively authorize the recommencement of the program before stockholder requests will be considered again. Following any suspension, our share redemption program requires our board of directors to consider at least quarterly whether the continued suspension of the program is in our best interest and the best interest of our stockholders; however, we are not required to authorize the re-commencement of the share redemption program within any specified period of time and any suspension may be for an indefinite period, which would be tantamount to a termination.
The preceding summary does not purport to be a complete summary of our share redemption program and is qualified in its entirety by reference to the share redemption program, which is incorporated by reference as Exhibit 4.1 to this Annual Report on Form 10-K.
Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details regarding our redemption history.
The table below summarizes the redemption activity for the three months ended December 31, 2022, for which all eligible redemption requests were redeemed in full:
(1) | Amount represents the average price paid to investors upon redemption. |
(2) | We limit the number of shares that may be redeemed per calendar quarter under the program as described above. |
(3) | Redemption requests accepted in December 2022 are considered redeemed on January 1, 2023 for accounting purposes and, as a result, are not included in the table above. This differs from how we treat capital outflows for purposes of the limitations of our share redemption program. For purposes of measuring our redemption capacity pursuant to our share redemption program, redemption requests received in a month are included in capital outflows on the last day of such month because that is the last day shareholders have rights in the Company and we redeemed $118.3 million of shares of common stock for the three months ended December 31, 2022. |
Distributions
Each year, we make distributions, other than capital gain dividends and deemed distributions of retained capital gain, to our stockholders in an aggregate amount at least equal to the sum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gain or loss, 90% of our after-tax net income, if any, from foreclosure property, minus the sum of certain items of non-cash income. We will pay federal income tax on taxable income, including net capital gain, which we do not distribute to stockholders. Furthermore, if we fail to distribute with respect to each year, at least the sum of 85% of our REIT ordinary income for such year, 95% of our REIT capital gain income for such year, and any undistributed taxable income from prior periods, we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we actually distribute. Distributions will be
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authorized at the discretion of our board of directors, in accordance with our earnings, cash flow and general financial condition. Our board’s discretion will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements. Because we may receive income from interest or rents at various times during our fiscal year, and because our board may take various factors into consideration in setting distributions, distributions may not reflect our income earned in that particular distribution period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. Our organizational documents permit us to pay distributions from any source, including offering proceeds. We are authorized to borrow money, issue new securities or sell assets in order to make distributions. There are no restrictions on the ability of the Operating Partnership to transfer funds to us.
We intend to accrue and continue to make distributions on a regular basis. Distributions are paid on a monthly basis and are calculated as of monthly record dates. Distributions for stockholders who had elected to participate in our distribution reinvestment plan were reinvested into shares of the same class of our common stock as the shares to which the distributions relate. Some or all of the distributions may be paid from sources other than cash flows from operating activities, such as cash flows from financing activities, which could include borrowings and net proceeds from primary shares sold in our public offering, proceeds from the issuance of shares pursuant to our distribution reinvestment plan, cash resulting from the Advisor or its affiliates paying certain of our expenses, proceeds from the sales of assets, and our cash balances. We have not established a cap on the amount of its distributions that may be paid from any of these sources.
There can be no assurances that the current distribution rate will be maintained. In the near-term, we expect that we may need to continue to rely on sources other than cash flows from operations, as determined on a GAAP basis, to pay our distributions, which if insufficient could negatively impact our ability to pay such distributions. In certain years and certain individual quarters, total distributions were not fully funded by cash flows from operations. In such cases, the shortfalls were funded from proceeds from our distribution reinvestment plan or borrowings. For the year ended December 31, 2022, approximately 52.6% of our total gross distributions were paid from cash flows from operating activities, as determined on a GAAP basis, and 47.4% of our total gross distributions were funded from sources other than cash flows from operating activities; specifically, with proceeds from the issuance of shares under our distribution reinvestment plan. See “Note 11 to the Consolidated Financial Statements” for further details regarding the Expense Support Agreement among us, the Operating Partnership and the Advisor.
Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for detail regarding our distribution history, as well as the sources used to pay our distributions.
Holders
As of March 14, 2023, we had 216.2 million shares of our Class T common stock, 20.8 million shares of our Class D common stock and 75.5 million shares of our Class I common stock outstanding, held by a total of 33,365 stockholders, 3,895 stockholders and 10,079 stockholders, respectively, including shares held by our affiliates.
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with our consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” above for a description of these risks and uncertainties.
OVERVIEW
General
Ares Industrial Real Estate Income Trust Inc. is a Maryland corporation formed on August 12, 2014 to make investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to
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creditworthy corporate customers. We currently operate as a REIT for U.S. federal income tax purposes, and elected to be treated as a REIT beginning with our taxable year ended December 31, 2017. We utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through the Operating Partnership.
We intend to conduct a continuous offering that will not have a predetermined duration, subject to continued compliance with the rules and regulations of the SEC and applicable state laws. In order to execute this strategy in compliance with federal securities laws, we intend to file new registration statements to replace existing registration statements, such that there will not be any lag from one offering to the next. On August 4, 2021, the SEC declared our registration statement on Form S-11 with respect to our third public offering of up to $5.0 billion of shares of our common stock effective, and the third public offering commenced the same day. Under the third public offering, we are offering up to $3.75 billion of shares of our common stock in the primary offering and up to $1.25 billion of shares of our common stock pursuant to our distribution reinvestment plan, in any combination of Class T shares, Class D shares and Class I shares. We may reallocate amounts between the primary offering and distribution reinvestment plan.
Pursuant to our public offering, we offered and continue to offer shares of our common stock at the “transaction price,” plus applicable selling commissions and dealer manager fees. The “transaction price” generally is equal to the NAV per share of our common stock most recently disclosed. Our NAV per share is calculated as of the last calendar day of each month for each of our outstanding classes of common stock, and is available generally within 15 calendar days after the end of the applicable month. Shares issued pursuant to our distribution reinvestment plan are offered at the transaction price, as indicated above, in effect on the distribution date. We may update a previously disclosed transaction price in cases where we believe there has been a material change (positive or negative) to our NAV per share relative to the most recently disclosed monthly NAV per share. See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Net Asset Value” for further detail.
Additionally, we have a program to raise capital through private placement offerings by selling DST Interests. These private placement offerings are exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act. We anticipate that these interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Code. We expect that the DST Program will give us the opportunity to expand and diversify our capital raise strategies by offering what we believe to be an attractive and unique investment product for investors that may be seeking replacement properties to complete like-kind exchange transactions under Section 1031 of the Code. We also offer DST Program Loans to finance no more than 50% of the purchase price of the DST Interests to certain purchasers of the interests in the Delaware statutory trusts. During 2022, we sold $768.6 million of gross interests related to the DST Program, $83.6 million of which were financed by DST Program Loans, net of repayments. See “Note 6 to the Consolidated Financial Statements” for additional detail regarding the DST Program.
During the year ended December 31, 2022, we raised gross proceeds of approximately $1.0 billion from the sale of 71.3 million shares of our common stock, including shares issued pursuant to distribution reinvestment plan. See “Note 8 to the Consolidated Financial Statements” for information concerning our public offering.
As of December 31, 2022, we directly owned and managed a real estate portfolio that included 243 industrial buildings totaling approximately 50.2 million square feet located in 29 markets throughout the U.S., with 418 customers, and was 98.1% occupied (98.9% leased) with a weighted-average remaining lease term (based on square feet) of approximately 4.2 years. The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced. During the year ended December 31, 2022, we transacted over 5.7 million square feet of new and renewal leases, and rent growth on comparable leases averaged 47.2% (calculated using cash basis rental rates). We experienced significantly higher acquisition volume in the first and second quarters of 2022 as compared to the third and fourth quarters of 2022 as the industrial property market adjusted to the impact of recent interest rate increases on acquisition pricing. Industrial market fundamentals remain favorable and we continue to evaluate acquisition opportunities within the industrial market to effectively execute our business strategy. Refer to “Note 3 to the Consolidated Financial Statements” for detail regarding our 2022 acquisition activity. As of December 31, 2022, our real estate portfolio included:
● | 240 industrial buildings totaling approximately 49.7 million square feet comprised our operating portfolio, which includes stabilized properties, and was 99.0% occupied (99.1% leased) with a weighted-average remaining lease term (based on square feet) of approximately 4.2 years; and |
● | Three industrial buildings totaling approximately 0.5 million square feet comprised our value-add portfolio, which includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached |
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stabilization. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s shell completion or a building achieving 90% occupancy. |
Additionally, as of December 31, 2022, we owned and managed 11 buildings either under construction or in the pre-construction phase totaling approximately 3.1 million square feet. Unless otherwise noted, these buildings are excluded from the presentation of our portfolio data herein.
Concurrently with the BTC II Partnership Transaction (as described Note 4 to the Consolidated Financial Statements”) on February 15, 2022, we and our joint venture partners formed the BTC II B Partnership, through which we co-own five properties that were part of the original the BTC II Partnership portfolio and were not part of the BTC II Partnership Transaction. As of December 31, 2022, we owned and managed five buildings that were either under construction or in the pre-construction phase totaling approximately 1.8 million square feet, through our 8.0% minority ownership interest in the BTC II B Partnership. Unless otherwise noted, these buildings are excluded from the presentation of our portfolio data herein.
We have used, and intend to continue to use, the net proceeds from our offerings primarily to make investments in real estate assets. We may use the net proceeds from our offerings to make other real estate-related investments and debt investments and to pay distributions. The number and type of properties we may acquire and debt and other investments we may make will depend upon real estate market conditions, the amount of proceeds we raise in our offerings, and other circumstances existing at the time we make our investments.
Our primary investment objectives include the following:
● | preserving and protecting our stockholders’ capital contributions; |
● | providing current income to our stockholders in the form of regular distributions; and |
● | realizing capital appreciation in our NAV from active investment management and asset management. |
There is no assurance that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our stockholders.
We may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price in cash or equity securities, or a combination thereof, and we may selectively encumber all or only certain assets with debt. The proceeds from our borrowings may be used to fund investments, make capital expenditures, pay distributions, and for general corporate purposes.
We expect to manage our corporate financing strategy under the current mortgage lending and corporate financing environment by considering various lending sources, which may include long-term fixed-rate mortgage loans, floating-rate mortgage notes, unsecured or secured lines of credit or term loans, private placement or public bond issuances, and the assumption of existing loans in connection with certain property acquisitions, or any combination of the foregoing.
Real Estate Outlook
Our results of operations are affected by a variety of factors, including conditions in both the U.S. and global financial markets and the economic and political environments.
The commercial real estate markets continued to be impacted by the challenging macroeconomic environment, including high inflation, geopolitical uncertainty and particularly the effect of rapidly rising interest rates. Given the rise in interest rates by central banks globally, property valuations adjusted downwards, with capitalization rate compressions waning and, in certain cases, yields widening. Periods of excessive or prolonged inflation and rising interest rates may negatively impact our customers’ businesses, resulting in increased vacancy, concessions or bad debt expense, which may adversely and materially affect our net operating income and NAV.
We believe some of these market trends may be offset by the continued strong fundamentals in the industrial sector. For example, the U.S. industrial real estate sector continues to benefit from positive net absorption (the net change in total occupied industrial space), low vacancy rates, and continued rent growth in our primary target markets. Consistent with recent experience and based on current market conditions, we expect average net effective rental rates on new leases signed during 2023 to be higher than the rates on expiring leases.
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Technological advancements, shifting consumer preferences, and the resultant supply chain innovations have supported continued growth of e-commerce, which has only accelerated as a result of COVID-19. E-commerce as a share of total retail sales is forecasted to grow by 28% and 47% over the next five and ten years, respectively. As online sales grow and more retailers continue to adapt to changing consumer preferences and technologies, the need for highly functional warehouse space near major cities is expected to increase. Disruptions in global supply chains may also lead to increased demand for warehouse space as users may restock goods at higher inventory levels and look to real estate to improve the efficiency of logistics operations.
We believe our portfolio is well-positioned for this market environment. Industrial market fundamentals remain favorable, supported by strong rent growth, low vacancy rates and demand generally outpacing supply. However, there is no guarantee that our outlook will remain positive for the long-term, especially if leasing fundamentals weaken in the future.
RESULTS OF OPERATIONS
Summary of 2022 Activities
During the year ended December 31, 2022, we completed the following activities:
● | Our NAV increased to $15.26 per share as of December 31, 2022 as compared to $12.50 per share as of December 31, 2021. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Performance” for additional information regarding this increase. |
● | We raised $1.0 billion of gross equity capital from our public offering. Additionally, we raised $768.6 million of gross capital through private placement offerings by selling DST Interests, $83.6 million of which were financed by DST Program Loans, net of repayments. We redeemed 14.1 million shares for an aggregate dollar amount of $213.4 million. |
● | On February 15, 2022, we closed the BTC II Partnership Transaction, resulting in the direct ownership of 11 properties, totaling approximately 1.7 million square feet, that were previously part of the BTC II Partnership, for a total cost of approximately $359.2 million, which includes the cost of our previously held interest in the BTC II Partnership. Concurrently with the BTC II Partnership Transaction, we and our joint venture partners formed the BTC II B Partnership, through which we co-own five properties that were part of the original BTC II Partnership’s portfolio and were not part of the BTC II Partnership Transaction, with an 8.0% minority ownership interest. |
● | We closed on a recast of our unsecured credit facility for total commitments of $1.55 billion consisting of a $1.0 billion revolving credit facility and a $550.0 million term loan. The revolving credit facility’s effective interest rate is calculated based on Term Secured Overnight Financing Rate (“Term SOFR”) plus a 10 basis point adjustment plus a margin ranging from 1.25% to 2.00%, depending on our consolidated leverage ratio. The $550.0 million term loan’s effective interest rate is calculated based on an Adjusted Term Secured Overnight Financing Rate (“Adjusted Term SOFR”) plus a margin ranging from 1.20% to 1.90%, depending on our consolidated leverage ratio. |
● | We modified our $600.0 million term loan to use an effective interest rate that is calculated based on Term SOFR plus a 11.448 basis point adjustment plus a margin ranging from 1.35% to 2.20%, depending on our consolidated leverage ratio. |
● | We entered into two interest rate swaps on our $550.0 million term loan with an aggregate notional amount of $200.0 million and modified our previously existing interest rate swaps to be based on Term SOFR. In combination, these interest rate swaps effectively fix SOFR at a weighted-average of 1.57% and results in an all-in interest rate ranging from 1.76% to 3.87% for the respective swapped portions of the borrowings as of December 31, 2022. |
● | We entered into four interest rate swaps on our $600.0 million term loan with an aggregate notional amount of $300.0 million and modified our previously existing interest rate swaps to be based on Term SOFR. In combination, these interest rate swaps effectively fix SOFR at a weighted-average of 1.87% and results in an all-in interest rate ranging from 1.99% to 4.37% for the respective swapped portions of the borrowings as of December 31, 2022. |
● | We entered into a secured floating-rate mortgage note in the amount of $367.8 million with a three-year term, which may be extended pursuant to two one-year extension options. The mortgage note’s effective interest rate is calculated based on Adjusted Term SOFR plus a margin of 1.85%, depending on our consolidated leverage ratio. We also entered into an associated interest rate swap with a notional amount of $367.8 million, which effectively fixes SOFR at 2.76% and results in an all-in interest rate of |
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4.71% as of December 31, 2022. |
● | We leased approximately 5.7 million square feet, which included 2.1 million square feet of new and future leases and 3.6 million square feet of renewals through 77 separate transactions with an average annual base rent of $7.53 per square foot, representing a 49.2% increase in rental rates over the last 12 months on comparable leases (calculated on a GAAP basis). |
● | As of December 31, 2022, we owned nine buildings under construction totaling approximately 3.0 million square feet, and two buildings in the pre-construction phase for an additional 0.2 million square feet. |
Portfolio Information
As of December 31, 2022 and 2021, our owned and managed portfolio was as follows:
As of December 31, | ||||||
(square feet in thousands) |
| 2022 |
| 2021 | ||
Portfolio data: |
|
|
| |||
Total buildings | 243 |
| 193 |
| ||
Total rentable square feet | 50,229 |
| 37,583 |
| ||
Total number of customers | 418 |
| 348 |
| ||
Percent occupied of operating portfolio (1) | 99.0 | % | 98.3 | % | ||
Percent occupied of total portfolio (1) | 98.1 | % | 96.6 | % | ||
Percent leased of operating portfolio (1) | 99.1 | % | 98.3 | % | ||
Percent leased of total portfolio (1) | 98.9 | % | 97.6 | % |
(1) | See “Overview—General” above for a description of our operating portfolio and our total portfolio (which includes our operating and value-add portfolios) and for a description of the occupied and leased rates. |
Results for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
The following table sets forth information regarding our consolidated results of operations for the year ended December 31, 2022, as compared to the year ended December 31, 2021:
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Rental Revenues. Rental revenues are comprised of rental income, straight-line rent and amortization of above- and below-market lease assets and liabilities. Total rental revenues increased by approximately $214.5 million for the year ended December 31, 2022, as compared to the same period in 2021, primarily due to an increase in non-same store revenues, which was attributable to the significant growth in our portfolio over this period. For the year ended December 31, 2022, non-same store rental revenues reflect the addition of 177 industrial buildings we have acquired since January 1, 2021, as well as five value-add properties that were acquired during 2020 and stabilized during 2021. See “Same Store Portfolio Results of Operations” below for further details of the same store revenues.
Rental Expenses. Rental expenses include certain property operating expenses typically reimbursed by our customers, such as real estate taxes, property insurance, property management fees, repair and maintenance, and utilities. Total rental expenses increased by approximately $51.6 million for the year ended December 31, 2022, as compared to the same period in 2021, primarily due to an increase in non-same store expenses, which was attributable to the significant acquisition activity in our portfolio since January 1, 2021, as noted above. See “Same Store Portfolio Results of Operations” below for further details of the same store expenses.
All Remaining Income and Expenses. In aggregate, the remaining income and expenses increased by approximately $400.5 million for the year ended December 31, 2022, as compared to the same period in 2021, primarily due to the following:
● | an increase in real estate-related depreciation and amortization expense totaling an aggregate amount of $153.8 million for the year ended December 31, 2022, as a result of the growth in our portfolio since the same period in 2021; |
● | an increase in interest expense of $120.4 million for the year ended December 31, 2022, as compared to the same period in 2021, primarily related to (i) a $55.6 million increase in mortgage note and term loan interest (including the effects of interest rate swap agreements) related to increased borrowings during 2022, the timing of certain borrowings in 2021, and increased interest rates related to certain variable rate debt; (ii) a $35.7 million increase of master lease payments recorded as interest expense associated with our DST Program that was initiated in the second quarter of 2021; and (iii) $26.6 million increase of the accretion of the increased value of our financing obligations as a result of increases in the underlying fair value of the properties included in the DST Program; |
● | an increase in the performance participation allocation of $59.3 million and the fixed component of the advisory fee of $39.0 million for the year ended December 31, 2022, as a result of (i) the significant increase of total return driven by a substantial increase in the value of our properties as a result of the demand in the industrial property sector, as compared to the same period in 2021, and (ii) continued growth in our NAV, which was primarily driven by gross proceeds of $1.0 billion raised from our public offering and $768.6 million of DST Interests sold for the year ended December 31, 2022; and |
● | a decrease in equity in income from unconsolidated joint venture partnership(s) of $54.4 million for the year ended December 31, 2022 as compared to the same period of the previous year, primarily related to (i) $47.7 million of incentive fee income associated with the 2021 incentive fee distribution from the BTC II Partnership after certain return thresholds were met during the fourth quarter of 2021, and (ii) the timing of the BTC I Partnership Transaction and the BTC II Partnership Transaction (as described in Note 4 to the Consolidated Financial Statements”) in the second quarter of 2021 and the first quarter of 2022, respectively, resulting in partial years of operating results received from the BTC Partnerships. |
Partially offset by:
● | an increase in the gain on derivative instruments of $28.8 million for the year ended December 31, 2022, as compared to the same period of the previous year, due to the 2022 gain related to our interest rate caps as a result of increasing interest rates. |
Same Store Portfolio Results of Operations
Net operating income (“NOI”) is a supplemental non-GAAP measure of our property operating results. We define NOI as operating revenues less operating expenses. While we believe our net income (loss), as defined by GAAP, to be the most appropriate measure to evaluate our overall performance, we consider NOI to be an appropriate supplemental performance measure. We believe NOI provides useful information to our investors regarding our results of operations because NOI reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of properties, such as real estate-related depreciation and amortization, acquisition-related expenses, advisory fees, impairment charges, general and administrative expenses, interest expense, other income and expense and noncontrolling interests. However, NOI should not be viewed as an alternative
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measure of our financial performance since it excludes such items, which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies as they may use different methodologies for calculating NOI, therefore our investors should consider net income (loss) as the primary indicator of our overall financial performance.
We evaluate the performance of consolidated operating properties we own and manage using a same store analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of any material changes in the composition of the aggregate portfolio on performance measures. We have defined the same store portfolio to include consolidated operating properties owned for the entirety of both the current and prior reporting periods for which the operations had been stabilized. Unconsolidated properties are excluded from the same store portfolio because we account for our interest in our joint venture partnership using the equity method of accounting; therefore, our proportionate share of income and loss is recognized in income (loss) of our unconsolidated joint venture partnership on the consolidated statements of operations. “Other properties” includes buildings not meeting the same store criteria. Our same store analysis may not be comparable to that of other real estate companies and should not be considered to be more relevant or accurate in evaluating our operating performance than current GAAP methodology.
The same store operating portfolio for the year ended December 31, 2022 as compared to the year ended December 31, 2021 presented below included 60 buildings totaling approximately 12.1 million square feet owned as of January 1, 2021, which represented 24.1% of total rentable square feet, 26.0% of total revenues, and 26.1% of net operating income for the year ended December 31, 2022.
The following table reconciles GAAP net income (loss) to same store portfolio NOI for the years ended December 31, 2022 and 2021:
The following table includes a breakout of our results for our same store portfolio for rental revenues, rental expenses and NOI for the year ended December 31, 2022 as compared to the year ended December 31, 2021:
NM = Not meaningful
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Rental Revenues. Non-same store revenues increased by $208.7 million for the year ended December 31, 2022 as compared to the same period in 2021 as a result of the addition of 177 industrial buildings we have acquired since January 1, 2021, as well as five value-add properties that were acquired during 2020 and stabilized during 2021. Same store rental revenues increased by $5.8 million, or 6.1%, for the year ended December 31, 2022 as compared to the previous year, primarily due to increases in rental rates and an increase in recoverable expenses that resulted in increases to recovery revenue.
Rental Expenses. Non-same store rental expenses increased by $50.7 million for the year ended December 31, 2022 as compared to the same period in 2021, primarily due to the significant growth in our portfolio. Same store rental expenses increased by $0.9 million, or 3.7%, for the year ended December 31, 2022 as compared to the same period in 2021, primarily due to the successful resolution of a prior year tax appeal related to one of our properties and an increase in property management fees tied to the increases in rental rates, both resulting in an increase in recoverable expenses, partially offset by a decrease in certain property-related expenses.
Operating Expense Limitation
Generally, we are prohibited by our charter from incurring total operating expenses which, at the end of the four preceding fiscal quarters exceeds the greater of: (i) 2.0% of our average invested assets, or (ii) 25.0% of our net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of our assets for that period (the “2%/25% Limitation”). For these purposes, total operating expenses exclude rental expenses, real estate-related depreciation and amortization expense, interest expense, acquisition expenses, taxes and impairments. Our charter requires that we calculate the figures used in determining whether operating expenses have exceeded the 2%/25% Limitation in accordance with GAAP applied on a consistent basis. Notwithstanding the above, we may incur total operating expenses in excess of this limitation if a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. Our total operating expenses exceeded the 2%/25% Limitation as of the four fiscal quarters ended December 31, 2022. All of our independent directors determined that the excess expenses were justified based upon a review of unusual and non-recurring factors, including but not limited to: the strong performance of our portfolio driven by the continued demand in the industrial property sector and the resulting significant growth in our NAV and total return generated for the period which drove a significant increase in the performance participation allocation. Other factors considered include our continued, strong capital raise and the timing of our deployment during the period, including the BTC II Partnership Transaction in the first quarter of 2022 and the acquisition of 38 industrial properties in the second quarter of 2022. The calculation of the performance participation allocation is based in part on our calculation of NAV, which takes into account any increases or decreases in the fair market value of our investments in real estate, meaning that generally, as NAV increases and the corresponding total return generated for stockholders increases, the performance participation allocation increases. However, as noted above, unlike our NAV and the performance participation allocation, the 2%/25% Limitation is calculated in accordance with GAAP and the calculation of net income for purposes of the limitation does not take into account the significant fair market value gains generated by our investments in real estate for the period, resulting in an incongruous comparison between total operating expenses and the 2%/25% Limitation.
Results for the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022, which is incorporated herein by reference, for a comparison of our results of operations for the year ended December 31, 2021 and December 31, 2020.
ADDITIONAL MEASURES OF PERFORMANCE
Funds From Operations (“FFO”) and Adjusted Funds From Operations (“AFFO”)
We believe that FFO and AFFO, in addition to net income (loss) and cash flows from operating activities as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our consolidated operating performance. However, these supplemental, non-GAAP measures should not be considered as alternatives to net income (loss) or to cash flows from operating activities as indications of our performance and are not intended to be used as liquidity measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity, and results of operations. In addition, other REITs may define FFO, AFFO, and similar measures differently and choose to treat certain accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons.
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FFO. As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO is a non-GAAP measure that excludes certain items such as real estate-related depreciation and amortization. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. We use FFO as an indication of our consolidated operating performance and as a guide to making decisions about future investments.
AFFO. AFFO further adjusts FFO to reflect the performance of our portfolio by adjusting for items we believe are not directly attributable to our operations. Our adjustments to FFO to arrive at AFFO include removing the impact of (i) performance-based incentive fee (income) expense, (ii) unrealized (gain) loss from changes in fair value of financial instruments, and (iii) financing obligation liability appreciation (depreciation).
Although some REITs may present certain performance measures differently, we believe FFO and AFFO generally facilitate a comparison to other REITs that have similar operating characteristics to us. We believe investors are best served if the information that is made available to them allows them to align their analyses and evaluation with the same performance metrics used by management in planning and executing our business strategy. Neither the SEC, NAREIT, nor any regulatory body has passed judgment on the acceptability of the adjustments used to calculate FFO or AFFO. In the future, the SEC, NAREIT, or a regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry at which point we may adjust our calculations and characterizations of FFO and AFFO.
The following unaudited table presents a reconciliation of GAAP net income (loss) to NAREIT FFO and AFFO:
(1) Unrealized (gain) loss on changes in fair value of financial instruments relates to mark-to-market changes on our derivatives not designated as cash flow hedges.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our primary sources of capital for meeting our cash requirements are net proceeds from our public and private offerings, including proceeds from the sale of shares offered through our distribution reinvestment plan, debt financings, and cash generated from operating activities. Our principal uses of funds are, and will be, for the acquisition of properties and other investments, capital expenditures, operating expenses, payments under our debt obligations, distributions to our stockholders, redemption payments and payments pursuant to the master lease agreements related to properties in our DST Program. Over time, we intend to fund a majority of our cash needs for items other than asset acquisitions, including the repayment of debt and capital expenditures, from operating cash flows and refinancings. Our primary material cash requirements for the next 12 months relate to our indebtedness and future minimum lease payments associated with
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our DST Program. As of December 31, 2022, we had outstanding line of credit, term loan and mortgage note borrowings with varying maturities for an aggregate principal amount of $2.9 billion, with no principal amounts payable within the next 12 months. As of December 31, 2022, we had $57.8 million of future minimum lease payments related to the properties in our DST Program due in the next 12 months. We expect to be able to pay our interest expense and rent obligations over the next 12 months and beyond through operating cash flows and/or borrowings. Additionally, given the increase in market volatility, increased interest rates, high inflation and the potential recessionary environment, we may experience a decreased pace of net proceeds raised from our public offering, reducing our ability to purchase assets, which may similarly delay the returns generated from our investments and affect NAV. There may be a delay between the deployment of proceeds raised from our public and private offerings and our purchase of assets, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investments.
During 2022, we raised $1.0 billion of gross equity capital from our public offering and redemptions of common stock amounted to $213.4 million. As of December 31, 2022, we had cash and cash equivalents of $79.5 million and leverage of 30.8%, calculated as our total borrowings outstanding less cash and cash equivalents, divided by the fair value of our real property plus our investment in our unconsolidated joint venture partnership and investments in real estate-related securities, as determined in accordance with our valuation procedures. See “—Capital Resources and Uses of Liquidity—Offering Proceeds” for further information concerning capital raised in 2022. As of December 31, 2022, we owned and managed a real estate portfolio that included 243 industrial buildings totaling approximately 50.2 million square feet, with a diverse roster of 418 customers, large and small, spanning a multitude of industries and sectors across 29 markets, with a strategic weighting towards top tier markets where we have historically seen the lowest volatility combined with positive returns over time. Our portfolio was 98.1% occupied (98.9% leased) with a weighted-average remaining lease term (based on square feet) of 4.2 years.
The Advisor, subject to the oversight of our board of directors and, under certain circumstances, the investment committee or other committees established by our board of directors, will continue to evaluate potential acquisitions and will engage in negotiations with sellers and lenders on our behalf. Pending investment in property, debt and other investments, we may decide to temporarily invest any unused proceeds from our public offerings in certain investments that are expected to yield lower returns than those earned on real estate assets. During these times of economic uncertainty, we have seen and could once again see a slowdown in transaction volume, which would adversely impact our ability to acquire real estate assets, which would cause us to retain more lower yielding investments and hold them for longer periods of time while we seek to acquire additional real estate assets. These lower returns may affect our NAV and our ability to make distributions to our stockholders. Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of assets, and undistributed funds from operations.
We believe that our cash on-hand, anticipated net offering proceeds, and anticipated financing activities will be sufficient to meet our liquidity needs for the foreseeable future over the next 12 months and beyond.
Cash Flows. The following table summarizes our cash flows, as determined on a GAAP basis, for the following periods:
2022 Cash Flows Compared to 2021 Cash Flows
Cash provided by operating activities during the year ended December 31, 2022 increased by approximately $39.0 million as compared to the same period in 2021, primarily due to significant growth in our property operations, partially offset by the increase in advisory fees and interest expense for the year ended December 31, 2022 as compared to the same period in 2021.
Cash used in investing activities during the year ended December 31, 2022 decreased by approximately $1.16 billion as compared to the same period in 2021, primarily due to (i) a net decrease in acquisition activity of $1.40 billion, which is related to higher acquisition activity in the previous year with the acquisition of 128 industrial properties during the year ended December 31, 2021, including the
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BTC I Partnership Transaction, as compared to the 49 industrial properties acquired and one development building completed during the year ended December 31, 2022, including the BTC II Partnership Transaction; partially offset by (i) a net increase in capital expenditure activity of $168.8 million related to increased development activity during the year ended December 31, 2022; (ii) the purchase of available-for-sale debt securities for $59.7 million during the year ended December 31, 2022; and (iii) a decrease in distributions received from our unconsolidated joint venture partnership of $5.2 million.
Cash provided by financing activities during the year ended December 31, 2022 decreased by approximately $1.32 billion as compared to the same period in 2021, primarily driven by (i) a decrease in net borrowing activity of $1.18 billion under our term loans and secured mortgage notes, (ii) a $227.3 million decrease in capital raised through our public offerings, net of offering costs paid; (iii) a $188.3 million increase in redemptions of our common stock; (iv) the redemption of $40.9 million Class I OP Units and (v) a $31.7 million increase in distributions paid to our common stockholders, redeemable noncontrolling interest holders and the preferred shareholders of our subsidiary REITs. These decreases were partially offset by (i) an increase in net proceeds from financing obligations associated with the DST Program of $256.9 million and (ii) an increase in net borrowing activity of $90.0 million under our line of credit during the year ended December 31, 2022 as compared to the same period in 2021.
2021 Cash Flows Compared to 2020 Cash Flows
See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022, which is incorporated herein by reference, for a comparison of our cash flows for the years ended December 31, 2021 and December 31, 2020.
Capital Resources and Uses of Liquidity
In addition to our cash and cash equivalents balance available, our capital resources and uses of liquidity are as follows:
Line of Credit and Term Loans. As of December 31, 2022, we had an aggregate of $2.2 billion of commitments under our credit agreements, including $1.0 billion under our line of credit and $1.2 billion under our two term loans. As of that date, we had $90.0 million outstanding under our line of credit and $1.2 billion outstanding under our term loans with an effective interest rate of 3.45%, which includes the effect of the interest rate swap agreements. The unused and available portions under our line of credit were both $910.0 billion as of December 31, 2022. Our $1.0 billion line of credit matures in March 2025 and may be extended pursuant to two one-year extension options, subject to continuing compliance with certain financial covenants and other customary conditions. Our $600.0 million term loan matures in May 2026 and our $550.0 million term loan matures in March 2027. Our line of credit and term loan borrowings are available for general corporate purposes including, but not limited to, the acquisition and operation of permitted investments by us. Refer to “Note 5 to the Consolidated Financial Statements” for additional information regarding our line of credit and term loans.
Mortgage Notes. As of December 31, 2022, we had property-level borrowings of approximately $1.6 billion of principal outstanding with a weighted-average remaining term of 3.6 years. These borrowings are secured by mortgages or deeds of trust and related assignments and security interests in the collateralized properties, and had a weighted-average interest rate of 3.62%. Refer to “Note 5 to the Consolidated Financial Statements” for additional information regarding the mortgage notes.
As of December 31, 2022, we have no indebtedness with initial or extended maturity dates beyond 2023 that has exposure to LIBOR. Refer to “Note 5 to the Consolidated Financial Statements” for additional information regarding interest rates.
Debt Covenants. Our line of credit, term loan and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, the agreements governing our line of credit and term loans contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. These covenants may limit our ability to incur additional debt, to make borrowings under our line of credit, or to pay distributions. We were in compliance with all of our debt covenants as of December 31, 2022.
Leverage. We use financial leverage to provide additional funds to support our investment activities. We may finance a portion of the purchase price of any real estate asset that we acquired with borrowings on short or long-term basis from banks, institutional investors and other lenders. We calculate our leverage for reporting purposes as the outstanding principal balance of our borrowings less cash and cash equivalents, divided by the fair value of our real property plus our investment in our unconsolidated joint venture partnership and investments in real estate-related securities, as determined in accordance with our valuation procedures. We had leverage of 30.8% as of
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December 31, 2022. Our management believes our strong equity raise and the timing of our deployment of capital accounts for our lower leverage as of December 31, 2022 and expects that as we deploy capital going forward, our leverage will near approximately 50%. Due to the increase in interest rates in 2022, increased market volatility, and the potential of a global recession in the near-term, the cost of financing or refinancing our purchase of assets may affect returns generated by our investments. Additionally, these factors may cause our borrowing capacity to be reduced, which could similarly delay or reduce benefits to our stockholders.
Future Minimum Lease Payments Related to the DST Program. As of December 31, 2022, we had $1.1 billion of future minimum lease payments related to the DST Program. The underlying interests of each property that is sold to investors pursuant to the DST Program are leased back by an indirect wholly-owned subsidiary of the Operating Partnership on a long-term basis of up to 29 years.
Offering Proceeds. For the year ended December 31, 2022, aggregate gross proceeds raised from our public offering, including proceeds raised through our distribution reinvestment plan, were $1.04 billion ($1.01 billion net of direct selling costs).
Distributions. We intend to continue to accrue and make distributions on a regular basis. For the year ended December 31, 2022, approximately 52.6% of our total gross distributions were paid from cash flows from operating activities, as determined on a GAAP basis, and 47.4% of our total gross distributions were funded from sources other than cash flows from operating activities, as determined on a GAAP basis; specifically, with proceeds from shares issued pursuant to our distribution reinvestment plan. Some or all of our future distributions may be paid from sources other than cash flows from operating activities, such as cash flows from financing activities, which include borrowings (including borrowings secured by our assets), proceeds from the issuance of shares pursuant to our distribution reinvestment plan, proceeds from sales of assets, interest income from our cash balances, and the net proceeds from primary shares sold in our public offerings. We have not established a cap on the amount of our distributions that may be paid from any of these sources. The amount of any distributions will be determined by our board of directors, and will depend on, among other things, current and projected cash requirements, tax considerations and other factors deemed relevant by our board.
For the first quarter of 2023, our board of directors authorized monthly distributions to all common stockholders of record as of the close of business on the last business day of each month for the first quarter of 2023, or January 31, 2023, February 28, 2023 and March 31, 2023 (each a “Distribution Record Date”). The distributions were authorized at a quarterly rate of (i) $0.13625 per Class I share of common stock and (ii) $0.13625 per Class T share and per Class D share of common stock, less the respective annual distribution fees that are payable monthly with respect to such Class T shares and Class D shares. This quarterly rate is equal to a monthly rate of (i) $0.04542 per Class I share of common stock and (ii) $0.04542 per Class T share and per Class D share of common stock, less the respective annual distribution fees that are payable with respect to such Class T shares and Class D shares. Distributions for each month of the first quarter of 2023 have been or will be paid in cash or reinvested in shares of our common stock for those electing to participate in our distribution reinvestment plan following the close of business on the respective Distribution Record Date applicable to such monthly distributions.
There can be no assurances that the current distribution rate or amount per share will be maintained. In the near-term, we expect that we may need to continue to rely on sources other than cash flows from operations, as determined on a GAAP basis, to pay distributions, which if insufficient could negatively impact our ability to pay such distributions. In certain years and certain individual quarters, total distributions were not fully funded by cash flows from operations. In such cases, the shortfalls were funded from proceeds from our distribution reinvestment plan or borrowings.
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The following table outlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of our common stock through our distribution reinvestment plan (“DRIP”)) for the years ended as of the dates indicated below:
(1) | Includes distribution fees relating to Class T shares and Class D shares issued in the primary portion of our public offerings. See “Note 11 to the Consolidated Financial Statements” in Item 8, “Financial Statements and Supplementary Data” for further detail regarding the ongoing distribution fees. |
(2) | Includes distributions paid to holders of OP Units for redeemable noncontrolling interests. |
(3) | Stockholders may elect to have their distributions reinvested in shares of our common stock through our distribution reinvestment plan. |
For the years ended December 31, 2022 and 2021, our NAREIT FFO was $(46.6) million and $36.8 million, respectively, compared to total gross distributions of $163.5 million and $110.2 million, respectively. FFO is a non-GAAP operating metric and should not be used as a liquidity measure. However, management believes the relationship between FFO and distributions may be meaningful for investors to better understand the sustainability of our operating performance compared to distributions made. Refer to “Additional Measures of Performance” above for the definition of FFO, as well as a detailed reconciliation of our GAAP net income (loss) to FFO.
Refer to “Note 8 to the Consolidated Financial Statements” for further detail on our distributions.
Redemptions. Below is a summary of redemptions pursuant to our share redemption program for the years ended December 31, 2022 and 2021. All eligible redemption requests were fulfilled for the periods presented. Our board of directors may modify or suspend our current share redemption program if it deems such action to be in the best interest of our stockholders. Refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities—Share Redemption Program” for detail regarding our share redemption program.
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We experienced aggregate positive net inflows during the fourth quarter ended December 31, 2022, from the proceeds of our capital raising efforts, including from the DST Program. When measuring capital inflows for these purposes (and aggregating them for quarter-to-date purposes), proceeds from new subscriptions in a month are included on the first day of the next month because that is the first day on which such shareholders have rights in the Company. New subscriptions for interests in our DST Program are included in the month in which they close. When measuring monthly capital outflows for these purposes (and aggregating them for quarter-to-date purposes), both share and OP unit redemption requests received in a month are included on the last day of such month because that is the last day the shareholders or unitholders, respectively, have rights in the Company. We record these redemptions in our financial statements as having occurred on the first day of the next month following receipt of the redemption request because shares redeemed in a given month are considered outstanding through the last day of the month. Although our quarterly aggregate net flows may be positive, any given month or component may be negative.
SUBSEQUENT EVENTS
See “Note 16 to the Consolidated Financial Statements” for information regarding subsequent events.
INFLATION
Increases in the costs of owning and operating our properties due to inflation could impact our results of operations and financial condition to the extent such increases are not reimbursed or paid by our customers. Our leases may require our customers to pay certain taxes and operating expenses, either in part or in whole, or may provide for separate real estate tax and operating expense reimbursement escalations over a base amount. In addition, our leases provide for fixed base rent increases or indexed increases. As a result, most inflationary increases in costs may be at least partially offset by the contractual rent increases and operating expense reimbursement provisions or escalations.
In the United States, inflation is at a 40-year high, and its impact on the U.S. economy and the impact of any measures that may be taken by government officials to curb inflation remain uncertain. Periods of excessive or prolonged inflation may negatively impact our customers’ businesses, resulting in increased vacancy, concessions or bad debt expense, which may adversely and materially affect our results of operations, financial condition, NAV and cash flows.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those estimates that require management to make challenging, subjective, or complex judgments, often because they must estimate the effects of matters that are inherently uncertain and may change in subsequent periods. Critical accounting estimates involve judgments and uncertainties that are sufficiently sensitive and may result in materially different results under different assumptions and conditions and can have a material impact on the consolidated financial statements.
Investment in Real Estate Properties
We first determine whether an acquisition constitutes a business or asset acquisition. Upon determination of an asset acquisition, the purchase price of a property is allocated to land, building and improvements, and intangible lease assets and liabilities. Fair value determinations are based on estimated cash flow projections that utilize discount and/or capitalization rates, as well as certain available market information. The fair value of land, building and improvements considers the value of the property as if it were vacant. The fair value of intangible lease assets is based on our evaluation of the specific characteristics of each lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions and market rates, the customer’s credit quality and costs to execute similar leases. The fair value of above- and below-market leases is calculated as the present value of the difference between the contractual amounts to be paid pursuant to each in-place lease and our estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed-rate renewal options for below-market leases. In estimating carrying costs, we include estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
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Impairment of Real Estate Properties
We review our investment in real estate properties individually whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded for the difference between estimated fair value of the real estate property and the carrying amount when the estimated future cash flows and the estimated liquidation value of the real estate property are less than the real estate property carrying amount. Our estimates of future cash flows and liquidation values require us to make assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property, and expected ownership periods that can be difficult to predict.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have and may continue to be exposed to the impact of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows, and optimize overall borrowing costs. To achieve these objectives, we plan to borrow on a fixed interest rate basis for longer-term debt and utilize interest rate swap and cap agreements on certain variable interest rate debt in order to limit the effects of changes in interest rates on our results of operations. As of December 31, 2022, our consolidated debt outstanding consisted of borrowings under our line of credit, term loans and mortgage notes.
Fixed Interest Rate Debt. As of December 31, 2022, our fixed interest rate debt consisted of $550.0 million under our $550.0 million term loan and $525.0 million of commitments under our $600.0 million term loan, which were effectively fixed through the use of interest swap agreements, and $996.7 million of principal borrowings under five of our mortgage notes. In total, our fixed rate debt represented approximately 72.6% of our total consolidated debt as of December 31, 2022. The impact of interest rate fluctuations on our consolidated fixed interest rate debt will generally not affect our future earnings or cash flows unless such borrowings mature, are otherwise terminated or payments are made on the principal balance. However, interest rate changes could affect the fair value of our fixed interest rate debt. As of December 31, 2022, the fair value and the carrying value of our consolidated fixed interest rate debt, excluding the values of hedges, were $1.98 billion and $2.07 billion, respectively. The fair value estimate of our fixed interest rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated on December 31, 2022. Given we generally expect to hold our fixed interest rate debt to maturity or until such debt instruments otherwise open up for prepayment at par, and the amounts due under such debt instruments should be limited to the outstanding principal balance and any accrued and unpaid interest at such time, we do not expect that any resulting change in fair value of our fixed interest rate debt due to market fluctuations in interest rates would have a significant impact on our operating cash flows.
Variable Interest Rate Debt. As of December 31, 2022, our consolidated variable interest rate debt consisted of $90.0 million under our line of credit, $75.0 million under our term loans and $617.3 million under two of our mortgage notes, which represented 27.4% of our total consolidated debt. Interest rate changes on the variable portion of our consolidated variable-rate debt could impact our future earnings and cash flows but would not significantly affect the fair value of such debt. As of December 31, 2022, we were exposed to market risks related to fluctuations in interest rates on $782.3 million of consolidated borrowings; however, $578.0 million of these borrowings are capped through the use of two interest rate cap agreements. A hypothetical 25 basis points increase in the all-in interest rate on the outstanding balance of our consolidated variable interest rate debt as of December 31, 2022, would increase our annual interest expense by approximately $0.5 million, including the effects of our interest rate cap agreements.
Derivative Instruments. As of December 31, 2022, we had 19 outstanding derivative instruments with an aggregate notional amount of $2.0 billion. These derivative instruments were comprised of interest rate swaps and interest rate caps that were designed to mitigate the risk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. See “Note 5 to the Consolidated Financial Statements” for further detail on our derivative instruments. We are exposed to credit risk of the counterparty to our interest rate cap and swap agreements in the event of non-performance under the terms of the agreements. If we were not able to replace these caps or swaps in the event of non-performance by the counterparty, we would be subject to variability of the interest rate on the amount outstanding under our debt that is fixed or capped through the use of the swaps or caps, respectively.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Ares Industrial Real Estate Income Trust Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ares Industrial Real Estate Income Trust Inc. and subsidiaries (the Company) as of December 31, 2022 and December 31, 2021, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and December 31, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the estimated fair value of certain acquired tangible assets
As described in Notes 2 and 3 to the consolidated financial statements, the Company acquired land of $366.1 million and building and improvements of $1.4 billion during 2022 that were accounted for as asset acquisitions. Upon an asset acquisition, the purchase price is allocated to land, building and improvements, and intangible lease assets and liabilities based on their relative fair value.
We identified the evaluation of the estimated fair value of certain acquired tangible assets in asset acquisitions, as a critical audit matter. The tangible assets included land and building and improvements. Specifically, subjective auditor judgment was required to evaluate the assumptions used in the Company’s determination of the estimated fair values of these assets, which included comparable land sales and the estimated replacement cost of building and improvements.
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The following are the primary procedures we performed to address this critical audit matter. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s estimated fair value of certain acquired tangible assets by independently developing ranges of comparable land sales and estimated replacement costs of building and improvements and comparing those ranges to the amounts determined by management.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
Denver, Colorado
March 20, 2023
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ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
CONSOLIDATED BALANCE SHEETS
As of | ||||||
December 31, | December 31, | |||||
(in thousands, except per share data) |
| 2022 |
| 2021 | ||
ASSETS |
|
|
|
| ||
Net investment in real estate properties | $ | 6,733,878 | $ | 4,820,892 | ||
Investment in unconsolidated joint venture partnership(s) | 19,668 | 101,769 | ||||
Cash and cash equivalents |
| 79,524 |
| 216,848 | ||
Restricted cash |
| 499 |
| 887 | ||
Investment in available-for-sale debt securities, at fair value |
| 60,033 |
| — | ||
Derivative instruments | 99,333 | 5,817 | ||||
DST Program Loans | 152,402 | 68,772 | ||||
Other assets |
| 78,138 |
| 34,124 | ||
Total assets | $ | 7,223,475 | $ | 5,249,109 | ||
LIABILITIES AND EQUITY |
|
|
|
| ||
Liabilities |
|
|
|
| ||
Accounts payable and accrued liabilities | $ | 125,930 | $ | 42,211 | ||
Debt, net |
| 2,827,613 |
| 2,245,673 | ||
Intangible lease liabilities, net | 97,399 | 76,432 | ||||
Financing obligations, net |
| 1,262,666 |
| 483,964 | ||
Distribution fees payable to affiliates |
| 92,145 |
| 85,419 | ||
Other liabilities |
| 194,822 |
| 116,064 | ||
Total liabilities |
| 4,600,575 |
| 3,049,763 | ||
Commitments and contingencies (Note 15) |
|
|
|
| ||
Redeemable noncontrolling interests |
| 69,553 |
| 15,687 | ||
Equity |
|
|
|
| ||
Stockholders’ equity: |
|
| ||||
Preferred stock, $0.01 par value - 200,000 shares authorized, none issued and outstanding |
|
| ||||
Class T common stock, $0.01 par value per share - 1,200,000 shares authorized, 227,265 and 206,129 shares and , respectively |
| 2,272 |
| 2,061 | ||
Class D common stock, $0.01 par value per share - 75,000 shares authorized, 20,577 and 13,649 shares and , respectively |
| 206 |
| 136 | ||
Class I common stock, $0.01 par value per share - 225,000 shares authorized, 66,702 and 37,391 shares and , respectively |
| 667 |
| 374 | ||
Additional paid-in capital |
| 3,219,132 |
| 2,475,715 | ||
Accumulated deficit and distributions |
| (739,497) |
| (297,570) | ||
Accumulated other comprehensive income |
| 70,255 |
| 2,631 | ||
Total stockholders’ equity |
| 2,553,035 |
| 2,183,347 | ||
Noncontrolling interests |
| 312 |
| 312 | ||
Total equity |
| 2,553,347 |
| 2,183,659 | ||
Total liabilities and equity | $ | 7,223,475 | $ | 5,249,109 |
See accompanying Notes to Consolidated Financial Statements.
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ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, | |||||||||
(in thousands, except per share data) |
| 2022 |
| 2021 |
| 2020 | |||
Revenues: |
|
|
|
|
|
| |||
Rental revenues | $ | 391,605 | $ | 177,069 | $ | 79,396 | |||
Debt-related income | 420 | — | — | ||||||
Total revenues |
| 392,025 |
| 177,069 |
| 79,396 | |||
Operating expenses: | |||||||||
Rental expenses |
| 94,276 |
| 42,719 |
| 19,550 | |||
Real estate-related depreciation and amortization |
| 265,970 |
| 112,201 |
| 46,483 | |||
General and administrative expenses |
| 13,265 |
| 8,886 |
| 6,973 | |||
Advisory fees |
| 67,561 | 28,558 | 9,653 | |||||
Performance participation allocation | 140,505 | 81,185 | 9,640 | ||||||
Acquisition costs and reimbursements |
| 5,322 |
| 3,735 |
| 3,166 | |||
Total operating expenses |
| 586,899 |
| 277,284 |
| 95,465 | |||
Other (income) expenses: | |||||||||
Equity in loss (income) from unconsolidated joint venture partnership(s) | 97 | (54,296) | 1,790 | ||||||
Interest expense |
| 150,824 | 30,463 | 13,012 | |||||
(Gain) loss on derivative instruments | (28,628) | 177 | — | ||||||
Other income and expenses | (4,252) | (732) | (696) | ||||||
Total other (income) expenses |
| 118,041 |
| (24,388) |
| 14,106 | |||
Net loss |
| (312,915) |
| (75,827) |
| (30,175) | |||
Net loss attributable to redeemable noncontrolling interests |
| 4,874 |
| 498 |
| 83 | |||
Net income attributable to noncontrolling interests |
| (38) |
| (20) |
| (5) | |||
Net loss attributable to common stockholders | $ | (308,079) | $ | (75,349) | $ | (30,097) | |||
Weighted-average shares outstanding—basic |
| 295,683 |
| 201,169 |
| 113,145 | |||
Weighted-average shares outstanding—diluted | 300,216 | 202,480 | 113,506 | ||||||
Net loss per common share—basic and diluted | $ | (1.04) | $ | (0.37) | $ | (0.27) |
See accompanying Notes to Consolidated Financial Statements.
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ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Year Ended December 31, | ||||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2020 | ||||
Net loss | $ | (312,915) | $ | (75,827) | $ | (30,175) | ||||
Change from cash flow hedging activities |
| 68,341 |
| 12,462 |
| (11,999) | ||||
Change from activities related to available-for-sale securities | 326 | — | — | |||||||
Comprehensive loss | $ | (244,248) | $ | (63,365) | $ | (42,174) | ||||
Comprehensive loss attributable to redeemable noncontrolling interests |
| 3,831 | 417 |
| 142 | |||||
Comprehensive loss attributable to common stockholders | $ | (240,417) | $ | (62,948) | $ | (42,032) |
See accompanying Notes to Consolidated Financial Statements.
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ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
CONSOLIDATED STATEMENTS OF EQUITY
Stockholders’ Equity |
| |||||||||||||||||||
Accumulated | ||||||||||||||||||||
Accumulated | Other |
| ||||||||||||||||||
Common Stock | Additional | Deficit | Comprehensive | Noncontrolling |
| |||||||||||||||
(in thousands) | Shares |
| Amount |
| Paid-In Capital |
| and Distributions |
| Income (Loss) |
| Interests |
| Total Equity | |||||||
Balance as of December 31, 2019 | 49,275 | $ | 492 | $ | 451,526 | $ | (47,730) | $ | 2,190 | $ | 1 | $ | 406,479 | |||||||
Net (loss) income (excludes $83 attributable to redeemable noncontrolling interests) | — | — | — | (30,097) | — | 5 | (30,092) | |||||||||||||
Change from cash flow hedging activities (excludes $59 attributable to redeemable noncontrolling interests) | — | — | — | — | (11,940) | — | (11,940) | |||||||||||||
Issuance of common stock | 92,689 | 928 | 967,663 | — | — | — | 968,591 | |||||||||||||
Share-based compensation | — | — | 1,544 | — | — | — | 1,544 | |||||||||||||
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs | — | — | (46,594) | — | — | — | (46,594) | |||||||||||||
Trailing distribution fees | — | — | (39,127) | 10,634 | — | — | (28,493) | |||||||||||||
Redemptions of common stock | (493) | (5) | (4,862) | — | — | — | (4,867) | |||||||||||||
Preferred interest in Subsidiary REITs | — | — | — | — | — | 125 | 125 | |||||||||||||
Distributions to stockholders (excludes $197 attributable to redeemable noncontrolling interests) | — | — | — | (61,582) | — | (5) | (61,587) | |||||||||||||
Redemption value allocation adjustment to redeemable noncontrolling interests | — | — | (351) | — | — | — | (351) | |||||||||||||
Balance as of December 31, 2020 |
| 141,471 | $ | 1,415 | $ | 1,329,799 | $ | (128,775) | $ | (9,750) | $ | 126 | $ | 1,192,815 | ||||||
Net (loss) income (excludes $498 attributable to redeemable noncontrolling interests) |
| — |
| — |
| — |
| (75,349) |
| — |
| 20 |
| (75,329) | ||||||
Change from cash flow hedging activities (excludes $81 attributable to redeemable noncontrolling interests) |
| — |
| — |
| — |
| — |
| 12,381 |
| — |
| 12,381 | ||||||
Issuance of common stock |
| 118,048 |
| 1,180 |
| 1,251,931 |
| — |
| — |
| — |
| 1,253,111 | ||||||
Share-based compensation | — | — | 1,618 | — | — | — | 1,618 | |||||||||||||
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs | — | — | (22,537) | — | — | — | (22,537) | |||||||||||||
Trailing distribution fees |
| — |
| — |
| (56,480) |
| 16,022 |
| — |
| — |
| (40,458) | ||||||
Redemptions of common stock |
| (2,350) |
| (24) |
| (25,085) |
| — |
| — |
| — |
| (25,109) | ||||||
Preferred interest in Subsidiary REITs |
| — |
| — |
| — |
| — |
| — |
| 186 |
| 186 | ||||||
Distributions to stockholders (excludes $715 attributable to redeemable noncontrolling interests) |
| — |
| — |
| — |
| (109,468) |
| — |
| (20) |
| (109,488) | ||||||
Redemption value allocation adjustment to redeemable noncontrolling interests | — | — | (3,531) | — | — | — | (3,531) | |||||||||||||
Balance as of December 31, 2021 |
| 257,169 | $ | 2,571 | $ | 2,475,715 | $ | (297,570) | $ | 2,631 | $ | 312 | $ | 2,183,659 | ||||||
Net (loss) income (excludes $4,874 attributable to redeemable noncontrolling interests) |
| — |
| — |
| — |
| (308,079) |
| — |
| 38 |
| (308,041) | ||||||
Change from cash flow hedging activities and available-for-sale securities (excludes $1,043 attributable to redeemable noncontrolling interests) |
| — |
| — |
| — |
| — |
| 67,624 |
| — |
| 67,624 | ||||||
Issuance of common stock |
| 71,518 |
| 715 |
| 1,036,312 |
| — |
| — |
| — |
| 1,037,027 | ||||||
Share-based compensation, net of cancellations |
| (34) |
| — |
| 1,676 |
| — |
| — |
| — |
| 1,676 | ||||||
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs |
| — |
| — |
| (27,447) |
| — |
| — |
| — |
| (27,447) | ||||||
Trailing distribution fees |
| — |
| — |
| (33,901) |
| 27,175 |
| — |
| — |
| (6,726) | ||||||
Redemptions of common stock |
| (14,109) |
| (141) |
| (213,303) |
| — |
| — |
| — |
| (213,444) | ||||||
Distributions to stockholders (excludes $2,493 attributable to redeemable noncontrolling interests) |
| — |
| — |
| — |
| (161,023) |
| — |
| (38) |
| (161,061) | ||||||
Redemption value allocation adjustment to redeemable noncontrolling interests |
| — |
| — |
| (19,920) |
| — |
| — |
| — |
| (19,920) | ||||||
Balance as of December 31, 2022 |
| 314,544 | $ | 3,145 | $ | 3,219,132 | $ | (739,497) | $ | 70,255 | $ | 312 | $ | 2,553,347 |
See accompanying Notes to Consolidated Financial Statements.
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ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, | |||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2020 | |||
Operating activities: |
|
|
|
|
|
| |||
Net loss | $ | (312,915) | $ | (75,827) | $ | (30,175) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||
Real estate-related depreciation and amortization |
| 265,970 |
| 112,201 |
| 46,483 | |||
Amortization of deferred financing costs | 7,863 | 2,354 | 1,221 | ||||||
Financing obligation liability appreciation | 26,568 | — | — | ||||||
Equity in loss (income) from unconsolidated joint venture partnership(s) | 97 | (54,296) | 1,790 | ||||||
(Gain) loss on changes in fair value of interest rate caps | (25,175) | 177 | — | ||||||
Performance participation allocation | 140,505 | 81,185 | 9,640 | ||||||
Straight-line rent and amortization of above- and below-market leases |
| (34,448) |
| (14,719) |
| (7,744) | |||
Other |
| 2,205 |
| 1,408 |
| 1,332 | |||
Changes in operating assets and liabilities | |||||||||
Tenant receivables and other assets |
| 1,298 |
| (6,633) |
| (140) | |||
Accounts payable and accrued liabilities |
| 27,018 |
| 10,579 |
| 1,177 | |||
Due from / to affiliates, net |
| 2,587 |
| 6,157 |
| (8,008) | |||
Net cash provided by operating activities |
| 101,573 |
| 62,586 |
| 15,576 | |||
Investing activities: | |||||||||
Real estate acquisitions |
| (1,549,477) |
| (2,621,687) |
| (473,610) | |||
Incremental investment to acquire joint venture partnership portfolio | (259,526) | (584,809) | — | ||||||
Capital expenditures |
| (199,238) |
| (30,408) |
| (8,930) | |||
Investment in unconsolidated joint venture partnership(s) | (9,022) | (7,505) | (325,890) | ||||||
Distributions from joint venture partnership | — | 5,200 | — | ||||||
Purchases of available-for-sale debt securities | (59,650) | — | — | ||||||
Other | 129 | — | — | ||||||
Net cash used in investing activities |
| (2,076,784) |
| (3,239,209) |
| (808,430) | |||
Financing activities: | |||||||||
Proceeds from mortgage note | 367,830 | 1,078,390 | 118,500 | ||||||
Net (repayments of) proceeds from line of credit |
| 90,000 |
| — |
| (107,000) | |||
Proceeds from term loan |
| 135,000 |
| 600,000 |
| 107,500 | |||
Debt issuance costs paid |
| (18,000) |
| (13,776) |
| (1,050) | |||
Interest rate cap premium | (2,963) | (200) | — | ||||||
Proceeds from issuance of common stock, net |
| 937,777 |
| 1,185,844 |
| 900,810 | |||
Proceeds from financing obligations, net | 672,045 | 415,192 | — | ||||||
Offering costs paid in connection with issuance of common stock and private placements | (5,464) | (26,205) | (10,333) | ||||||
Distributions paid to common stockholders, redeemable noncontrolling interest holders and preferred shareholders |
| (57,872) |
| (37,312) |
| (19,084) | |||
Distribution fees paid to affiliates |
| (26,495) |
| (15,365) |
| (9,901) | |||
Redemptions of common stock |
| (213,444) |
| (25,109) |
| (4,867) | |||
Redemptions of redeemable noncontrolling interests | (40,915) | — | — | ||||||
Net cash provided by financing activities |
| 1,837,499 |
| 3,161,459 |
| 974,575 | |||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (137,712) |
| (15,164) |
| 181,721 | |||
Cash, cash equivalents and restricted cash, at beginning of period |
| 217,735 |
| 232,899 |
| 51,178 | |||
Cash, cash equivalents and restricted cash, at end of period | $ | 80,023 | $ | 217,735 | $ | 232,899 |
See accompanying Notes to Consolidated Financial Statements.
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ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Ares Industrial Real Estate Income Trust Inc. is a Maryland corporation formed on August 12, 2014. Unless the context otherwise requires, the “Company”, “we”, “our”, “us” and “AIREIT” refers to Ares Industrial Real Estate Income Trust Inc. and our consolidated subsidiaries, which includes AIREIT Operating Partnership LP (the “Operating Partnership”). We are externally managed by our advisor. On July 1, 2021, Ares Management Corporation (“Ares”) closed on the acquisition of the U.S. real estate investment advisory and distribution business of Black Creek Group, including our former advisor, BCI IV Advisors LLC (the “Former Advisor”). As a result of this transaction, Ares Commercial Real Estate Management LLC became our new advisor (the “New Advisor”). Ares did not acquire our former sponsor, BCI IV Advisors Group LLC (the “Former Sponsor”), and we now consider the Ares real estate group (“AREG”) to be our Sponsor. See “Note 11” for additional information regarding this transaction. References to the “Advisor” throughout this report mean BCI IV Advisors LLC for periods prior to July 1, 2021 and Ares Commercial Real Estate Management LLC for periods thereafter. References to the “Sponsor” throughout this report mean BCI IV Advisors Group LLC for periods prior to July 1, 2021 and Ares real estate group for periods thereafter.
AIREIT was formed to make equity and debt investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate customers throughout the U.S. Creditworthiness does not necessarily mean investment grade and the majority of our customers do not have a public credit rating. Although we intend to focus investment activities primarily on distribution warehouses and other industrial properties, its charter and bylaws do not preclude it from investing in other types of commercial property, real estate debt, or real estate-related equity securities. As of December 31, 2022, we owned and managed a real estate portfolio that included 243 industrial buildings. AIREIT operates as one reportable segment comprised of industrial real estate.
We currently operate and have been elected to be treated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2017, and we intend to continue to operate in accordance with the requirements for qualification as a REIT. We utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of its properties and securities through the Operating Partnership, of which we are the sole general partner and a limited partner.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Global macroeconomic conditions, including heightened inflation, changes to fiscal and monetary policy, higher interest rates and challenges in the supply chain, coupled with the war in Ukraine and the ongoing effects of the novel coronavirus pandemic, have the potential to negatively impact us. These current macroeconomic conditions may continue or aggravate and could cause the United States to experience an economic slowdown or recession. We anticipate our business and operations could be materially adversely affected by a prolonged recession in the United States. In the opinion of management, the accompanying consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP.
Basis of Consolidation
The consolidated financial statements include the accounts of AIREIT, the Operating Partnership, and its wholly-owned subsidiaries, as well as amounts related to noncontrolling interests and redeemable noncontrolling interests. See “Noncontrolling Interests” and “Redeemable Noncontrolling Interests” below for further detail concerning the accounting policies regarding noncontrolling interests and redeemable noncontrolling interests. All material intercompany accounts and transactions have been eliminated.
We consolidate all entities in which we have a controlling financial interest through majority ownership or voting rights and variable interest entities for which we are the primary beneficiary. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider whether the entity is a variable interest entity
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(“VIE”) and whether we are the primary beneficiary. We are the primary beneficiary of a VIE when we have (i) the power to direct the most significant activities impacting the economic performance of the VIE and (ii) the obligation to absorb losses or receive benefits significant to the VIE. Entities that do not qualify as VIEs are generally considered voting interest entities (“VOEs”) and are evaluated for consolidation under the voting interest model. VOEs are consolidated when we control the entity through a majority voting interest or other means. When the requirements for consolidation are not met and we have significant influence over the operations of the entity, the investment is accounted for under the equity method of accounting. Equity method investments are initially recorded at cost and subsequently adjusted for our pro-rata share of net income, contributions and distributions.
The Operating Partnership meets the criteria of a VIE as the Operating Partnership’s limited partners do not have the right to remove the general partner and do not have substantive participating rights in the operations of the Operating Partnership. Pursuant to the agreement of limited partnership of the Operating Partnership (the “Partnership Agreement”), we are the primary beneficiary of the Operating Partnership as we have the obligation to absorb losses and receive benefits, and the power to control substantially all of the activities which most significantly impact the economic performance of the Operating Partnership. As such, the Operating Partnership continues to be consolidated within our consolidated financial statements.
Use of Estimates
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they are determined to be necessary.
Investment in Real Estate Properties
We first determine whether an acquisition constitutes a business or asset acquisition. Upon determination of an asset acquisition, the purchase price of a property is allocated to land, building and improvements, and intangible lease assets and liabilities. The allocation of the purchase price to building is based on management’s estimate of the property’s “as-if” vacant fair value. The “as-if” vacant fair value is determined by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. The allocation of the purchase price to intangible lease assets represents the value associated with the in-place leases, which may include lost rent, leasing commissions, tenant improvements, legal and other related costs. The allocation of the purchase price to above-market lease assets and below-market lease liabilities results from in-place leases being above or below management’s estimate of fair market rental rates at the acquisition date and are measured over a period equal to the remaining term of the lease for above-market leases and the remaining term of the lease, plus the term of any below-market fixed-rate renewal option periods, if applicable, for below-market leases. Intangible lease assets, above-market lease assets, and below-market lease liabilities are collectively referred to as “intangible lease assets and liabilities.”
If any debt is assumed in an acquisition, the difference between the fair value and the face value of debt is recorded as a premium or discount and amortized to interest expense over the life of the debt assumed. No debt was assumed in connection with our 2022 or 2021 acquisitions. Transaction costs associated with the acquisition of a property are capitalized as incurred in an asset acquisition and are allocated to land, building, and intangible lease assets on a relative fair value basis. Properties that are probable to be sold are to be designated as “held for sale” on the balance sheets when certain criteria are met.
The results of operations for acquired properties are included in the consolidated statements of operations from their respective acquisition dates. Intangible lease assets are amortized to real estate-related depreciation and amortization over the remaining lease term. Above-market lease assets are amortized as a reduction in rental revenues over the remaining lease term and below-market lease liabilities are amortized as an increase in rental revenues over the remaining lease term, plus any applicable fixed-rate renewal option periods. We expense any unamortized intangible lease asset or records an adjustment to rental revenue for any unamortized above-market lease asset or below-market lease liability when a customer terminates a lease before the stated lease expiration date.
Land, building, building improvements, tenant improvements, lease commissions, and intangible lease assets and liabilities, which are collectively referred to as “real estate assets,” are stated at historical cost less accumulated depreciation and amortization. Costs associated with the development and improvement of our real estate assets are capitalized as incurred. These costs include capitalized interest and development fees. Other than the transaction costs associated with the acquisition of a property described above, we do not capitalize any
95
other costs, such as taxes, salaries or other general and administrative expenses. See “Capitalized Interest” below for additional detail. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred.
Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:
Certain of our investments in real estate are subject to ground leases, for which a lease liability and corresponding right of use asset are recognized. We calculate the amount of the lease liability and right of use asset by taking the present value of the remaining lease payments and adjusting the right of use asset for any existing straight-line ground rent liability and acquired ground lease intangibles. An estimated incremental borrowing rate of a loan with a similar term as the ground lease is used as the discount rate. The lease liability is included as a component of other liabilities, and the related right of use asset is recorded as a component of net investments in real estate properties on our consolidated balance sheets. The amortization of the below-market ground lease is recorded as an adjustment to real estate-related depreciation and amortization on our consolidated statements of operations.
Real estate assets that are determined to be held and used will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and we will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value.
Investment in Unconsolidated Joint Venture Partnerships
We analyze our investment in an unconsolidated joint venture under GAAP to determine if the joint venture is a VIE and whether the requisite substantial participating rights described in the GAAP are held by the partners not affiliated with us. If the joint venture is not a VIE and the partners not affiliated with us hold substantial participating rights, we account for our investment in the joint venture under the equity method. Under the equity method, the investment is initially recorded at cost (including direct acquisition costs) and subsequently adjusted to reflect our proportionate share of equity in the joint venture’s net (income) loss, distributions received, contributions made and certain other adjustments made, as appropriate, which is included in investment in unconsolidated joint venture partnerships on our consolidated balance sheets. The proportionate share of ongoing income or loss of the unconsolidated joint venture partnerships is recognized in equity in (income) loss of unconsolidated joint venture partnerships on the consolidated statements of operations. The outside basis portion of our unconsolidated joint venture partnerships is amortized over the anticipated useful lives of the joint ventures’ tangible and intangible assets acquired and liabilities assumed.
When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate whether the loss is other than temporary. If we conclude it is other than temporary, an impairment charge is recognized to reflect the equity investment at fair value. No impairment losses were recorded related to our investment in unconsolidated joint venture partnerships for the year ended December 31, 2022. See “Note 4” for additional information regarding our investment in unconsolidated joint venture partnerships.
We may earn performance-based incentive fees based on a joint venture’s cumulative returns over a certain time period. The returns are determined by both the operating performance and real estate valuation of the venture, including highly variable inputs such as capitalization rates, market rents and interest rates. As these key inputs are highly volatile and out of our control, and such volatility can materially impact its performance-based incentive fee period over period, recognition of the performance-based incentive fee income is limited to amounts for which it is probable that a significant income reversal will not occur. See “Note 4” for additional information on the BTC II Partnership incentive fee distribution.
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Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. We may have bank balances in excess of federally insured amounts; however, we deposit our cash and cash equivalents with high credit-quality institutions to minimize credit risk.
Derivative Instruments
Our derivative instruments are used to manage exposure to variability in expected future interest payments and are recorded at fair value. The accounting for changes in fair value of derivative instruments depends on whether it has been designated and qualifies as a hedge and, if so, the type of hedge. As of December 31, 2022, our interest rate swap derivative instruments are designated as cash flow hedges. The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) on the consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings, which is when the interest expense is recognized on the related debt.
As of December 31, 2022, our interest rate cap derivative instruments are not designated as hedges. For derivatives that are not designated and do not qualify as hedges, we present changes in the fair value as a component of gain (loss) on derivative instruments on the consolidated statements of income. We do not use derivative instruments for trading or speculative purposes.
Available-for-Sale Debt Securities
We acquire debt securities that are collateralized by mortgages on commercial real estate properties primarily for cash management and investment purposes. On the acquisition date, we designate investments in commercial real estate debt securities as available-for-sale. Investments in debt securities that are classified as available-for-sale are carried at fair value. These assets are valued on a recurring basis and any unrealized holding gains and losses other than those associated with a credit loss are recorded each period in other comprehensive income.
As applicable, available-for-sale debt securities that are in an unrealized loss position are evaluated quarterly on an individual security basis to determine whether a credit loss exists. In the assessment we consider the extent of the difference between fair value and amortized cost, changes in credit rating, and any other adverse factors directly impacting the security. If we determine a credit loss exists, the extent of the credit loss is recognized in the consolidated statements of operations and any additional loss not attributable to credit loss is recognized in other comprehensive income. There was no credit loss recognized during the year ended December 31, 2022, and we did not have any available-for-sale debt securities during the years ended December 31, 2021 and 2020.
Available-for-sale debt securities will be on non-accrual status at the earlier of (i) principal or interest payments becoming 90 days past due or (ii) when management’s determination that there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is reversed against interest income in the period the debt security is placed on non-accrual status. Interest payments received on non-accrual securities may be recognized as income or applied to principal depending upon management’s judgment regarding collectability of the debt security based on the facts and circumstances regarding the payment received. Non-accrual debt securities are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current.
As of December 31, 2022, we had five debt security investments designated as available-for-sale debt securities. The following table summarizes our investments in available-for-sale debt securities as of December, 31, 2022:
($ in thousands) | Face Amount | Amortized Cost | Unamortized Discount | Unrealized Gain, Net | Fair Value | ||||||||||
Available-for-sale debt securities | $ | 62,420 | $ | 59,708 | $ | 2,712 | $ | 326 | $ | 60,033 |
Deferred Financing Costs
Deferred financing costs include: (i) debt issuance costs incurred to obtain long-term financing and cash flow hedges; and (ii) financing costs associated with financing obligations. These costs are amortized to interest expense over the expected terms of the related credit facilities. Unamortized deferred financing costs are written off if debt is retired before its expected maturity date.
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Accumulated amortization of debt issuance costs was approximately $11.9 million and $5.3 million as of December 31, 2022 and 2021, respectively. Our interest expense for the years ended December 31, 2022, 2021 and 2020 included $7.1 million, $2.4 million and $1.2 million, respectively, of amortization of debt issuance costs.
Accumulated amortization of financing costs associated with financing obligations was approximately $0.8 million as of December 31, 2022. Our interest expense for the year ended December 31, 2022 included $0.8 million of amortization of financing costs associated with financing obligations. As of December 31, 2021, we had no accumulated amortization of financing costs associated with financing obligations and no amortization expense was incurred for the years ended December 31, 2021 and 2020.
Capitalized Interest
We capitalize interest as a cost of development on value-add buildings. Capitalization of interest for a particular asset begins when activities necessary to get the asset ready for its intended use are in progress and when interest costs have been incurred. Capitalization of interest ceases when the project is substantially complete and ready for occupancy. For the years ended December 31, 2022, 2021 and 2020, approximately $7.3 million, $1.2 million and $0.6 million of interest was capitalized, respectively.
Distribution Fees
Distribution fees are paid monthly. Distribution fees are accrued upon the issuance of Class T shares and Class D shares in the primary portion of our public offerings. We accrue for: (i) the monthly amount payable as of the balance sheet date, and (ii) the estimated amount of distribution fees to be paid in future periods based on the Class T shares and Class D shares outstanding as of the balance sheet date. The accrued distribution fees are reflected in additional paid-in capital in stockholders’ equity. See “Note 11” for additional information regarding when distribution fees become payable.
Noncontrolling Interests
Due to our control of the Operating Partnership through our sole general partner interest and our limited partner interest, we consolidate the Operating Partnership. The limited partner interests not owned by us are presented as noncontrolling interests in the consolidated financial statements. The noncontrolling interests are reported on the consolidated balance sheets within permanent equity, separate from stockholders’ equity. As the limited partner interests do not participate in the profits and losses of the Operating Partnership, there is no net income or loss attributable to this portion of noncontrolling interests on the consolidated statement of operations.
Noncontrolling interests also represent the portion of equity in an acquired subsidiary real estate investment trust (“Subsidiary REIT”), that we do not own. Such noncontrolling interests are equity instruments presented in the consolidated balance sheet as noncontrolling interests within permanent equity. See “Note 11” for additional information regarding the Subsidiary REIT.
Reclassifications
Certain items in our consolidated balance sheets, statements of operations, cash flows and certain tables in our footnotes for the years ended December 31, 2021 and 2020 have been reclassified to conform to the 2022 presentation.
Redeemable Noncontrolling Interests
The Operating Partnership issued units in the Operating Partnership (“OP Units”) to the Advisor and Former Sponsor as payment for the performance participation allocation (also referred to as the performance component of the advisory fee) pursuant to the terms of the Amended and Restated Advisory Agreement (2022), effective as of May 1, 2022 (the “Advisory Agreement”), by and among us, the Operating Partnership and the Advisor. The Former Sponsor held, either directly or indirectly, OP Units, and subsequent to the Transaction (as defined in “Note 11”), the Former Sponsor transferred these OP Units to its members or their affiliates. We have classified these OP Units as redeemable noncontrolling interests in mezzanine equity on the consolidated balance sheets due to the fact that, as defined in the Partnership Agreement, the limited partners who hold these OP Units generally have the ability to request transfer or redeem their OP Units at any time irrespective of the period that they have held such OP Units, and the Operating Partnership is required to satisfy such redemption for cash unless such cash redemption would be prohibited by applicable law or the Partnership Agreement, in which case such OP Units will be redeemed for shares of our common stock of the class corresponding to the class of such OP Units. The redeemable noncontrolling interests are recorded at the greater of the carrying amount, adjusted for the share of the allocation of income or loss and
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dividends, or the redemption value, which is equivalent to fair value, of such OP Units at the end of each measurement period. See “Note 9” for additional information regarding redeemable noncontrolling interests.
Revenue Recognition
When a lease is entered into, we first determine if the collectability from the tenant is probable. If the collectability is not probable we recognize revenue when the payment has been received. If the collectability is determined to be probable we record rental revenue on a straight-line basis over the full lease term. Certain properties have leases that offer the tenant a period of time where no rent is due or where rent payments change during the term of the lease. Accordingly, we record receivables from tenants for rent that we expect to collect over the remaining lease term rather than currently, which are recorded as a straight-line rent receivable. Management analyzes accounts receivable by considering customer creditworthiness, current economic trends, customers’ businesses, and customers’ ability to make payments on time and in full when evaluating the adequacy of the allowance for doubtful accounts receivable. We evaluate collectability from our tenants on an ongoing basis. If the assessment of collectability changes during the lease term, any difference between the revenue that would have been recognized under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to rental revenues. When we acquire a property, the term of each existing lease is considered to commence as of the acquisition date for purposes of this calculation. As of December 31, 2022, we have a $0.5 million allowance for doubtful accounts. These amounts are included in our other assets on the consolidated balance sheets. As of December 31, 2021, we had no allowance for doubtful accounts.
In connection with property acquisitions, we may acquire leases with rental rates above or below estimated market rental rates. Above-market lease assets are amortized as a reduction to rental revenue over the remaining lease term, and below-market lease liabilities are amortized as an increase to rental revenue over the remaining lease term, plus any applicable fixed-rate renewal option periods.
We expense any unamortized intangible lease asset or record an adjustment to rental revenue for any unamortized above-market lease asset or below-market lease liability by reassessing the estimated remaining useful life of such intangible lease asset or liability when it becomes probable a customer will terminate a lease before the stated lease expiration date.
Upon disposition of a real estate asset, we will evaluate the transaction to determine if control of the asset, as well as other specified criteria, has been transferred to the buyer to determine proper timing of recognizing gains or losses.
Debt-related income is accrued based on the outstanding principal amount and the contractual terms of each debt security. For available-for-sale debt securities, premiums or discounts are amortized or accreted into interest income as a yield adjustment using the effective interest method.
Organization and Offering Expenses
Organization costs are expensed as incurred and offering expenses associated with our public offerings are recorded as a reduction of gross offering proceeds in additional paid-in capital. See “Note 11” for additional information regarding organization and offering expenses.
Income Taxes
As a REIT, we generally are not subject to federal income taxes on net income we distribute to stockholders. We intend to make timely distributions sufficient to satisfy the annual distribution requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and federal income and excise taxes on our undistributed income.
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Net Income (Loss) Per Share
Basic net income (loss) per common share is determined by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share includes the effects of potentially issuable common stock, but only if dilutive, including the presumed exchange of OP Units. See “Note 12” for additional information regarding net income (loss) per share.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents. At times, balances with any one financial institution may exceed the Federal Deposit Insurance Corporation insurance limits. We believe it mitigates this risk by investing our cash with high-credit quality financial institutions. As our revenues predominantly consist of rental payments, we are dependent on our customers for our source of revenues. Concentration of credit risk arises when its source of revenue is highly concentrated from certain of its customers. As of December 31, 2022, no customers represented more than 10.0% of total annualized base rent of its properties.
Fair Value Measurements
Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value measurements are categorized into one of three levels of the fair value hierarchy based on the lowest level of significant input used. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. These estimates may differ from the actual amounts that we could realize upon settlement.
The fair value hierarchy is as follows:
Level 1—Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2—Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:
● | Quoted prices for similar assets/liabilities in active markets; |
● | Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time); |
● | Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and |
● | Inputs that are derived principally from or corroborated by other observable market data. |
Level 3—Unobservable inputs that cannot be corroborated by observable market data.
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3. INVESTMENTS IN REAL ESTATE PROPERTIES
As of December 31, 2022 and 2021, our consolidated investments in real estate properties consisted of 243 and 193 industrial buildings, respectively. Additionally, investment in real estate properties includes nine buildings under construction, two buildings in the pre-construction phase as of December 31, 2022 and one building in the pre-construction phase as of December 31, 2021.
As of December 31, | ||||||
(in thousands) |
| 2022 |
| 2021 | ||
Land | $ | 1,284,003 | $ | 918,000 | ||
Building and improvements (1) |
| 5,139,402 |
| 3,719,548 | ||
Intangible lease assets |
| 479,532 |
| 342,538 | ||
Construction in progress |
| 285,214 |
| 27,075 | ||
Investment in real estate properties |
| 7,188,151 |
| 5,007,161 | ||
Less accumulated depreciation and amortization |
| (454,273) |
| (186,269) | ||
Net investment in real estate properties | $ | 6,733,878 | $ | 4,820,892 |
(1) | Includes site improvements. Depreciable site improvement amounts as of December 31, 2021 been reclassified from land to building and improvements to conform to 2022 presentation. This reclassification had no impact on depreciation amounts. |
Acquisitions
During the years ended December 31, 2022 and 2021, we acquired 100% of the following properties, which were determined to be asset acquisitions:
|
| Number of |
| Total Purchase | |||
($ in thousands) | Acquisition Date | Buildings | Price (1) | ||||
Build-to-Core Logistics Portfolio II (2)(3) | 2/15/2022 | 9 | $ | 359,202 | |||
Northlake Logistics Crossing | 2/17/2022 | — | 21,569 | ||||
Tampa Commerce Center | 4/1/2022 & 5/25/2022 | — | 6,270 | ||||
Medley 104 Industrial Center | 4/18/2022 | 1 | 53,670 | ||||
IDI U.S. Logistics Portfolio | 4/28/2022 & 7/6/2022 | 7 | 419,970 | ||||
Chicago Growth Portfolio | 5/9/2022 | 14 | 182,135 | ||||
4 Studebaker | 5/12/2022 | 1 | 33,188 | ||||
Southeast Orlando Portfolio | 5/19/2022 | 5 | 138,540 | ||||
I-465 East Logistics Center | 5/26/2022 | 1 | 18,923 | ||||
Industry Corporate Center | 6/2/2022 | 1 | 52,086 | ||||
County Line Corporate Park | 6/8/2022 | — | 62,080 | ||||
Robbinsville Distribution Center | 6/10/2022 | — | 364 | ||||
Innovation I & II Corporate Center | 6/17/2022 | 2 | 63,939 | ||||
IDI 2022 National Portfolio | 6/22/2022 | 6 | 246,773 | ||||
I-80 Logistics Park I-II | 6/29/2022 | 1 | 138,530 | ||||
Commonwealth Logistics Center | 6/30/2022 | — | 8,927 | ||||
County Line Corporate Park II (4) | 12/28/2022 | 1 | 82,478 | ||||
Total Acquisitions | 49 | $ | 1,888,644 |
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| Number of |
| Total Purchase | ||||
($ in thousands) | Acquisition Date | Buildings | Price (1) | ||||
2021 Acquisitions: |
| ||||||
Gerwig Distribution Center | 1/8/2021 | 1 | $ | 19,274 | |||
Harvill Business Center | 3/10/2021 | 1 | 60,588 | ||||
Princess Logistics Center | 4/12/2021 | 1 | 74,075 | ||||
Rancho Cucamonga Business Center | 5/28/2021 | 1 | 24,624 | ||||
Norton Distribution Center | 6/1/2021 | 1 | 32,413 | ||||
Build-To-Core Logistics Portfolio (3) | 6/15/2021 | 22 | 876,731 | ||||
Benchmark Distribution Center | 6/18/2021 | 1 | 19,651 | ||||
Key Logistics Portfolio | 7/14/2021 | 48 | 916,766 | ||||
Stonewood Logistics Center | 7/16/2021 | 1 | 19,343 | ||||
Heron Industrial Center | 7/21/2021 | 1 | 25,999 | ||||
Colony Crossing Logistics Portfolio | 8/17/2021 | 2 | 21,569 | ||||
Harvill Industrial Center Land | 8/23/2021 | — | 7,532 | ||||
Commerce Farms Logistics Center | 8/25/2021 | 1 | 63,821 | ||||
North County Commerce Center | 8/30/2021 | 5 | 147,132 | ||||
Performance Distribution Center | 9/7/2021 | 1 | 29,532 | ||||
Madison Distribution Center | 9/17/2021 | 1 | 13,002 | ||||
355 Logistics Center | 10/1/2021 | 2 | 65,422 | ||||
1 Stanley Drive | 10/6/2021 | 1 | 22,239 | ||||
Gilbert Gateway Commerce Park | 10/6/2021 | 3 | 88,155 | ||||
California Business Center | 10/21/2021 | 2 | 31,070 | ||||
Molto Portfolio | 11/17/2021 | 6 | 204,964 | ||||
Walker Mill Industrial Center | 11/18/2021 | 1 | 17,205 | ||||
Greater Boston Portfolio | 11/22/2021 | 2 | 37,358 | ||||
McDonald Portfolio | 12/16/2021 | 14 | 395,754 | ||||
Valwood Industrial Center | 12/17/2021 | 4 | 43,132 | ||||
Riggs Hill Industrial Center | 12/17/2021 | 1 | 5,659 | ||||
Port Crossing Logistics Center | 12/21/2021 | 1 | 31,994 | ||||
Hainesport Commerce Center | 12/21/2021 | 1 | 132,810 | ||||
Beltway Logistics Center | 12/22/2021 | 1 | 28,053 | ||||
Clackamas Industrial Center | 12/23/2021 | 1 | 51,174 | ||||
Total Acquisitions | 128 | $ | 3,507,041 |
(1) | Total purchase price is equal to the total consideration paid plus any debt assumed at fair value. There was no debt assumed in connection with the 2022 and 2021 acquisitions. |
(2) | Two land parcels included in the acquisition of the Build-to-Core Logistics Portfolio II. |
(3) | Refer to “Note 4” for further detail regarding the acquisitions of the Build-To-Core Logistics Portfolio and the Build-To-Core Logistics Portfolio II as a result of the BTC I Partnership Transaction and the BTC II Partnership Transaction (as defined in “Note 4”). |
(4) | Two properties under construction included in the acquisition of County Line Corporate Park II. |
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During the years ended December 31, 2022 and 2021, we allocated the purchase price of our acquisitions to land, building and improvements, construction in progress, and intangible lease assets and liabilities as follows:
(1) | Includes site improvements. Depreciable site improvement amounts as of December 31, 2021 been reclassified from land to building and improvements to conform to 2022 presentation. This reclassification had no impact on depreciation amounts. |
(2) | Total purchase price is equal to the total consideration paid plus any debt assumed at fair value. There was no debt assumed in connection with the 2022 and 2021 acquisitions. |
Intangible and above-market lease assets are amortized over the remaining lease term. Below-market lease liabilities are amortized over the remaining lease term, plus any below-market, fixed-rate renewal option periods. The weighted-average amortization periods for the intangible lease assets and liabilities acquired in connection with our acquisitions during the years ended December 31, 2022 and 2021, as of the respective date of each acquisition, were both 4.9 years.
Intangible Lease Assets and Liabilities
Intangible lease assets and liabilities as of December 31, 2022 and 2021 included the following:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
(in thousands) |
| Gross |
| Amortization |
| Net |
| Gross |
| Amortization |
| Net | ||||||
Intangible lease assets (1) | $ | 466,663 | $ | (158,757) | $ | 307,906 | $ | 332,176 | $ | (74,001) | $ | 258,175 | ||||||
Above-market lease assets (1) |
| 12,869 |
| (3,872) |
| 8,997 |
| 10,362 |
| (1,838) |
| 8,524 | ||||||
Below-market lease liabilities |
| (129,823) |
| 32,424 |
| (97,399) |
| (89,056) |
| 12,624 |
| (76,432) |
(1) | Included in net investment in real estate properties on the consolidated balance sheets. |
The following table details the estimated net amortization of such intangible lease assets and liabilities, as of December 31, 2022, for the next five years and thereafter:
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Future Minimum Rent
Future minimum base rental payments, which equal the cash basis of monthly contractual rent, owed to us from our customers under the terms of non-cancelable operating leases in effect as of December 31, 2022, excluding rental revenues from the potential renewal or replacement of existing leases, were as follows for the next five years and thereafter:
As of | |||
(in thousands) |
| December 31, 2022 | |
Year 1 | $ | 302,379 | |
Year 2 |
| 277,661 | |
Year 3 |
| 236,649 | |
Year 4 |
| 188,981 | |
Year 5 |
| 138,921 | |
Thereafter |
| 331,273 | |
Total | $ | 1,475,864 |
Rental Revenue Adjustments and Depreciation and Amortization Expense
The following table summarizes straight-line rent adjustments, amortization recognized as an increase (decrease) to rental revenues from above-and below-market lease assets and liabilities, and real estate-related depreciation and amortization expense:
For the Year Ended December 31, | ||||||||||
(in thousands) |
|
| 2022 |
| 2021 |
| 2020 | |||
Increase (Decrease) to Rental Revenue: |
|
|
|
|
|
|
| |||
Straight-line rent adjustments | $ | 16,682 | $ | 9,101 | $ | 4,859 | ||||
Above-market lease amortization |
| (2,034) |
| (1,144) |
| (483) | ||||
Below-market lease amortization |
| 19,800 |
| 6,762 |
| 3,368 | ||||
Real Estate-Related Depreciation and Amortization: |
|
|
|
|
| |||||
Depreciation expense | $ | 181,214 | $ | 70,898 | $ | 25,489 | ||||
Intangible lease asset amortization |
| 84,756 |
| 41,303 |
| 20,994 |
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE PARTNERSHIPS
On July 15, 2020, we acquired, from a subsidiary of Industrial Property Trust (“IPT”), interests in two joint venture partnerships, the Build-To-Core Industrial Partnership I LP (the “BTC I Partnership”) and the Build-To-Core Industrial Partnership II LP (the “BTC II Partnership” and, together with the BTC I Partnership, the “BTC Partnerships”). The BTC Partnerships were formed with third party investors for purposes of investing in industrial properties located in certain major U.S. distribution markets.
On June 15, 2021, we entered into a transaction with our joint venture partners in the BTC I Partnership, pursuant to which we agreed to split the real property portfolio of the BTC I Partnership in an equitable manner, such that following the split, we and QR Master Holdings USA II LP, each owned a 100% interest in approximately half of the portfolio of the BTC I Partnership (the “BTC I Partnership Transaction”). We have no further interest in the BTC I Partnership as a result of the BTC I Partnership Transaction.
On February 15, 2022, we, along with our joint venture partners in the BTC II Partnership, entered into a transaction to split the majority of the properties in the BTC II Partnership’s portfolio amongst three of the four joint venture partners, with the fourth joint venture partner’s respective interest in such properties having been redeemed for $24.9 million (the “BTC II Partnership Transaction”). We have no further interest in the BTC II Partnership as a result of the BTC II Partnership Transaction.
Concurrently with the BTC II Partnership Transaction, we and our joint venture partners formed a new joint venture partnership (the “BTC II B Partnership”), through which we co-own five properties that were part of the original BTC II Partnership’s portfolio and were not part of the BTC II Partnership Transaction. We own an 8.0% interest in the BTC II B Partnership as general partner and as a limited partner.
We have elected the cost accumulation and allocation model to account for the BTC I Partnership Transaction and the BTC II Partnership Transaction, which allocates the cost of the acquisition at the carrying amount of the previously held interests, along with the incremental consideration paid and transaction costs incurred based on relative fair values.
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We have reported our investments in the BTC Partnerships and the BTC II B Partnership under the equity method on our consolidated balance sheets, because with respect to the BTC Partnerships, for the periods prior to the BTC I Partnership Transaction and the BTC II Partnership Transaction, we had the ability to exercise significant influence but did not have control over the partnerships. Similarly, with respect to the BTC II B Partnership, we have the ability to exercise significant influence but do not have control of the partnership.
As of December 31, 2022, we had an 8.0% interest in the BTC II B Partnership, which includes five properties that were either under construction or in the pre-construction phase, with a book value of our investment in the BTC II B Partnership of $19.7 million, which includes $5.3 million of outside basis difference. The outside basis difference originated from the difference between the contributions we made for the minority ownership interest in the joint venture partnership, which was based on fair value, and the book value of our share of the underlying net assets and liabilities of the BTC II B Partnership.
5. DEBT
Our consolidated indebtedness is currently comprised of borrowings under our line of credit, term loans and mortgage notes. Borrowings under the non-recourse mortgage notes are secured by mortgages or deeds of trust and related assignments and security interests in collateralized and certain cross-collateralized properties, which are generally owned by single purpose entities. A summary of our debt is as follows:
Weighted-Average Effective | ||||||||||||
Interest Rate as of | Balance as of | |||||||||||
| December 31, |
| December 31, |
|
| December 31, |
| December 31, | ||||
($ in thousands) | 2022 | 2021 | Maturity Date | 2022 | 2021 | |||||||
Line of credit (1) |
| 5.71 | % | 1.40 | % | March 2025 | $ | 90,000 | $ | — | ||
Term loan (2) |
| 2.87 |
| 2.23 |
| March 2027 |
| 550,000 |
| 415,000 | ||
Term loan (3) | 3.65 | 1.66 | May 2026 | 600,000 | 600,000 | |||||||
Fixed-rate mortgage notes (4) |
| 3.58 |
| 2.93 |
| August 2024 - |
| 996,720 |
| 628,890 | ||
Floating-rate mortgage notes (5) | 3.68 | 1.74 | January 2025 - | 617,250 | 617,250 | |||||||
Total principal amount / weighted-average (6) |
| 3.55 | % | 2.14 | % | $ | 2,853,970 | $ | 2,261,140 | |||
Less unamortized debt issuance costs |
| (26,784) | (16,106) | |||||||||
Add unamortized mark-to-market adjustment on assumed debt |
|
| 427 |
| 639 | |||||||
Total debt, net |
| $ | 2,827,613 | $ | 2,245,673 | |||||||
Gross book value of properties encumbered by debt |
| $ | 2,389,179 | $ | 1,835,561 |
(1) | The effective interest rate is calculated based on either: (i) the Term Secured Overnight Financing Rate (“Term SOFR”) plus a 10 basis point adjustment (“Adjusted Term SOFR”) plus a margin ranging from 1.25% to 2.00%; or (ii) an alternative base rate plus a margin ranging from 0.25% to 1.0%, each depending on our consolidated leverage ratio. Customary fall-back provisions apply if Term SOFR is unavailable. The line of credit is available for general corporate purposes including, but not limited to, our acquisition and operation of permitted investments. As of December 31, 2022, total commitments for the line of credit were $1.0 billion, and the unused and available portions under the line of credit were both $910.0 million. |
(2) | The effective interest rate is calculated based on either (i) Adjusted Term SOFR plus a margin ranging from 1.20% to 1.90%; or (ii) an alternative base rate plus a margin ranging from 0.20% to 0.90%, depending on our consolidated leverage ratio. The weighted-average effective interest rate is the all-in interest rate, including the effects of interest rate swap agreements which fix Term SOFR for the term loan. As of December 31, 2022, total commitments for the term loan were $550.0 million. This term loan is available for general corporate purposes including, but not limited to, our acquisition and operation of permitted investments. |
(3) | The effective interest rate is calculated based on Term SOFR plus a 11.448 basis point adjustment plus a margin ranging from 1.35% to 2.20%; or (ii) an alternative base rate plus a margin ranging from 0.35% to 1.20%, depending on our consolidated leverage ratio. The weighted-average effective interest rate is the all-in interest rate, including the effects of interest rate swap agreements which fix Term SOFR for $525.0 million of borrowings. As of December 31, 2022, total commitments for the term loan were $600.0 million. This term loan is available for general corporate purposes including, but not limited to, our acquisition and operation of permitted investments. |
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(4) | Interest rates range from 2.85% to 4.71%. The assets and credit of each of our consolidated properties pledged as collateral for our mortgage notes are not available to satisfy our other debt and obligations, unless we first satisfy the mortgage notes payable on the respective underlying properties. |
(5) | The effective interest rate of the $209.3 million mortgage note is calculated based on Adjusted Term SOFR plus a margin of 1.50%, including the effects of an interest rate cap agreement on $170.0 million of borrowings. The effective interest rate of the $408.0 million mortgage note is calculated based on Adjusted Term SOFR plus a margin of 1.65%, including the effects of an interest rate cap agreements. |
(6) | The weighted-average remaining term of our consolidated debt was approximately 3.6 years as of December 31, 2022, excluding any extension options on the line of credit and the floating-rate mortgage notes. |
For the years ended December 31, 2022, 2021 and 2020, the amount of interest incurred related to our consolidated indebtedness was $82.2 million, $23.5 million and $12.6 million, respectively. See “Note 6” for the amount of interest incurred related to the DST Program (as defined below).
As of December 31, 2022, the principal payments due on our consolidated debt during each of the next five years and thereafter were as follows:
(1) | The line of credit matures in March 2025 and the term may be extended pursuant to two one-year extension options, subject to certain conditions. |
(2) | The $209.3 million mortgage note matures in July 2025 and the term may be extended pursuant to a one-year extension option, subject to certain conditions. The $408.0 million mortgage note matures in January 2025 and the $367.8 million mortgage note matures in July 2025 and the terms of may be pursuant to two one-year extension options, subject to certain conditions. |
As of December 31, 2022, we have no indebtedness with initial or extended maturity dates beyond 2023 that has exposure to LIBOR.
Debt Covenants
Our line of credit, term loans and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, the line of credit and term loan agreements contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. We were in compliance with all covenants as of December 31, 2022.
Derivative Instruments
To manage interest rate risk for certain of our variable-rate debt, we use interest rate derivative instruments as part of our risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the interest rate swap agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable amounts from a counterparty at the end of each period in which the interest rate exceeds the agreed fixed price. Interest rate caps are not designated as hedges. Certain of our variable-rate borrowings are not hedged, and therefore, to an extent, we have on-going exposure to interest rate movements.
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For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss is recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) on the consolidated balance sheets and is reclassified into earnings as interest expense for the same period that the hedged transaction affects earnings, which is when the interest expense is recognized on the related debt. As of December 31, 2022, the interest rate cap derivative instruments are not designated as hedges and therefore, changes in fair value are recognized through income. As a result, in periods with high interest rate volatility, we may experience significant fluctuations in our net income (loss).
During the next 12 months, we estimate that approximately $39.0 million will be reclassified as a decrease to interest expense related to active effective hedges of existing floating-rate debt.
The following table summarizes the location and fair value of the derivative instruments on our consolidated balance sheets as of December 31, 2022 and 2021:
The following table presents the effect of our derivative instruments on our consolidated financial statements:
6. DST PROGRAM
We have a program to raise capital through private placement offerings by selling beneficial interests (the “DST Interests”) in specific Delaware statutory trusts holding real properties (the “DST Program”). Under the DST Program, each private placement offers interests in one or more real properties placed into one or more Delaware statutory trust(s) by the Operating Partnership or its affiliates (“DST Properties”). DST Properties may be sourced from properties currently indirectly owned by the Operating Partnership or newly acquired properties. The underlying interests of real properties sold to investors pursuant to such private placements are leased-back by an indirect wholly owned subsidiary of the Operating Partnership on a long-term basis. These master lease agreements are fully guaranteed by the Operating Partnership. Additionally, the Operating Partnership retains a fair market value purchase option giving it the right, but not the obligation, to acquire the interests in the Delaware statutory trusts from the investors at a later time in exchange for OP Units.
Under the master lease, we are responsible for subleasing the property to occupying customers and all underlying costs associated with operating the property, and is responsible for paying rent to the Delaware statutory trust that owns such property. As such, for financial reporting purposes (and not for income tax purposes), the DST Properties are included in our consolidated financial statements, with the master lease rent payment obligations taking the place of the cost of equity and debt capital. Accordingly, for financial reporting purposes, the rental revenues and rental expenses associated with the underlying property of each master lease are included in the respective line item on the consolidated statements of operations. Consistent with the foregoing, rental payments made to the Delaware statutory trusts pursuant to the master lease agreements are accounted for using the interest method whereby a portion is accounted for as interest expense
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and a portion is accounted for as an accretion or amortization of the outstanding principal balance of the financing obligations. The net amount we receive from the underlying properties subject to the master lease may be more or less than the amount we pay to the investors of the DST Program and could fluctuate over time.
Consistent with the financial reporting position described herein, the proceeds from each private placement under the DST Program are accounted for as a financing obligation on the consolidated balance sheets due to the fact that we have an option (which may or may not be exercised) to purchase the interests in the Delaware statutory trusts and thereby acquire the real property owned by the Delaware statutory trusts. Consistent with the financial reporting position described herein, upfront costs incurred for services provided by the Advisor and its affiliates related to the DST Program are accounted for as deferred financing costs and are netted against the financing obligation.
In order to facilitate additional capital raise through the DST Program, we have made and may continue to offer loans (“DST Program Loans”) to finance a portion of the sale of DST Interests in the trusts holding DST Properties to potential investors. As of December 31, 2022 and 2021, there were approximately $152.4 million and $68.8 million, respectively, of outstanding DST Program Loans that we have made to partially finance the sale of DST Interests. We include our investments in DST Program Loans separately on our balance sheets in the DST Program Loans line item and we include income earned from DST Program Loans in other income and expenses on our consolidated statements of operations.
The following table presents our DST Program activity for the years ended December 31, 2022, 2021, and 2020:
(1) | The DST Program was not in place during the year ended December 31, 2020. |
(2) | DST Program Loans are presented net of repayments. |
(3) | Included in other income and expenses on consolidated statements of operations. |
(4) | Included in interest expense on consolidated statements of operations. |
Refer to “Note 11” for detail relating to the fees paid to the Advisor, the Dealer Manager and their affiliates for raising capital through the DST Program.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that we would realize upon disposition of our financial instruments.
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Fair Value Measurements on a Recurring Basis
The following table presents our financial instruments measured at fair value on a recurring basis as of December 31, 2022 and 2021:
|
|
|
| Total | ||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||
As of December 31, 2022 |
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|
|
|
|
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| ||||
Assets | ||||||||||||
Interest rate swaps | $ | — | $ | 70,994 | $ | — | $ | 70,994 | ||||
Interest rate caps | — | 28,339 | — | 28,339 | ||||||||
Available-for-sale debt securities | — | 60,033 | — | 60,033 | ||||||||
Total assets measured at fair value | $ | — | $ | 159,366 | $ | — | $ | 159,366 | ||||
As of December 31, 2021 |
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|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
| ||||
Interest rate swaps | $ | — | $ | 2,653 | $ | — | $ | 2,653 | ||||
Interest rate caps | 3,164 | 3,164 | ||||||||||
Total assets measured at fair value | $ | — | $ | 5,817 | $ | — | $ | 5,817 |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Derivative Instruments. The derivative instruments are interest rate swaps and interest rate caps whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable inputs, including interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to the derivative instruments being unique and not actively traded, the fair value is classified as Level 2. See “Note 5” above for further discussion of our derivative instruments.
Available-for-Sale Debt Securities. The available-for-sale debt securities are debt securities collateralized by mortgages on commercial real estate properties whose fair value is estimated using third-party broker quotes, which provide valuation estimates based upon contractual cash flows, observable inputs comprising credit spreads and market liquidity. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to the available-for-sale debt securities being unique and not actively traded, the fair value is classified as Level 2.
Nonrecurring Fair Value Measurements
As of December 31, 2022 and 2021, the fair values of cash and cash equivalents, restricted cash, tenant receivables, prepaid expenses, other assets, due from/to affiliates, accounts payable and accrued liabilities, and distributions payable approximate their carrying values due to the short-term nature of these instruments. The table below includes fair values for certain of our financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:
As of December 31, 2022 |
| As of December 31, 2021 | ||||||||||
| Carrying |
| Fair |
| Carrying |
| Fair | |||||
(in thousands) | Value (1) | Value | Value (1) | Value | ||||||||
Assets: | ||||||||||||
DST Program Loans | $ | 152,402 | $ | 146,728 | $ | 68,772 | $ | 68,772 | ||||
Liabilities: | ||||||||||||
Term loans |
| 1,150,000 |
| 1,150,000 |
| 1,015,000 |
| 1,015,000 | ||||
Mortgage notes |
| 1,613,970 |
| 1,521,046 |
| 1,246,140 |
| 1,247,307 |
(1) | The carrying value reflects the principal amount outstanding. |
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8. STOCKHOLDERS’ EQUITY
Public Offering
We intend to conduct a continuous public offering that will not have a predetermined duration, subject to continued compliance with the rules and regulations of the SEC and applicable state laws. On August 4, 2021, the SEC declared our registration statement on Form S-11 with respect to our third public offering of up to $5.0 billion of shares of our common stock effective, and the third public offering commenced the same day. Under the third public offering, we are offering up to $3.75 billion of shares of our common stock in the primary offering and up to $1.25 billion of shares of our common stock pursuant to our distribution reinvestment plan, in any combination of Class T shares, Class D shares and Class I shares. We may reallocate amounts between the primary offering and distribution reinvestment plan.
The Class T shares, Class D shares, and Class I shares, all of which are collectively referred to herein as shares of common stock, have identical rights and privileges, including identical voting rights, but have differing fees that are payable on a class-specific basis. The per share amount of distributions paid on Class T shares and Class D shares will be lower than the per share amount of distributions paid on Class I shares because of the distribution fees payable with respect to Class T shares and Class D shares sold in the primary offering.
Pursuant to our public offering, we offered and continue to offer shares of our common stock at the “transaction price,” plus applicable selling commissions and dealer manager fees. The “transaction price” generally is equal to the net asset value (“NAV”) per share of our common stock most recently disclosed. Our NAV per share is calculated as of the last calendar day of each month for each of our outstanding classes of stock, and will be available generally within 15 calendar days after the end of the applicable month. Shares issued pursuant to our distribution reinvestment plan are offered at the transaction price, as indicated above, in effect on the distribution date. We may update a previously disclosed transaction price in cases where we believe there has been a material change (positive or negative) to our NAV per share relative to the most recently disclosed monthly NAV per share.
During the year ended December 31, 2022, we raised gross proceeds of approximately $1.0 billion from the sale of approximately 71.3 million shares of our common stock in our ongoing public offering, including proceeds from our distribution reinvestment plan of approximately $76.4 million.
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Common Stock
The following table summarizes the changes in the shares outstanding for each class of common stock for the periods presented below:
| Class T |
| Class D |
| Class I |
| Total | |
(in thousands) | Shares | Shares | Shares (1) | Shares | ||||
Balance as of December 31, 2019 |
| 45,240 |
| 2,736 |
| 1,299 |
| 49,275 |
Issuance of common stock: |
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|
|
|
|
|
|
Primary shares |
| 83,136 |
| 5,032 |
| 1,451 |
| 89,619 |
DRIP |
| 2,622 |
| 155 |
| 64 |
| 2,841 |
Stock grants | — | — | 229 | 229 | ||||
Redemptions |
| (433) |
| (57) |
| (3) |
| (493) |
Balance as of December 31, 2020 | 130,565 | 7,866 | 3,040 | 141,471 | ||||
Issuance of common stock: |
|
|
|
|
|
|
|
|
Primary shares |
| 73,534 |
| 5,614 |
| 33,790 |
| 112,938 |
DRIP |
| 4,234 |
| 283 |
| 387 |
| 4,904 |
Stock grants, net of cancellations |
| — |
| — |
| 233 |
| 233 |
Redemptions |
| (2,204) |
| (114) |
| (32) |
| (2,350) |
Forfeitures | — | — | (27) | (27) | ||||
Balance as of December 31, 2021 |
| 206,129 |
| 13,649 |
| 37,391 |
| 257,169 |
Issuance of common stock: |
|
|
|
|
|
|
|
|
Primary shares |
| 40,034 |
| 7,308 |
| 18,636 |
| 65,978 |
DRIP |
| 4,002 |
| 355 |
| 981 |
| 5,338 |
Stock grants, net of cancellations |
| — |
| — |
| 193 |
| 193 |
Redemptions |
| (9,120) |
| (735) |
| (4,254) |
| (14,109) |
Conversions | (13,780) | — | 13,780 | — | ||||
Forfeitures | — | — | (25) | (25) | ||||
Balance as of December 31, 2022 |
| 227,265 |
| 20,577 |
| 66,702 |
| 314,544 |
(1) | Includes 20,000 Class I shares sold to the Advisor in November 2014. See “Note 11” for additional information. |
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Distributions. The following table summarizes our distribution activity (including distributions to noncontrolling interests and distributions reinvested in shares of our common stock) for each of the quarters ended below:
(1) | Amounts reflect the quarterly distribution rate authorized by our board of directors per Class T share, per Class D share, and per Class I share of common stock. Distributions were declared and paid as of monthly record dates. These monthly distributions have been aggregated and presented on a quarterly basis. The distributions on Class T shares and Class D shares of common stock are reduced by the respective distribution fees that are payable with respect to such Class T shares and Class D shares. |
(2) | Consists of distributions paid to holders of OP Units for redeemable noncontrolling interests. |
(3) | Distribution fees are paid monthly to Ares Wealth Management Solutions, LLC (the “Dealer Manager”) with respect to Class T shares and Class D shares issued in the primary portion of our public offerings only. All or a portion of these amounts will be retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers. Refer to “Note 11” for further detail regarding distribution fees. |
(4) | Gross distributions are total distributions before the deduction of any distribution fees relating to Class T shares and Class D shares issued in the primary portion of our public offerings. |
Redemptions
Below is a summary of redemptions and repurchases pursuant to our share redemption program for the years ended December 31, 2022, 2021 and 2020. All eligible redemption requests were fulfilled for the periods presented. Our board of directors may modify or suspend our current share redemption programs if it deems such action to be in the best interest of our stockholders:
| For the Year Ended December 31, | ||||||||
(in thousands, except per share data) |
| 2022 |
| 2021 |
| 2020 | |||
Number of eligible shares redeemed | 14,109 | 2,350 | 493 | ||||||
Aggregate dollar amount of shares redeemed | $ | 213,444 | $ | 25,109 | $ | 4,867 | |||
Average redemption price per share | $ | 15.13 | $ | 10.68 | $ | 9.87 |
9. REDEEMABLE NONCONTROLLING INTERESTS
The Operating Partnership’s net income and loss will generally be allocated to the general partner and the limited partners in accordance with the respective percentage interest in the OP Units issued by the Operating Partnership.
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The Operating Partnership issued OP Units to the Advisor and Former Sponsor as payment of the performance participation allocation (also referred to as the performance component of the advisory fee) pursuant to the Advisory Agreement. The Former Sponsor subsequently transferred these OP Units to its members or their affiliates. We have classified these OP Units as redeemable noncontrolling interests in mezzanine equity on the consolidated balance sheets. The redeemable noncontrolling interests are recorded at the greater of the carrying amount, adjusted for its share of the allocation of income or loss and dividends, or the redemption value, which is equivalent to fair value, of such OP Units at the end of each measurement period.
The following table summarizes the redeemable noncontrolling interests activity for the years ended December 31, 2022 and 2021:
For the Year Ended December 31, | ||||||
($ in thousands) |
| 2022 | 2021 | |||
Balance at beginning of the year | $ | 15,687 | $ | 3,648 | ||
Settlement of prior year performance participation allocation (1) | 81,185 | 9,640 | ||||
Distributions to redeemable noncontrolling interests | (2,493) | (715) | ||||
Redemptions of redeemable noncontrolling interests (2) | (40,915) | — | ||||
Net loss attributable to redeemable noncontrolling interests | (4,874) | (498) | ||||
Change from cash flow hedging activities and available-for-sale securities attributable to redeemable noncontrolling interests | 1,043 | 81 | ||||
Redemption value allocation adjustment to redeemable noncontrolling interests (3) | 19,920 | 3,531 | ||||
Ending balance | $ | 69,553 | $ | 15,687 |
(1) | The 2021 performance participation allocation in the amount of $81.2 million became payable on December 31, 2021, and was issued as 6,494,463 Class I OP Units in January 2022 to the holder of a separate series of partnership interests in the Operating Partnership with special distribution rights (the “Special Units”), AIREIT Incentive Fee LP (the “Special Unit Holder”). At the direction of the Advisor, and in light of our Former Sponsor having been the holder of the Special Units, for the first six months of 2021, the Special Unit Holder designated 3,221,460 of these Class I OP Units to entities affiliated with our Former Sponsor. The Special Unit Holder transferred 3,273,003 Class I OP Units to the Advisor thereafter. The 2020 performance participation allocation in the amount of $9.6 million became payable to the Former Sponsor, as the former holder of the Special Units, on December 31, 2020. At the Former Advisor’s election, it was paid in the form of Class I OP Units valued at $9.6 million (based on the NAV per unit as of December 31, 2020), which were issued to the Former Sponsor in January 2021 and subsequently transferred to its members or their affiliates. |
(2) | At the request of the Advisor, the Operating Partnership redeemed all Class I OP Units issued to the Advisor in January 2022 for $40.9 million. |
(3) | Represents the adjustment recorded in order to mark to the redemption value, which is equivalent to fair value at the end of the measurement period. |
10. INCOME TAXES
Distributions
Distributions to stockholders are characterized for U.S. federal income tax purposes as: (i) ordinary income; (ii) non-taxable return of capital; or (iii) long-term capital gain. Distributions that exceed our current and accumulated tax earnings and profits constitute a return of capital and reduce the stockholders’ basis in the common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholders’ basis in the common shares, the distributions will generally be treated as a gain from the sale or exchange of such stockholders’ common shares. For taxable years beginning before January 1, 2026, all distributions (other than distributions designated as capital gain distributions and distributions traceable to distributions from a taxable REIT subsidiary) which are received by a pass-through entity or an individual, are eligible for a 20% deduction from gross income. At the beginning of each year, we
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notify our stockholders of the taxability of the distributions paid during the preceding year. The unaudited preliminary taxability of our 2022, 2021 and 2020 distributions were:
The decrease in taxable income for the year ended December 31, 2022, compared to the same period of the previous year, is primarily due to (i) the increase in the incentive-based performance participation allocation to $140.5 million for the year ended December 31, 2022, as compared to $81.2 million for the same period of the previous year and (ii) our Advisor’s election to settle 55.4% of the 2022 performance participation allocation in cash instead of OP Units, which is deductible as an ordinary business deduction, as compared to the 2021 performance participation allocation, which the Advisor elected to settle entirely in OP Units, which is not deductible for tax purposes.
We have concluded that there was no impact related to uncertain tax positions from our results of operations for the years ended December 31, 2022, 2021 and 2020. The U.S. is the major tax jurisdiction for us and the earliest tax year subject to examination by the taxing authority is 2019.
11. RELATED PARTY TRANSACTIONS
We rely on the Advisor, a related party, to manage our day-to-day operating and acquisition activities and to implement our investment strategy pursuant to the terms of the Advisory Agreement. The current term of the Advisory Agreement ends April 30, 2023, subject to renewals by our board of directors for an unlimited number of successive one-year periods. The Dealer Manager provides dealer manager services in connection with the third public offering pursuant to the terms of the dealer manager agreement, dated as of February 11, 2022 (the “Dealer Manager Agreement”), by and among us, the Advisor and the Dealer Manager. On July 1, 2021, Ares closed on the acquisition of Black Creek Group’s U.S. real estate investment advisory and distribution business, including our Former Advisor (the “Transaction”). On the same date, our Former Advisor assigned the then-current advisory agreement to our New Advisor. Ares did not acquire the Former Sponsor, and we now consider Ares real estate group to be our sponsor. Prior to the Transaction, the Former Sponsor, which owned the Former Advisor, was directly or indirectly majority owned by the estate of John A. Blumberg, James R. Mulvihill and Evan H. Zucker and/or their affiliates and the Former Sponsor and the Former Advisor were jointly controlled by the estate of Mr. Blumberg, Messrs Mulvihill and Zucker and/or their respective affiliates. The Advisor, the Sponsor and the Dealer Manager receive compensation in the form of fees and expense reimbursements for services relating to the public offerings and for the investment and management of our assets. The following is a description of the fees and expense reimbursements payable to the Advisor, the Sponsor, and the Dealer Manager. This summary does not purport to be a complete summary of the Advisory Agreement, the Dealer Manager Agreement, and the tenth amended and restated limited partnership agreement of the Operating Partnership.
Selling Commissions, Dealer Manager Fees and Distribution Fees. The Dealer Manager is entitled to receive upfront selling commissions and dealer manager fees with respect to Class T shares sold in the primary offering. The upfront selling commissions and dealer manager fees are calculated as a percentage of the offering price at the time of purchase of such shares. All or a portion of the upfront selling commissions and dealer manager fees will be retained by, or reallowed to, participating broker dealers. In addition, the Dealer Manager is entitled to receive ongoing distribution fees based on the NAV of Class T shares and Class D shares sold in the primary portion of the offerings. The distribution fees will be payable monthly in arrears and will be paid on a continuous basis from year to year. The Dealer Manager will reallow the distribution fees to participating broker dealers and broker dealers servicing accounts of investors who own Class T shares and/or Class D shares. The following table details the selling commissions, dealer manager fees and distribution fees applicable for each share class. With respect to Class T shares, the distribution fees were payable at a rate of 1.0% of NAV per annum for periods prior to March 1, 2021. With respect to Class D shares, the distribution fees are payable at a rate of 0.25% of NAV per annum for periods after December 31, 2021.
| Class T | Class D | Class I | ||||||
Selling commissions (as % of offering price) |
| up to 2.0 | % | — | % | — | % | ||
Dealer manager fees (as % of offering price) |
| up to 2.5 | % | — | % | — | % | ||
Distribution fees (as % of NAV per annum) |
| 0.85 | % | 0.50 | % | — | % |
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We will cease paying the distribution fees with respect to individual Class T shares and Class D shares when they are no longer outstanding, including as a result of a conversion to Class I shares. Each Class T share or Class D share held within a stockholder’s account shall automatically and without any action on the part of the holder thereof convert into a number of Class I shares at the applicable conversion rate on the earliest of: (i) a listing of any shares of our common stock on a national securities exchange; (ii) our merger or consolidation with or into another entity, or the sale or other disposition of all or substantially all of our assets; and (iii) the end of the month in which the Dealer Manager, in conjunction with our transfer agent, determines that the total upfront selling commissions, upfront dealer manager fees and ongoing distribution fees paid with respect to all shares of such class held by such stockholder within such account (including shares purchased through the distribution reinvestment plan or received as stock dividends) equals or exceeds 8.5% of the aggregate purchase price of all shares of such class held by such stockholder within such account and purchased in the primary portion of the offerings.
Advisory Fee. The advisory fee consists of a fixed component and a performance participation allocation. The fixed component of the advisory fee includes a fee that will be paid monthly to the Advisor for asset management services provided to us in an amount equal to 1/12th of 1.25% of (a) the applicable monthly NAV per Fund Interest times the weighted-average number of Fund Interests for such month and (b) the consideration received by us or our affiliates for selling interests in properties under the DST Program. Prior to February 16, 2021, the fixed component of the advisory fee was accrued in the amount of 1/12th of 0.80% of the aggregate cost of each real property asset within our portfolio. “Fund Interests” means the outstanding shares of our common stock and any OP Units held by third parties.
The performance participation allocation, which will be paid to the holder of a separate series of partnership interests in the Operating Partnership with special distribution rights (the “Special Units”), is a performance-based amount in the form of an allocation and distribution. This amount will be paid to the holder of the Special Units, so long as the Advisory Agreement has not been terminated, as a performance participation interest with respect to the Special Units or, at the election of the Advisor, all or a portion of this amount will be paid instead to the Special Unit Holder in the form of a cash fee, as described in the Advisory Agreement.
The performance participation allocation is calculated as the lesser of: (1) 12.5% of (a) the annual total return amount less (b) any loss carryforward; and (2) the amount equal to (x) the annual total return amount, less (y) any loss carryforward, less (z) the amount needed to achieve an annual total return amount equal to 5.0% of the NAV per Fund Interest at the beginning of such year (the “Hurdle Amount”). The foregoing calculations are calculated on a per Fund Interest basis and multiplied by the weighted average Fund Interests outstanding during the year. In no event will the performance participation allocation be less than zero. Accordingly, if the annual total return amount exceeds the Hurdle Amount plus the amount of any loss carryforward, then the performance participation allocation will be equal to 100.0% of such excess, but limited to 12.5% of the annual total return amount that is in excess of the loss carryforward.
The “annual total return amount” referred to above means all distributions paid or accrued per Fund Interest plus any change in NAV per Fund Interest since the end of the prior calendar year, adjusted to exclude the negative impact on annual total return resulting from our payment or obligation to pay, or distribute, as applicable, the performance participation allocation as well as ongoing distribution fees (i.e., our ongoing class-specific fees). If the performance participation allocation is being calculated with respect to a year in which we complete a liquidity event, for purposes of determining the annual total return amount, the change in NAV per Fund Interest will be deemed to equal the difference between the NAV per Fund Interest as of the end of the prior calendar year and the value per Fund Interest determined in connection with such liquidity event, as described in the Advisory Agreement. The “loss carryforward” referred to above tracks any negative annual total return amounts from prior years and offsets the positive annual total return amount for purposes of the calculation of the performance participation allocation. The loss carryforward was zero as of December 31, 2022.
Organization and Offering Expenses. The Advisor agreed to advance all of our organization and offering expenses on our behalf, excluding upfront selling commissions, dealer manager fees and distribution fees, through December 31, 2019. We agreed to reimburse the Advisor for all such advanced expenses ratably over the 60 months following December 31, 2019 and reimbursed in full in January 2021, as described below. Beginning January 1, 2020, we either pay organization and offering expenses directly or reimburse the Advisor and the Dealer Manager for any organization and offering expenses that it pays on our behalf as and when incurred. Our total cumulative organization and offering expenses may not exceed 15.0% of the gross proceeds from the primary portion of the applicable offering. As such, we would not consider organization and offering expenses above that amount to be payable, but such amounts may become payable in the future. There were no organization and offering expenses owed to the Advisor by us as of December 31, 2022 and 2021. As of December 31, 2022, our cumulative organization and offering expenses had not exceeded 15.0% of the gross proceeds from the primary portion of the offerings.
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Development Fees. Pursuant to the Advisory Agreement, we have agreed to pay the Advisor a development fee in connection with providing services related to the development, construction, improvement or stabilization, including tenant improvements, of development properties or overseeing the provision of these services by third parties on behalf of us. The fee will be an amount that will be equal to 4.0% of total project cost of the development property (or our proportional interest therein with respect to real property held in joint ventures or other entities that are co-owned). If the Advisor engages a third party to provide development services, the third party will be compensated directly by us, and the Advisor will receive the development fee if it provides development oversight services.
Fees from Other Services. We may retain certain of the Advisor’s affiliates, from time to time, for services relating to our investments or our operations, which may include property management services, leasing services, corporate services, statutory services, transaction support services, construction and development management, and loan management and servicing, and within one or more such categories, providing services in respect of asset and/or investment administration, accounting, technology, tax preparation, finance, treasury, operational coordination, risk management, insurance placement, human resources, legal and compliance, valuation and reporting-related services, as well as services related to mortgage servicing, group purchasing, healthcare, consulting/brokerage, capital markets/credit origination, property, title and/or other types of insurance, management consulting and other similar operational matters. Any fees paid to the Advisor’s affiliates for any such services will not reduce the advisory fees. Any such arrangements will be at market rates or reimbursement of costs.
Acquisition Expense Reimbursements. Pursuant to the Advisory Agreement, subject to certain limitations, we agreed to reimburse the Advisor for all acquisition expenses incurred on our behalf in connection with the selection, acquisition, development or origination of our investments, whether or not such investments are acquired. As these expense reimbursements were not directly attributable to a specified property, they were expensed as incurred on the consolidated statements of operations.
Property-Level Accounting Services. Pursuant to the Advisory Agreement, we have agreed to pay the Advisor a property accounting fee in connection with providing services related to accounting for real property operations, including the maintenance of the real property’s books and records in accordance with GAAP and our policies, procedures, and internal controls, in a timely manner, and the processing of real property-related cash receipts and disbursements. The property accounting fee is equal to the difference between: (i) the property management fee charged with respect to each real property, which reflects the market rate for all real property management services, including property-level accounting services, based on rates charged for similar properties within the region or market in which the real property is located, and (ii) the amount paid to third-party property management firms for property management services, which fee is based on an arm’s length negotiation with a third party property management service provider (the difference between (i) and (ii), the “property accounting fee”).
DST Program
DST Program Dealer Manager Fees. In connection with the DST Program, as described in “Note 6,” Ares Industrial Real Estate Exchange LLC (“AIREX”), a wholly-owned subsidiary of our taxable REIT subsidiary that is wholly-owned by the Operating Partnership, entered into a dealer manager agreement with the Dealer Manager, pursuant to which the Dealer Manager agreed to conduct the private placements for interests reflecting an indirect ownership of up to $1.5 billion of interests. The Advisor, Dealer Manager and certain of their affiliates receive fees and reimbursements in connection with their roles in the DST Program, which costs are substantially funded by the private investors in that program, through one or more purchase price “mark ups” of the initial estimated fair value of the DST Properties to be sold to investors, fees paid by the investors at the time of investment, or deductions from distributions paid to such investors.
AIREX will pay certain up-front fees and reimburse certain related expenses to the Dealer Manager with respect to capital raised through the DST Program. AIREX is obligated to pay the Dealer Manager a dealer manager fee of up to 1.5% of gross equity proceeds raised and a commission of up to 5.0% of gross equity proceeds raised through the private placements. In addition, with respect to certain classes of interests (or the corresponding classes of OP Units or shares for which they may be exchanged in certain circumstances) we, the Operating Partnership or AIREX will pay the Dealer Manager ongoing fees in amounts up to 1.0% of the equity investment or net asset value thereof per year. The Dealer Manager may re-allow such commissions, ongoing fees and a portion of such dealer manager fees to participating broker dealers. In addition, pursuant to the dealer manager agreement for the DST Program, we, or our subsidiaries, are obligated to reimburse the Dealer Manager for (a) customary travel, lodging, meals and reasonable entertainment expenses incurred in connection with the private placements; (b) costs and expenses of conducting educational conferences and seminars, attending broker-dealer sponsored conferences, or educational conferences sponsored by AIREX; (c) customary promotional items; and (d) legal fees of the Dealer Manager.
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Pursuant to the Advisory Agreement and Operating Partnership Agreement, DST Properties are included when calculating the fixed advisory fee and the performance participation allocation due to the Advisor. Furthermore, because the Advisor funds certain Dealer Manager personnel costs that are not reimbursed under the DST Program dealer manager agreement, we have also agreed to pay the Advisor a fee equal to the fee paid by DST Program investors for these costs, which is up to 1.5% of the total equity amount paid for the interests.
DST Manager Fees. AIREX Manager LLC (the “DST Manager”), a wholly owned subsidiary of the Operating Partnership, acts, directly or through a wholly-owned subsidiary, as the manager of each Delaware statutory trust holding a DST Property, but has assigned all of its rights and obligations as manager (including fees and reimbursements received) to AIREX Advisor LLC (“DST Advisor”), an affiliate of the Advisor. While the intention is to sell 100% of the interests to third parties, AIREX may hold an interest for a period of time and therefore could be subject to the following description of fees and reimbursements paid to the DST Manager. The DST Manager will have primary responsibility for performing administrative actions in connection with the trust and any DST Property and has the sole power to determine when it is appropriate for a trust to sell a DST Property. For its services, DST Advisor will receive, through the DST Manager, (i) a management fee equal to a stated percentage (e.g., 1.0%) of the gross rents payable to the trust, with such amount to be set on a deal-by-deal basis, (ii) a loan fee of up to 1.0% for any financing provided by us in connection with the DST Program (in which case a subsidiary of ours would provide the debt financing and earn interest thereon, as discussed further below), (iii) reimbursement of certain expenses associated with the establishment, maintenance and operation of the trust and DST Properties and the sale of any DST Property to a third party, and (iv) up to 1.0% of the gross equity proceeds as compensation for the development and design of the DST Program and ongoing oversight of the offering and the DST Program. Furthermore, to the extent that the Operating Partnership exercises its fair market value purchase option to acquire the interests from the investors at a later time in exchange for OP Units, and such investors subsequently submit such OP Units for redemption pursuant to the terms of the Operating Partnership, a redemption fee of up to 1.0% of the amount otherwise payable to a limited partner upon redemption will be paid to DST Manager subject to the terms of the applicable DST Program offering documents.
In connection with the DST Program, AIREX maintains a loan program and may, upon request, provide DST Program Loans to certain purchasers of the interests in the DST Interests to finance a portion of the purchase price payable upon their acquisition of such DST Interests (the “Purchase Price”). The DST Program Loans are made by a subsidiary of ours (the “DST Lender”). The DST Program Loans may differ in original principal amounts. The original principal amount of the DST Program Loans expressed as a percentage of the total Purchase Price for the applicable DST Interests may also vary, but no DST Program Loan to any purchaser will exceed 50% of the Purchase Price paid by such purchaser for its DST Interest in the Trust, excluding the amount of the Origination Fee, as hereinafter defined. Each purchaser that elects to obtain a DST Program Loan, will pay an origination fee to the DST Manager equal to up to 1.0% of the original principal amount of its DST Program Loan (the “Origination Fee”) upon origination of such DST Program Loan, which Origination Fee will be assigned by the DST Manager to an affiliate of the Advisor. The purchaser will be required to represent, among other things, that no portion of the Purchase Price for its DST Interest and no fee paid in connection with the acquisition of its DST Interest (including, without limitation, the Origination Fee) has been or will be funded with any nonrecourse indebtedness other than the DST Program Loan.
The table below summarizes the fees and expenses incurred by us for services provided by the Advisor and its affiliates, and by the Dealer Manager related to the services the Dealer Manager provided in connection with our public offerings, and any related amounts payable:
(1) | All or a portion of these amounts will be retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers. |
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(2) | The distribution fees are payable monthly in arrears. Additionally, we accrue for future estimated amounts payable related to ongoing distribution fees. The future estimated amounts payable were approximately $92.1 million and $85.4 million as of December 31, 2022 and 2021, respectively. |
(3) | The 2022 performance participation allocation in the amount of $140.5 million became payable on December 31, 2022, and the Advisor elected to settle the amounts owed partially in cash in the amount of $77.8 million and the remainder in 4.1 million OP Units. |
(4) | Other expense reimbursements include certain expenses incurred for organization and offering, acquisition and general administrative services provided to us under the Advisory Agreement, including, but not limited to, certain expenses described below after footnote 7, allocated rent paid to both third parties and affiliates of the Advisor, equipment, utilities, insurance, travel and entertainment. |
(5) | Includes costs reimbursed to the Advisor related to the DST Program. |
(6) | The cost of the property management fee, including the property accounting fee, is generally borne by the tenant or tenants at each real property, either via a direct reimbursement to us or, in the case of tenants subject to a gross lease, as part of the lease cost. In certain limited circumstances, we may pay for a portion of the property management fee, including the property accounting fee, without reimbursement from the tenant or tenants at a real property. |
(7) | Development fees are included in the total development project costs of the respective properties and are capitalized in construction in progress, which is included in net investment in real estate properties on our consolidated balance sheets. Amounts also include our proportionate share of development acquisition fees relating to the BTC Partnerships, which are included in investment in unconsolidated joint venture partnership(s) on our consolidated balance sheets. |
Certain of the expense reimbursements described in the table above include a portion of the compensation expenses of officers, including a portion of compensation (whether paid in cash, stock, or other forms), benefits and other overhead costs of certain of our named executive officers, as well as employees of the Advisor or its affiliates related to activities for which the Advisor did not otherwise receive a separate fee. We incurred approximately $11.4 million, $10.1 million and $8.3 million for the years ended December 31, 2022, 2021 and 2020 respectively, for such compensation expenses reimbursable to the Advisor.
Transactions with Affiliates
The Operating Partnership issued 100 Special Units to the Former Sponsor for consideration of $1,000. The Special Units are classified as noncontrolling interests. On July 1, 2021, the 100 Special Units were assigned to the Advisor and in December 2021, the Advisor assigned the 100 Special Units to its subsidiary, the Special Unit Holder.
Joint Venture Partnerships
From the beginning of the first quarter of 2022 until the completion of the BTC II Partnership Transaction, the BTC II Partnership incurred approximately $1.8 million in acquisition and asset management fees, and fees related to development, which were paid to affiliates of the Advisor pursuant to the respective service agreements. For the year ended December 31, 2021, the BTC Partnerships incurred in aggregate approximately $10.1 million in acquisition and asset management fees, and fees related to development, which were paid to affiliates of the Advisor pursuant to their respective service agreements. We had amounts due to the BTC II Partnership of approximately $0.2 million as of December 31, 2021, which were recorded in other liabilities on the consolidated balance sheets.
From the completion of the BTC II Partnership Transaction until December 31, 2022, the BTC II B Partnership incurred approximately $1.1 million in acquisition and asset management fees, and fees related to development, which were paid to affiliates of the Advisor pursuant to the respective service agreements.
Expense Support Agreement
On January 1, 2019, we, the Advisor and the Operating Partnership entered into the Second Amended and Restated Expense Support Agreement (the “Expense Support Agreement”). The Expense Support Agreement amended and restated the agreement that had been entered into by us, the Operating Partnership and the Advisor in October 2016, which was subsequently amended and restated as of July 1, 2017. Pursuant to the Expense Support Agreement, the Advisor agreed to defer certain fees and fund certain of our expenses, subject to the terms of the agreement. The Expense Support Agreement was not renewed after the expiration of its effective term on December 31, 2021 and we do not expect to receive any additional expense support from the Advisor in the future.
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The table below provides information regarding the fees deferred and expense support provided by the Advisor, pursuant to the Expense Support Agreement. The Expense Support Agreement was not renewed after the expiration of its effective term on December 31, 2020. The total aggregate amount paid by the Advisor pursuant to the Expense Support Agreement was $27.1 million, and as of December 31, 2020, all reimbursable amounts had been paid in their entirety, and no amounts remain to be reimbursed to the Advisor.
(1) | As of December 31, 2022, 2021 and 2020, no amounts related to expense support were payable to or receivable from the Advisor. |
12. NET INCOME (LOSS) PER COMMON SHARE
The computation of our basic and diluted net income (loss) per share attributable to common stockholders is as follows:
For the Year Ended December 31, | |||||||||
(in thousands, except per share data) |
| 2022 |
| 2021 | 2020 | ||||
Net loss attributable to common stockholders—basic | $ | (308,079) | $ | (75,349) | $ | (30,097) | |||
Net loss attributable to redeemable noncontrolling interests | (4,874) | (498) | (83) | ||||||
Net loss attributable to noncontrolling interests | 38 | 20 | 5 | ||||||
Net loss attributable to common stockholders—diluted | $ | (312,915) | $ | (75,827) | $ | (30,175) | |||
Weighted-average shares outstanding—basic | 295,683 | 201,169 | 113,145 | ||||||
Incremental weighted-average shares outstanding—diluted | 4,533 | 1,311 | 361 | ||||||
Weighted-average shares outstanding—diluted | 300,216 | 202,480 | 113,506 | ||||||
Net loss per share attributable to common stockholders: | |||||||||
Basic | $ | (1.04) | $ | (0.37) | $ | (0.27) | |||
Diluted | $ | (1.04) | $ | (0.37) | $ | (0.27) |
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and disclosure of non-cash investing and financing activities is as follows:
For the Year Ended December 31, | |||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2020 | |||
Interest paid related to consolidated indebtedness, net of capitalized interest | $ | 70,667 | $ | 21,772 | $ | 12,180 | |||
Interest paid related to DST Program | 32,157 | 1,757 | — | ||||||
Distributions payable | 14,499 | 11,747 | 6,450 | ||||||
Distributions reinvested in common stock |
| 76,434 |
| 52,223 |
| 28,590 | |||
Net increase in DST Program Loans receivable through DST Program capital raising | 83,630 | 68,772 | — | ||||||
Redeemable noncontrolling interests issued as settlement of performance participation allocation |
| 81,185 |
| 9,640 |
| 2,913 | |||
Non-cash redemption of minority ownership interest in unconsolidated joint venture partnership | 91,028 | 279,340 | — | ||||||
Change in accrued future ongoing distribution fees | 6,726 | 40,458 | 28,493 | ||||||
Change in accrued capital expenditures | 58,902 | 2,433 | 2,242 | ||||||
Non-cash selling commissions and dealer manager fees |
| 22,815 |
| 15,046 |
| 39,190 |
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Restricted Cash
Restricted cash consists of lender and property-related escrow accounts, as well as utility deposits. The following table presents the components of the beginning of period and end of period cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows:
For the Year Ended December 31, | |||||||||
(in thousands) |
| 2022 |
| 2021 | 2020 | ||||
Beginning of period: |
|
|
|
|
| ||||
Cash and cash equivalents | $ | 216,848 | $ | 232,369 | $ | 51,178 | |||
Restricted cash |
| 887 |
| 530 |
| — | |||
Cash, cash equivalents and restricted cash | $ | 217,735 | $ | 232,899 | $ | 51,178 | |||
End of period: |
|
|
|
|
|
| |||
Cash and cash equivalents | $ | 79,524 | $ | 216,848 | $ | 232,369 | |||
Restricted cash |
| 499 |
| 887 |
| 530 | |||
Cash, cash equivalents and restricted cash | $ | 80,023 | $ | 217,735 | $ | 232,899 |
14. NONCONTROLLING INTERESTS
Special Units
In November 2014, the Operating Partnership issued 100 Special Units to the parent of the Former Advisor for consideration of $1,000. On July 1, 2021, the 100 Special Units were assigned to the Advisor. In December 2021, the Special Units were assigned by the Advisor to the Special Unit Holder. The holder of the Special Units does not participate in the profits and losses of the Operating Partnership. The holder of the Special Units will be paid a performance participation allocation. Refer to “Note 11” for details regarding the performance participation allocation and Class I OP Units issued as payment for the performance participation allocation. This amount will be paid to the Special Unit Holder, so long as the Advisory Agreement has not been terminated, as a performance participation interest with respect to the Special Units or, at the election of the Advisor, will be paid instead to the Advisor in the form of a cash fee, as described in the Advisory Agreement. The limited partner interests not owned by us are presented as noncontrolling interests in the consolidated financial statements. The noncontrolling interests are reported on the consolidated balance sheets within permanent equity, separate from stockholders’ equity.
Subsidiary REITs
As of December 31, 2022, we indirectly own and control the managing member of three subsidiary REITs. Noncontrolling interests represent the portion of equity in the subsidiary REIT that we do not own. Such noncontrolling interests are equity instruments presented in the consolidated balance sheet as of December 31, 2022 as noncontrolling interests within permanent equity. Such noncontrolling interests were issued by the Subsidiary REITS in the form of preferred shares, which are non-voting and have no rights to income or loss. The preferred shares are redeemable by the respective subsidiary REIT at our discretion, through our ownership and control of the managing member. The following table includes details for each Subsidiary REIT:
(1) | Recorded in accounts payable and accrued expenses on our consolidated balance sheets. |
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15. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, we and our subsidiaries may be involved in various claims and legal actions arising in the ordinary course of business. As of December 31, 2022, we and our subsidiaries were not involved in any material legal proceedings.
Environmental Matters
A majority of the properties we acquire have been or will be subject to environmental reviews either by us or the previous owners. In addition, we may incur environmental remediation costs associated with certain land parcels we may acquire in connection with the development of land. We have or may acquire certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous material. We may purchase various environmental insurance policies to mitigate our exposure to environmental liabilities. We are not aware of any environmental liabilities that we believe would have a material adverse effect on our business, financial condition, or results of operations as of December 31, 2022.
16. SUBSEQUENT EVENTS
Adoption of Fifth Amended and Restated Bylaws
On March 15, 2023, the board of directors of the Company adopted and approved, effective immediately, amended and restated bylaws (the “Fifth Amended and Restated Bylaws”). Among other things, the Fifth Amended and Restated Bylaws update certain procedural requirements for the submission of stockholder nominees as a result of the effectiveness of Rule 14a-19 under the Exchange Act, including:
● | requiring that any stockholder submitting a nomination make a representation that such stockholder intends, or is part of a group which intends, to solicit holders of shares representing at least 67% of the voting power of the Company’s capital stock in support of the proposed nominee; |
● | updating certain of the certifications to be made by a stockholder submitting a nomination; |
● | requiring that any stockholder submitting a nomination provide the Company with reasonable documentary evidence business days prior to the meeting to demonstrate that such stockholder has met the requirements of Rule 14a-19(a)(3) under the Exchange Act; and |
● | limiting the number of nominees a stockholder may nominate for election at a meeting of stockholders to the number of directors to be elected at such meeting. |
The Fifth Amended and Restated Bylaws also include certain other administrative, ministerial and conforming changes.
The foregoing description of the Fifth Amended and Restated Bylaws is only a summary of the changes to the Company’s amended and restated bylaws and is qualified in its entirety by reference to the full text of the Fifth Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.4 to this Annual Report on Form 10-K and, by this reference, incorporated herein.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based upon criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 9B. OTHER INFORMATION
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) and Section 13(r) of the Exchange Act, require an issuer to disclose in its annual and quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions relating to Iran. We are required to include certain disclosures in our periodic reports if we or any of our “affiliates” (as defined in Rule 12b-2 under the Exchange Act) knowingly engaged in certain specified activities, transactions or dealings relating to Iran or with certain individuals or entities targeted by United States' economic sanctions during the quarterly period covered by the report. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Neither we nor any of our controlled affiliates or subsidiaries knowingly engaged in any of the specified activities relating to Iran or otherwise engaged in any activities associated with Iran during the reporting period. However, because the SEC defines the term “affiliate” broadly, it includes any person or entity that is under common control with us as well as any entity that controls us or is controlled by us. The description that follows has been provided to us by Ares.
On January 31, 2019, funds and accounts managed by Ares’ European direct lending strategy (together, the “Ares funds”) collectively acquired a 32% equity stake in Daisy Group Limited (“Daisy”). Daisy is a provider of communication services to businesses based in the United Kingdom. The Ares funds do not hold a majority equity interest in Daisy and do not have the right to appoint a majority of directors to Daisy’s board of directors.
Subsequent to completion of the Ares funds’ investment in Daisy, in connection with Ares’ routine quarterly survey of its investment funds’ portfolio companies, Daisy informed the Ares funds that it has a customer contract with Melli Bank Plc. Melli Bank Plc has been designated by the Office of Foreign Assets Control within the U.S. Department of Treasury pursuant to Executive Order 13224. Daisy generated a total of £41,546 in annual revenues in 2021 (less than 0.01 % of Daisy’s annual revenues) from its dealings with Melli Bank Plc and de minimis net profits. Daisy entered into the customer contract with Melli Bank Plc prior to the Ares funds’ investment in Daisy.
Daisy terminated its contract with Melli Bank Plc on February 26, 2022. Following termination of the contract, Daisy has not engaged and does not intend to engage in any further dealings or transactions with Melli Bank Plc.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be included under the headings “Board of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance” in our definitive proxy statement for our 2023 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the heading “Compensation of Directors and Executive Officers” in our definitive proxy statement for our 2023 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be included under the heading “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement for our 2023 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be included under the heading “Certain Relationships and Related Transactions” in our definitive proxy statement for our 2023 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included under the heading “Principal Accountant Fees and Services” in our definitive proxy statement for our 2023 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements—The financial statements are included under Item 8 of this report.
2. Financial Statement Schedule—The following financial statement schedule is included in Item 15(c):
Schedule III—Real Estate and Accumulated Depreciation.
All other financial statement schedules are not required under the related instructions or because the required information has been disclosed in the consolidated financial statements and the notes related thereto.
(b) Exhibits
The following exhibits are filed as part of this Annual Report on Form 10-K:
EXHIBIT |
| DESCRIPTION |
---|---|---|
3.2 | ||
4.3 | ||
10.3 | ||
10.4* | ||
10.5 | ||
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EXHIBIT |
| DESCRIPTION |
---|---|---|
10.24 | ||
10.25 | ||
10.26 | ||
10.27 | ||
10.28 | ||
21.1* | List of Subsidiaries of Ares Industrial Real Estate Income Trust Inc. | |
23.1* | Consent of KPMG LLP (Independent Registered Public Accounting Firm). | |
31.1* | ||
31.2* | ||
32.1** | ||
99.1* | ||
99.2 | ||
101 | The following materials from Ares Industrial Real Estate Income Trust Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 20, 2023, formatted in XBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Comprehensive Income (Loss), (vi) Consolidated Statements of Cash Flows, and (vii) Notes to the Consolidated Financial Statements. | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith.
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ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION
Costs | Accumulated | ||||||||||||||||||||||||||||||||
Capitalized or | Gross Amount Carried as of | Depreciation | |||||||||||||||||||||||||||||||
Initial Cost to Company | Adjustments | December 31, 2022 | and | Depreciable | |||||||||||||||||||||||||||||
# of | Buildings and | Total | Subsequent to | Buildings and | Total | Amortization | Acquisition | Life | |||||||||||||||||||||||||
($ in thousands) | Buildings | Debt | Land | Improvements (6) | Costs | Acquisition | Land | Improvements (6) | Costs (7), (8) | (8) | Date | (Years) | |||||||||||||||||||||
Consolidated Industrial Properties: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Ontario Industrial Center in Ontario, CA |
| 1 |
| $ | — | (1) | $ | 5,225 |
| $ | 5,370 |
| $ | 10,595 | $ | 1,002 |
| $ | 5,225 |
| $ | 6,372 |
| $ | 11,597 |
| $ | (1,934) |
| 2/26/2018 |
| 1-20 | |
Medley Industrial Center in Medley, FL | 1 | — |
| 2,864 | 4,559 | 7,423 | 309 | 2,864 | 4,868 | 7,732 | (1,181) | 4/11/2018 | 1-30 | ||||||||||||||||||||
Ontario Distribution Center in Ontario, CA | 1 | — | (2) |
| 14,657 | 16,101 | 30,758 | 123 | 14,657 | 16,224 | 30,881 | (5,508) | 5/17/2018 | 1-20 | |||||||||||||||||||
Park 429 Logistics Center in Ocoee, FL | 2 | — |
| 7,963 | 36,919 | 44,882 | 319 | 7,963 | 37,238 | 45,201 | (5,876) | 6/7/2018 | 1-40 | ||||||||||||||||||||
Pescadero Distribution Center in Tracy, CA | 1 | — | (1) |
| 5,602 | 40,021 | 45,623 | 182 | 5,602 | 40,203 | 45,805 | (7,194) | 6/20/2018 | 1-40 | |||||||||||||||||||
Gothard Industrial Center in Huntington Beach, CA | 1 | — | (1) |
| 5,325 | 4,771 | 10,096 | 421 | 5,325 | 5,192 | 10,517 | (1,395) | 6/25/2018 | 1-20 | |||||||||||||||||||
Midway Industrial Center in Odenton, MD | 1 | — | (3) |
| 4,579 | 3,548 | 8,127 | 438 | 4,579 | 3,986 | 8,565 | (1,498) | 10/22/2018 | 1-20 | |||||||||||||||||||
Executive Airport Distribution Center I in Henderson, NV | 1 | — |
| 10,360 | 40,710 | 51,070 | 245 | 10,360 | 40,955 | 51,315 | (7,886) | 11/20/2018 | 1-40 | ||||||||||||||||||||
Iron Run Distribution Center in Allentown, PA | 1 | — | (3) |
| 5,483 | 10,039 | 15,522 | 173 | 5,483 | 10,212 | 15,695 | (2,708) | 12/04/2018 | 1-20 | |||||||||||||||||||
Elgin Distribution Center in Elgin, IL | 1 | — |
| 4,032 | 16,951 | 20,983 | 71 | 4,032 | 17,022 | 21,054 | (2,219) | 12/11/2018 | 1-40 | ||||||||||||||||||||
Addison Distribution Center II in Addison, IL | 1 | — |
| 4,439 | 8,009 | 12,448 | 879 | 4,439 | 8,888 | 13,327 | (2,002) | 12/21/2018 | 1-30 | ||||||||||||||||||||
Fontana Distribution Center in Fontana, CA | 1 | — | (2) |
| 20,558 | 21,943 | 42,501 | 958 | 20,558 | 22,901 | 43,459 | (7,237) | 12/28/2018 | 1-20 | |||||||||||||||||||
Airport Industrial Center in Ontario, CA | 1 | — |
| 4,085 | 4,051 | 8,136 | 506 | 4,085 | 4,557 | 8,642 | (1,480) | 1/08/2019 | 1-20 | ||||||||||||||||||||
Kelly Trade Center in Austin, TX | 1 | — |
| 2,686 | 12,654 | 15,340 | 2,052 | 2,686 | 14,706 | 17,392 | (2,977) | 1/31/2019 | 1-30 | ||||||||||||||||||||
7A Distribution Center in Robbinsville, NJ | 1 | — |
| 8,002 | 4,149 | 12,151 | 515 | 3,386 | 9,280 | 12,666 | (2,507) | 2/11/2019 | 1-20 | ||||||||||||||||||||
Quakerbridge Distribution Center in Hamilton, NJ | 1 | — | (3) |
| 3,434 | 5,160 | 8,594 | 974 | 2,334 | 7,234 | 9,568 | (2,019) | 3/11/2019 | 1-40 | |||||||||||||||||||
Hebron Airpark Logistics Center in Hebron, KY | 1 | — |
| 2,228 | 9,572 | 11,800 | 396 | 2,228 | 9,968 | 12,196 | (1,693) | 5/30/2019 | 1-40 | ||||||||||||||||||||
Las Vegas Light Industrial Portfolio in Las Vegas, NV | 4 | — |
| 19,872 | 39,399 | 59,271 | 901 | 19,872 | 40,300 | 60,172 | (8,557) | 5/30/2019 | 1-30 | ||||||||||||||||||||
Monte Vista Industrial Center in Chino, CA | 1 | — |
| 7,947 | 7,592 | 15,539 | 494 | 7,947 | 8,086 | 16,033 | (2,214) | 6/07/2019 | 1-20 | ||||||||||||||||||||
King of Prussia Core Infill Portfolio in King of Prussia, PA | 5 | — | (3) |
| 14,791 | 17,187 | 31,978 | 1,789 | 14,791 | 18,976 | 33,767 | (5,459) | 6/21/2019 | 1-20 | |||||||||||||||||||
Dallas Infill Industrial Portfolio in Arlington, TX | 3 | 38,000 |
| 17,159 | 74,981 | 92,140 | 3,965 | 17,159 | 78,946 | 96,105 | (14,841) | 6/28/2019 | 1-30 | ||||||||||||||||||||
Dallas Infill Industrial Portfolio in Garland, TX | 2 | 11,250 |
| 3,545 | 20,370 | 23,915 | 233 | 3,545 | 20,603 | 24,148 | (2,990) | 6/28/2019 | 1-40 | ||||||||||||||||||||
Edison Distribution Center in Edison, NJ | 1 | — | (3) |
| 11,519 | 16,079 | 27,598 | 78 | 11,519 | 16,157 | 27,676 | (3,830) | 6/28/2019 | 1-20 | |||||||||||||||||||
395 Distribution Center in Reno, NV | 2 | — | (2) |
| 8,904 | 45,114 | 54,018 | 770 | 8,904 | 45,884 | 54,788 | (6,881) | 8/05/2019 | 1-40 | |||||||||||||||||||
I-80 Distribution Center in Reno, NV | 4 | — | (1) |
| 11,645 | 60,364 | 72,009 | 1,891 | 11,645 | 62,255 | 73,900 | (9,904) | 9/04/2019 | 1-40 | |||||||||||||||||||
Avenue B Industrial Center in Bethlehem, PA | 1 | — |
| 2,190 | 4,923 | 7,113 | 108 | 2,190 | 5,031 | 7,221 | (1,345) | 9/11/2019 | 1-20 | ||||||||||||||||||||
485 Distribution Center in Shiremanstown, PA | 1 | — | (4) |
| 6,145 | 36,914 | 43,059 | 206 | 6,145 | 37,120 | 43,265 | (5,412) | 9/13/2019 | 1-40 | |||||||||||||||||||
Weston Business Center in Weston, FL | 1 | — |
| 14,627 | 17,784 | 32,411 | 199 | 14,627 | 17,983 | 32,610 | (3,520) | 12/10/2019 | 1-20 | ||||||||||||||||||||
Marigold Distribution Center in Redlands, CA | 1 | — |
| 15,660 | 24,075 | 39,735 | 1,820 | 15,660 | 25,895 | 41,555 | (5,594) | 12/20/2019 | 1-30 | ||||||||||||||||||||
Bishops Gate Distribution Center in Mount Laurel, NJ | 1 | — | (3) |
| 6,018 | 26,208 | 32,226 | 1,036 | 6,018 | 27,244 | 33,262 | (5,478) | 12/31/2019 | 1-20 | |||||||||||||||||||
Norcross Industrial Center in Peachtree Corner, GA | 1 | — | 3,220 | 6,285 | 9,505 | 7,884 | 3,220 | 14,169 | 17,389 | (1,173) | 3/23/2020 | 1-20 | |||||||||||||||||||||
Port 146 Distribution Center in LaPorte, TX | 1 | — | 1,748 | 7,823 | 9,571 | 2,369 | 1,748 | 10,192 | 11,940 | (634) | 4/14/2020 | 1-40 | |||||||||||||||||||||
Lima Distribution Center in Denver, CO | 1 | — | 1,853 | 9,769 | 11,622 | 212 | 1,853 | 9,981 | 11,834 | (1,986) | 4/15/2020 | 1-20 | |||||||||||||||||||||
Valwood Crossroads in Carrollton, TX | 2 | — | (4) | 12,457 | 57,542 | 69,999 | 123 | 12,457 | 57,665 | 70,122 | (7,196) | 5/11/2020 | 1-40 | ||||||||||||||||||||
Eaglepoint LC in Brownsburg, IN | 1 | — | 3,598 | 36,618 | 40,216 | 51 | 3,598 | 36,669 | 40,267 | (5,066) | 5/26/2020 | 1-40 | |||||||||||||||||||||
7A DC II in Robbinsville Township, NJ | 1 | — | (3) | 6,235 | 16,983 | 23,218 | 538 | 6,235 | 17,521 | 23,756 | (2,807) | 5/27/2020 | 1-20 | ||||||||||||||||||||
Legacy Logistics Center in Salt Lake City, UT | 1 | — | (1) | 5,590 | 34,128 | 39,718 | 1,982 | 5,590 | 36,110 | 41,700 | (4,458) | 6/3/2020 | 1-40 | ||||||||||||||||||||
Logistics Center at 33 in Easton, PA | 1 | — | (4) | 8,983 | 54,302 | 63,285 | 50 | 8,983 | 54,352 | 63,335 | (6,972) | 6/4/2020 | 1-40 | ||||||||||||||||||||
Intermodal Logistics Center in Fort Worth, TX | 1 | — | 5,191 | 23,437 | 28,628 | 177 | 5,191 | 23,614 | 28,805 | (2,497) | 6/29/2020 | 1-40 | |||||||||||||||||||||
Executive Airport Distribution Center II, III in Henderson, NV | 2 | — | 7,852 | 25,348 | 33,200 | 4,144 | 7,852 | 29,492 | 37,344 | (1,639) | 9/3/2020 | 1-40 | |||||||||||||||||||||
Airpark International Logistics Center in Hebron, KY | 2 | — | 2,371 | 27,830 | 30,201 | 375 | 2,371 | 28,205 | 30,576 | (2,610) | 10/9/2020 | 1-40 | |||||||||||||||||||||
Carlstadt Industrial Center in Carlstadt, NJ | 2 | — | (3) | 16,989 | 20,541 | 37,530 | 1,050 | 16,989 | 21,591 | 38,580 | (3,890) | 11/10/2020 | 1-20 | ||||||||||||||||||||
Nelson Industrial Center in La Puente, CA | 1 | — | 3,943 | 5,089 | 9,032 | 115 | 3,943 | 5,204 | 9,147 | (967) | 12/7/2020 | 1-40 | |||||||||||||||||||||
Miraloma Industrial Center in Placentia, CA | 1 | — | 4,843 | 4,655 | 9,498 | 59 | 4,843 | 4,714 | 9,557 | (940) | 12/10/2020 | 1-20 | |||||||||||||||||||||
Pennsy Logistics Center in Landover, MD | 2 | — | (3) | 8,273 | 51,824 | 60,097 | 95 | 8,273 | 51,919 | 60,192 | (5,335) | 12/18/2020 | 1-30 | ||||||||||||||||||||
Gerwig Distribution Center in Columbia, MD | 1 | — | 8,069 | 11,205 | 19,274 | 360 | 8,069 | 11,565 | 19,634 | (1,489) | 1/8/2021 | 1-20 | |||||||||||||||||||||
Harvill Business Center in Perris, CA | 1 | — | (4) | 14,098 | 46,490 | 60,588 | 41 | 14,098 | 46,531 | 60,629 | (3,748) | 3/10/2021 | 1-40 | ||||||||||||||||||||
Princess Logistics Center in Lawrenceville, NJ | 1 | — | (4) | 10,883 | 63,192 | 74,075 | 1,232 | 10,883 | 64,424 | 75,307 | (3,862) | 4/12/2021 | 1-40 | ||||||||||||||||||||
Rancho Cucamonga Business Center in Rancho Cucamonga, CA | 1 | — | 8,185 | 16,439 | 24,624 | 59 | 8,185 | 16,498 | 24,683 | (1,781) | 5/28/2021 | 1-30 | |||||||||||||||||||||
Norton Distribution Center in Norton, MA | 1 | — | 4,350 | 28,063 | 32,413 | 189 | 4,350 | 28,252 | 32,602 | (2,926) | 6/1/2021 | 1-20 | |||||||||||||||||||||
Build-To-Core Logistics Portfolio in Austin, TX | 5 | — | (5) | 11,918 | 42,446 | 54,364 | 1,298 | 11,918 | 43,744 | 55,662 | (4,698) | 6/15/2021 | 1-40 | ||||||||||||||||||||
Build-To-Core Logistics Portfolio in Hayward, CA | 1 | — | (5) | 39,357 | 91,117 | 130,474 | (196) | 39,357 | 90,921 | 130,278 | (4,812) | 6/15/2021 | 1-40 | ||||||||||||||||||||
Build-To-Core Logistics Portfolio in LaPorte, TX | 1 | — | 1,998 | 15,261 | 17,259 | 499 | 1,998 | 15,760 | 17,758 | (1,084) | 6/15/2021 | 1-40 | |||||||||||||||||||||
Build-To-Core Logistics Portfolio in Lehigh Valley, PA | 1 | — | 14,522 | 49,076 | 63,598 | 2,008 | 14,522 | 51,084 | 65,606 | (3,077) | 6/15/2021 | 1-40 | |||||||||||||||||||||
Build-To-Core Logistics Portfolio in Lodi, NJ | 2 | — | (4) | 18,545 | 78,491 | 97,036 | 520 | 18,545 | 79,011 | 97,556 | (4,001) | 6/15/2021 | 1-40 | ||||||||||||||||||||
Build-To-Core Logistics Portfolio in Rancho Cucamonga, CA | 1 | — | (4) | 26,126 | 71,385 | 97,511 | (81) | 26,126 | 71,304 | 97,430 | (5,315) | 6/15/2021 | 1-40 | ||||||||||||||||||||
Build-To-Core Logistics Portfolio in Richmond, CA | 1 | — | 6,954 | 33,862 | 40,816 | 1,250 | 6,954 | 35,112 | 42,066 | (1,762) | 6/15/2021 | 1-40 | |||||||||||||||||||||
Build-To-Core Logistics Portfolio in San Diego, CA | 2 | — | (5) | 7,999 | 34,888 | 42,887 | 65 | 7,999 | 34,953 | 42,952 | (2,253) | 6/15/2021 | 1-40 | ||||||||||||||||||||
Build-To-Core Logistics Portfolio in San Jose, CA | 1 | — | 9,799 | 23,467 | 33,266 | 370 | 9,799 | 23,837 | 33,636 | (1,301) | 6/15/2021 | 1-40 | |||||||||||||||||||||
Build-To-Core Logistics Portfolio in Suwanee, GA | 4 | — | (5) | 5,612 | 65,492 | 71,104 | 2,073 | 5,612 | 67,565 | 73,177 | (7,760) | 6/15/2021 | 1-20 | ||||||||||||||||||||
Build-To-Core Logistics Portfolio in Tacoma, WA | 2 | — | (2) | 29,942 | 144,714 | 174,656 | 1,205 | 29,942 | 145,919 | 175,861 | (9,050) | 6/15/2021 | 1-40 | ||||||||||||||||||||
Build-To-Core Logistics Portfolio in Tracy, CA | 1 | — | (5) | 3,564 | 50,196 | 53,760 | 1 | 3,564 | 50,197 | 53,761 | (2,839) | 6/15/2021 | 1-40 | ||||||||||||||||||||
Benchmark Distribution Center in Houston, TX | 1 | — | 4,809 | 14,842 | 19,651 | 1,186 | 4,809 | 16,028 | 20,837 | (1,124) | 6/18/2021 | 1-40 | |||||||||||||||||||||
Key Logistics Portfolio in Allentown, PA | 1 | — | 2,876 | 15,208 | 18,084 | 262 | 2,876 | 15,470 | 18,346 | (1,434) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Auburn, WA | 3 | — | 7,822 | 34,089 | 41,911 | 718 | 7,822 | 34,807 | 42,629 | (2,891) | 7/14/2021 | 1-30 | |||||||||||||||||||||
Key Logistics Portfolio in Aurora, CO | 1 | — | 1,818 | 9,147 | 10,965 | — | 1,818 | 9,147 | 10,965 | (916) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Boca Raton, FL | 1 | — | 4,959 | 8,586 | 13,545 | 4 | 4,959 | 8,590 | 13,549 | (1,180) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Glen Burnie, MD | 1 | — | (3) | 2,545 | 17,976 | 20,521 | 1 | 2,545 | 17,977 | 20,522 | (2,144) | 7/14/2021 | 1-20 | ||||||||||||||||||||
Key Logistics Portfolio in Kent, WA | 4 | — | 11,478 | 27,605 | 39,083 | 451 | 11,478 | 28,056 | 39,534 | (3,108) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in King of Prussia, PA | 2 | — | (3) | 4,120 | 17,984 | 22,104 | (1) | 4,120 | 17,983 | 22,103 | (2,050) | 7/14/2021 | 1-20 | ||||||||||||||||||||
Key Logistics Portfolio in Lanham, MD | 1 | — | (3) | 3,979 | 18,147 | 22,126 | 671 | 3,979 | 18,818 | 22,797 | (1,329) | 7/14/2021 | 1-40 | ||||||||||||||||||||
Key Logistics Portfolio in Lincolnshire, IL | 1 | — | 1,695 | 11,939 | 13,634 | 58 | 1,695 | 11,997 | 13,692 | (868) | 7/14/2021 | 1-30 | |||||||||||||||||||||
Key Logistics Portfolio in Louisville, KY | 5 | — | 8,248 | 117,907 | 126,155 | 209 | 8,248 | 118,116 | 126,364 | (11,059) | 7/14/2021 | 1-30 | |||||||||||||||||||||
Key Logistics Portfolio in Mechanicsburg, PA | 1 | — | 2,205 | 11,882 | 14,087 | 1 | 2,205 | 11,883 | 14,088 | (1,208) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Memphis, TN | 6 | — | 6,873 | 103,715 | 110,588 | 1,229 | 6,873 | 104,944 | 111,817 | (13,047) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Olive Branch, MS | 1 | — | 2,656 | 29,453 | 32,109 | 89 | 2,656 | 29,542 | 32,198 | (2,178) | 7/14/2021 | 1-30 | |||||||||||||||||||||
Key Logistics Portfolio in Ontario, CA | 3 | — | 13,418 | 38,965 | 52,383 | 185 | 13,418 | 39,150 | 52,568 | (4,081) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Pompano Beach, FL | 2 | — | 4,431 | 10,992 | 15,423 | 357 | 4,431 | 11,349 | 15,780 | (1,101) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Renton, WA | 1 | — | 4,745 | 13,612 | 18,357 | (1) | 4,745 | 13,611 | 18,356 | (1,375) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Salt Lake City, UT | 2 | — | 5,966 | 53,720 | 59,686 | 372 | 5,966 | 54,092 | 60,058 | (5,320) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Stockton, CA | 4 | — | (4) | 15,700 | 73,083 | 88,783 | 914 | 15,700 | 73,997 | 89,697 | (8,184) | 7/14/2021 | 1-30 | ||||||||||||||||||||
Key Logistics Portfolio in Tacoma, WA | 1 | — | 3,844 | 6,354 | 10,198 | 189 | 3,844 | 6,543 | 10,387 | (590) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Totowa, NJ | 1 | — | (3) | 11,530 | 46,672 | 58,202 | 955 | 11,530 | 47,627 | 59,157 | (4,252) | 7/14/2021 | 1-20 | ||||||||||||||||||||
Key Logistics Portfolio in Tracy, CA | 2 | — | 11,240 | 47,595 | 58,835 | 1,327 | 11,240 | 48,922 | 60,162 | (4,800) | 7/14/2021 | 1-20 | |||||||||||||||||||||
Key Logistics Portfolio in Upper Marlboro, MD | 1 | — | 2,206 | 4,926 | 7,132 | 633 | 2,206 | 5,559 | 7,765 | (334) | 7/14/2021 | 1-30 | |||||||||||||||||||||
Key Logistics Portfolio in Valencia, CA | 1 | — | 6,555 | 11,619 | 18,174 | 22 | 6,555 | 11,641 | 18,196 | (775) | 7/14/2021 | 1-30 | |||||||||||||||||||||
Key Logistics Portfolio in Wayne, NJ | 1 | — | (3) | 5,800 | 13,770 | 19,570 | 256 | 5,800 | 14,026 | 19,826 | (1,163) | 7/14/2021 | 1-20 | ||||||||||||||||||||
Key Logistics Portfolio in York, PA | 1 | — | (4) | 4,645 | 20,466 | 25,111 | — | 4,645 | 20,466 | 25,111 | (2,279) | 7/14/2021 | 1-20 |
129
(1) | These properties include a $118.5 million mortgage note as of December 31, 2022. This borrowing is non-recourse and secured by deeds of trust for the eight collateralized buildings. The mortgage note has a maturity date of November 1, 2027 and an interest rate of 2.90%. See “Note 5 to the Consolidated Financial Statements” for more detail. |
(2) | These properties include a $408.0 million mortgage note as of December 31, 2022. This borrowing is non-recourse and secured by deeds of trust for the 15 collateralized buildings. The mortgage note has an initial maturity date of January 5, 2025 and the interest rate is calculated based on Adjusted SOFR plus a margin of 1.65%. See “Note 5 to the Consolidated Financial Statements” for more detail. |
(3) | These properties include a $367.8 million mortgage note as of December 31, 2022. This borrowing is non-recourse and secured by deeds of trust for the 23 collateralized buildings. The mortgage note has an initial maturity date of July 15, 2025 and the interest rate is calculated based on Adjusted SOFR plus a margin of 1.85%. See “Note 5 to the Consolidated Financial Statements” for more detail. |
(4) | These properties include a $461.1 million mortgage note as of December 31, 2022. This borrowing is non-recourse and secured by deeds of trust for the 12 collateralized buildings. The mortgage note has a maturity date of January 1, 2029 and an interest rate of 2.85%. See “Note 5 to the Consolidated Financial Statements” for more detail. |
130
(5) | These properties include a $209.3 million mortgage note as of December 31, 2022. This borrowing is non-recourse and secured by deeds of trust for the 13 collateralized buildings. The mortgage note has an initial maturity date of July 16, 2025 and the interest rate is calculated based on Adjusted SOFR plus a margin of 1.50%. See “Note 5 to the Consolidated Financial Statements” for more detail. |
(6) | Includes site improvements as well as gross intangible lease assets of $479.5 million and gross intangible lease liabilities of ($129.8) million. |
(7) | As of December 31, 2022, the aggregate cost for federal income tax purposes of investments in property was $5.3 billion (unaudited). |
(8) | A summary of activity for investment in real estate properties is as follows: |
ITEM 16. SUMMARY OF FORM 10-K
See the “Table of Contents” for a summary of information included in this Form 10-K. The information required by this Part III will be included in our definitive proxy statement for our 2023 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on March 20, 2023.
ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC. | ||
By: | /s/ JEFFREY W. TAYLOR | |
Jeffrey W. Taylor Partner, Co-President (Principal Executive Officer) | ||
By: | /s/ SCOTT A. SEAGER | |
Scott A. Seager Managing Director, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey W. Taylor, Scott A. Seager and Joshua J. Widoff (with full power to act alone), as his true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
Signature |
| Title |
| Date |
/S/ WILLIAM S. BENJAMIN | Co-Chairman of the Board of Directors | March 20, 2023 | ||
William S. Benjamin | ||||
/s/ DWIGHT L. MERRIMAN III | Co-Chairman of the Board of Directors | March 20, 2023 | ||
Dwight L. Merriman III | ||||
/S/ MARSHALL M. BURTON | Director | March 20, 2023 | ||
Marshall M. Burton | ||||
/S/ RAJAT DHANDA | Director | March 20, 2023 | ||
Rajat Dhanda | ||||
/S/ CHARLES B. DUKE | Director | March 20, 2023 | ||
Charles B. Duke | ||||
/S/ JOHN S. HAGESTAD | Director | March 20, 2023 | ||
John S. Hagestad | ||||
/S/ STANLEY A. MOORE | Director | March 20, 2023 | ||
Stanley A. Moore | ||||
/s/ JEFFREY W. TAYLOR | Partner, Co-President | March 20, 2023 | ||
Jeffrey W. Taylor | (Principal Executive Officer) | |||
/S/ SCOTT A. SEAGER | Managing Director, Chief Financial Officer and Treasurer | March 20, 2023 | ||
Scott A. Seager | (Principal Financial Officer and Principal Accounting Officer) |
132
Exhibit 3.4
ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
Fifth AMENDED AND RESTATED BYLAWS
ARTICLE I OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of Ares Industrial Real Estate Income Trust Inc. (the “Corporation”) in the State of Maryland shall be located at such place as the Board of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices, including a principal executive office, at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the principal executive office of the Corporation or at such other place as shall be set by the Board of Directors and stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on the date and at the time set by the Board of Directors. The annual meeting will be held upon reasonable notice and within a reasonable period (but not less than 30 days) following delivery of the annual report.
Section 3. SPECIAL MEETINGS. The president, the chief executive officer, the chairman of the board, a majority of the Board of Directors or a majority of the Independent Directors (as defined in the charter of the Corporation (the “Charter”)) may call a special meeting of the stockholders. A special meeting of stockholders shall also be called by the secretary of the Corporation upon the written request of the holders of shares entitled to cast not less than ten percent of all the votes entitled to be cast at such meeting. The written request must state the purpose of such meeting and the matters proposed to be acted on at such meeting. Within ten days after receipt of such written request, either in person or by mail, the secretary of the Corporation shall provide all stockholders with written notice, either in person or by mail, of such meeting and the purpose of such meeting. Notwithstanding anything to the contrary herein, such meeting shall be held not less than 15 days nor more than 60 days after the secretary’s delivery of such notice. Subject to the foregoing sentence, such meeting shall be held at the time and place specified in the stockholder request; provided, however, that if none is so specified, such meeting shall be held at a time and place convenient to the stockholders.
Section 4. NOTICE. Except as provided otherwise in Section 3 of this Article II, not less than ten nor more than 90 days before each meeting of stockholders, the secretary shall give to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote who is entitled to notice of the meeting notice in writing or by electronic transmission stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, by mail, by presenting it to such stockholder personally, by leaving it at the stockholder’s residence or usual place of business or by any other means (including, without limitation, electronic transmission) permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation, with postage thereon prepaid. If transmitted electronically, such notice shall be deemed to be given when transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. A single notice to all stockholders who share an address shall be effective as to any stockholder at such address who consents to such notice or after having been notified of the Corporation’s intent to give a single notice fails to object in writing to such single notice within 60 days. Failure to give notice of any meeting to one or more stockholders, or any irregularity in such notice, shall not affect the validity of any meeting fixed in accordance with this Article II, or the validity of any proceedings at any such meeting.
Subject to Section 11(a) of this Article II, any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except
1
as specifically designated in the notice. The Corporation may postpone or cancel a meeting of stockholders by making a public announcement (as defined in Section 11(c)(4) of this Article II) of such postponement or cancellation prior to the meeting. Notice of the date to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this Section 4.
Section 5. ORGANIZATION AND CONDUCT. Every meeting of stockholders shall be conducted by an individual appointed by the Board of Directors to be chairman of the meeting or, in the absence of such appointment, by the chairman of the board or, in the case of a vacancy in the office or absence of the chairman of the board, by one of the following officers present at the meeting in the following order: the vice chairman of the board, if there is one, the president, the vice presidents in their order of rank and seniority, the secretary, or, in the absence of such officers, a chairman chosen by the stockholders by the vote of a majority of the votes cast by stockholders present in person or by proxy. The secretary, or, in the secretary’s absence, an assistant secretary, or in the absence of both the secretary and assistant secretaries, an individual appointed by the Board of Directors or, in the absence of such appointment, an individual appointed by the chairman of the meeting shall act as secretary. In the event that the secretary presides at a meeting of the stockholders, an assistant secretary, or in the absence of assistant secretaries, an individual appointed by the Board of Directors or the chairman of the meeting, shall record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of the chairman and without any action by the stockholders, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies and other such individuals as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies and other such individuals as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) determining when and for how long the polls should be opened and when the polls should be closed; (f) maintaining order and security at the meeting; (g) removing any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; (h) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (i) complying with any state and local laws and regulations concerning safety and security. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Section 6. QUORUM. At any meeting of stockholders, the presence in person or by proxy of stockholders entitled to cast at least 50% of all the outstanding shares entitled to vote at such meeting on any matter shall constitute a quorum; but this section shall not affect any requirement under any statute or the Charter for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the stockholders, the chairman of the meeting may adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.
The stockholders present either in person or by proxy, at a meeting which has been duly called and at which a quorum was established, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave fewer than were required to establish a quorum.
Section 7. VOTING. The holders of a majority of the outstanding shares of stock of the Corporation entitled to vote who are present in person or by proxy at an annual meeting at which a quorum is present may, without the necessity for concurrence by the Board of Directors, vote to elect a director. Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the Charter. Unless otherwise provided by statute or by the Charter, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. Voting on any question or in any election may be viva voce unless the chairman of the meeting shall order that voting be by ballot.
Section 8. PROXIES. A stockholder may cast the votes entitled to be cast by the holder of the shares of stock owned of record by the stockholder in person or by proxy executed by the stockholder or by the stockholder’s duly authorized agent in any manner permitted by law. Such proxy or evidence of authorization of such proxy shall be filed with the secretary of the Corporation before or at the meeting. No proxy shall be valid more than eleven
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months after its date unless otherwise provided in the proxy.
Section 9. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or a trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any trustee or other fiduciary may vote stock registered in his or her name in his or her capacity as such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date, the time after the record date within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified stock in place of the stockholder who makes the certification.
Section 10. INSPECTORS. The Board of Directors or the chairman of the meeting may appoint, before or at the meeting, one or more inspectors for the meeting and any successor thereto. The inspectors, if any, shall (a) determine the number of shares of stock represented at the meeting, in person or by proxy, and the validity and effect of proxies, (b) receive and tabulate all votes, ballots or consents, (c) report such tabulation to the chairman of the meeting, (d) hear and determine all challenges and questions arising in connection with the right to vote, and (e) do such acts as are proper to fairly conduct the election or vote. Each such report shall be in writing and signed by him or her or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
Section 11. ADVANCE NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR AND
OTHER STOCKHOLDER PROPOSALS.
(a) | Annual Meetings of Stockholders. |
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Exhibit 3.4
given timely notice thereof in writing to the secretary of the Corporation and such other business must otherwise be a proper matter for action by the stockholders. To be timely, a stockholder’s notice shall set forth all information and certifications required under this Section 11 and shall be delivered to the secretary at the principal executive office of the Corporation not earlier than the 150th day nor later than 5:00 p.m., Mountain Time, on the 120th day prior to the first anniversary of the date of the mailing of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, in order for notice by the stockholder to be timely, such notice must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Mountain Time, on the later of the 120th day prior to the date of such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. The public announcement of a postponement or adjournment of an annual meeting shall not commence a new time period for the giving of a stockholder’s notice as described above.
(3) | Such stockholder’s notice shall set forth: |
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(4) | Such stockholder’s notice shall, with respect to any Proposed Nominee, be accompanied by: |
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(c) | General. |
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Section 12. CONTROL SHARE ACQUISITION ACT. Notwithstanding any other provision of the Charter or these Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation Law (the “MGCL”) (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.
ARTICLE III DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Directors may establish, increase or decrease the number of directors, provided that the number thereof shall never be less than the minimum number required by the MGCL (or, upon the Commencement of the Initial Public Offering (as defined in the Charter), three), nor more than 15, and further provided that the tenure of office of a director shall not be affected by any decrease in the number of directors. The foregoing shall be the exclusive means of fixing the number of directors. Any director of the Corporation may resign at any time by delivering his or her resignation to the Board of Directors, the chairman of the board or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors. The Board of Directors may provide, by resolution, the time and place for the holding of regular meetings of the Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the chairman of the board, the chief executive officer, or the president or by a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by them. The Board of Directors may provide, by resolution, the time and place for the holding of special meetings of the Board of Directors without other notice than such resolution.
Section 5. NOTICE. Notice of any special meeting of the Board of Directors shall be delivered
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personally or by telephone, electronic mail, facsimile transmission, United States mail or courier to each director at his or her business or residence address. Notice by personal delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by United States mail shall be given at least three days prior to the meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone notice shall be deemed to be given when the director or his or her agent is personally given such notice in a telephone call to which the director or his or her agent is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. Notice by United States mail shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors is present at such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to applicable law, the Charter or these Bylaws, the vote of a majority of a particular group of directors is required for action, a quorum must also include a majority of such group. The directors present at a meeting which has been duly called and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough directors to leave fewer than were required to establish a quorum.
Section 7. VOTING. The action of a majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the Charter or these Bylaws. If enough directors have withdrawn from a meeting to leave fewer than were required to establish a quorum but the meeting is not adjourned, the action of the majority of that number of directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the Charter or these Bylaws. On any matter for which the Charter requires the approval of the Independent Directors, the action of a majority of the total number of Independent Directors shall be the action of the Independent Directors.
Section 8. ORGANIZATION. At each meeting of the Board of Directors, the chairman of the board or, in the absence of the chairman, the vice chairman of the board, if any, shall act as chairman of the meeting. In the absence of both the chairman and vice chairman of the board, the chief executive officer or in the absence of the chief executive officer, the president or in the absence of the president, a director chosen by a majority of the directors present, shall act as chairman of the meeting. The secretary or, in his or her absence, an assistant secretary of the Corporation or, in the absence of the secretary and all assistant secretaries, an individual appointed by the chairman of the meeting, shall act as secretary of the meeting.
Section 9. TELEPHONE MEETINGS. Directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 10. CONSENT BY DIRECTORS WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing or by electronic transmission to such action is given by each director and is filed with the minutes of proceedings of the Board of Directors.
Section 11. VACANCIES. If for any reason any or all of the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder. Until such time as the Corporation becomes subject to Section 3-804(c) of the MGCL, any vacancy on the Board of Directors for any cause other than an increase in the number of directors may be filled by a majority of the remaining directors, even if such majority is less than a quorum; any vacancy in the number of directors created by an increase in the number of directors may be filled only by the affirmative vote of holders of a majority of the outstanding shares entitled to vote who are present in person or by proxy at a meeting at which a quorum is present; and any individual so elected as director shall serve until the next annual meeting of stockholders and until his or her successor is elected and qualifies. At such time as the Corporation becomes subject to Section 3-804(c) of the MGCL and except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, any vacancy on the
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Board of Directors, other than a vacancy created by an increase in the number of directors, may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and any director elected to fill such a vacancy shall serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies; and any vacancy created by an increase in the number of directors may be filled only by the affirmative vote of holders of a majority of the outstanding shares entitled to vote who are present in person or by proxy at a meeting at which a quorum is present, and any director elected to fill such a vacancy shall serve until the next annual meeting of stockholders and until a successor is duly elected and qualifies. Independent Directors shall nominate replacements for vacancies among the Independent Directors’ positions.
Section 12. COMPENSATION. Directors shall not receive any stated salary for their services as directors but, by resolution of the Board of Directors, may receive compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Corporation and for any service or activity they performed or engaged in as directors. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as directors; but nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.
Section 13. RELIANCE. Each director and officer of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Corporation whom the director or officer reasonably believes to be reliable and competent in the matters presented, by a lawyer, certified public accountant or other person, as to a matter which the director or officer reasonably believes to be within the person’s professional or expert competence, or, with respect to a director, by a committee of the Board of Directors on which the director does not serve, as to a matter within its designated authority, if the director reasonably believes the committee to merit confidence.
Section 14. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. A director, officer, employee or agent shall have no responsibility to devote his or her full time to the affairs of the Corporation. Any director, officer, employee or agent, in his or her personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to, in addition to or in competition with those of or relating to the Corporation.
Section 15. EMERGENCY PROVISIONS. Notwithstanding any other provision in the Charter or these Bylaws, this Section 16 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors under Article III of these Bylaws cannot readily be obtained (an “Emergency”). During any Emergency, unless otherwise provided by the Board of Directors, (a) a meeting of the Board of Directors or a committee thereof may be called by any director or officer by any means feasible under the circumstances; (b) notice of any meeting of the Board of Directors during such an Emergency may be given less than 24 hours prior to the meeting to as many directors and by such means as may be feasible at the time, including publication, television or radio, and (c) the number of directors necessary to constitute a quorum shall be one-third of the entire Board of Directors.
ARTICLE IV COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may appoint from among its members committees, composed of one or more directors, to serve at the pleasure of the Board of Directors. A majority of the members of each committee shall be Independent Directors.
Section 2. POWERS. The Board of Directors may delegate to committees appointed under Section 1 of this Article any of the powers of the Board of Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority of the committee members present at a meeting shall be the act of such committee. The Board of Directors may designate a chairman of any committee, and such chairman or, in the absence of a chairman, any two members of any committee (if there are at least two members of the Committee) may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether
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or not they constitute a quorum, may appoint another director to act in the place of such absent member. Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of Directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 5. CONSENT BY COMMITTEES WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing or by electronic transmission to such action is given by each member of the committee and is filed with the minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill any vacancy, to designate an alternate member to replace any absent or disqualified member or to dissolve any such committee.
ARTICLE V OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall include a president, a secretary and a treasurer and may include a chairman of the board, a vice chairman of the board, a chief executive officer, one or more vice presidents, a chief operating officer, a chief financial officer, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board of Directors may from time to time elect such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Corporation shall be elected annually by the Board of Directors, except that the chief executive officer or president may from time to time appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers. Each officer shall serve until his or her successor is elected and qualifies or until his or her death, or his or her resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation may be removed, with or without cause, by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by delivering his or her resignation to the Board of Directors, the chairman of the board, the president or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a chief executive officer. In the absence of such designation, the chairman of the board shall be the chief executive officer of the Corporation. The chief executive officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws
to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Directors from time to time.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may designate a chief operating officer. The chief operating officer shall have the responsibilities and duties as determined by the Board of Directors or the chief executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as determined by the Board of Directors
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or the chief executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall designate a chairman of the board. The chairman of the board shall preside over the meetings of the Board of Directors and of the stockholders at which he or she shall be present. The chairman of the board shall perform such other duties as may be assigned to him or her by the Board of Directors.
Section 8. PRESIDENT. In the absence of a chief executive officer, the president shall in general supervise and control all of the business and affairs of the Corporation. In the absence of a designation of a chief operating officer by the Board of Directors, the president shall be the chief operating officer. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to such vice president by the president or by the Board of Directors. The Board of Directors may designate one or more vice presidents as executive vice president, senior vice president, or vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder or see that such register is kept by the Corporation’s transfer agent; (e) have general charge of the stock transfer books of the Corporation; and (f) in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, the president or the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. In the absence of a designation of a chief financial officer by the Board of Directors, the treasurer shall be the chief financial officer of the Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and Board of Directors, at the regular meetings of the Board of Directors or whenever it may so require, an account of all his or her transactions as treasurer and of the financial condition of the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the Board of Directors.
Section 13. COMPENSATION. The compensation of the officers shall be fixed from time to time by or under the authority of the Board of Directors and no officer shall be prevented from receiving such compensation by reason of the fact that he or she is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Corporation when duly authorized or ratified by action of the Board of Directors and executed by an authorized person.
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Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited or invested from time to time to the credit of the Corporation as the Board of Directors, the chief executive officer, the chief financial officer or any other officer designated by the Board of Directors may determine.
ARTICLE VII STOCK
Section 1. CERTIFICATES. Unless otherwise provided by the Board of Directors, the Corporation shall not issue stock certificates. In the event that the Corporation issues shares of stock represented by certificates, such certificates shall be in such form as prescribed by the Board of Directors or a duly authorized officer, shall contain the statements and information required by the MGCL and shall be signed by the officers of the Corporation in the manner permitted by the MGCL. In the event that the Corporation issues shares of stock without certificates, to the extent then required by the MGCL, the Corporation shall provide to the record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates. There shall be no differences in the rights and obligations of stockholders based on whether or not their shares are represented by certificates. If a class or series of stock is uncertificated, no stockholder shall be entitled to a certificate or certificates representing any shares of such class or series of stock held by such stockholder unless otherwise determined by the Board of Directors and then only upon written request by such stockholder to the secretary of the Corporation.
Section 2. TRANSFERS. All transfers of shares of stock shall be made on the books of the Corporation, by the holder of the shares, in person or by his or her attorney, in such manner as the Board of Directors or any officer of the Corporation may prescribe and, if such shares are certificated, upon surrender of certificates duly endorsed. The issuance of a new certificate upon the transfer of certificated shares is subject to the determination of the Board of Directors that such shares shall no longer be represented by certificates. Upon the transfer of uncertificated shares, to the extent then required by the MGCL, the Corporation shall provide to record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates.
The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.
Notwithstanding the foregoing, transfers of shares of any class or series of stock will be subject in all respects to the Charter and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer of the Corporation may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, destroyed, stolen or mutilated, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, destroyed, stolen or mutilated; provided, however, if such shares have ceased to be certificated, no new certificate shall be issued unless requested in writing by such stockholder and the Board of Directors has determined that such certificates may be issued. Unless otherwise determined by an officer of the Corporation, the owner of such lost, destroyed, stolen or mutilated certificate or certificates, or his or her legal representative, shall be required, as a condition precedent to the issuance of a new certificate or certificates, to give the Corporation a bond in such sums as it may direct as indemnity against any claim that may be made against the Corporation.
Section 4. FIXING OF RECORD DATE. The Board of Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.
When a record date for the determination of stockholders entitled to notice of and to vote at any meeting of stockholders has been set as provided in this section, such record date shall continue to apply to the meeting if
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adjourned or postponed, except if the meeting is adjourned to a date more than 120 days or postponed to a date more than 90 days after the record date originally fixed for the meeting, in which case a new record date for such meeting may be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate stock ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Charter or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.
ARTICLE VIII ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution, provided that the fiscal year of the Corporation shall be the calendar year for all taxable periods following the Corporation’s qualification as, and prior to any termination or revocation of the qualification of the Corporation as, a real estate investment trust under the Internal Revenue Code of 1986, as amended.
ARTICLE IX DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the stock of the Corporation may be authorized by the Board of Directors and declared by the Corporation, subject to the provisions of law and the Charter. Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the provisions of law and the Charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine, and the Board of Directors may modify or abolish any such reserve.
ARTICLE X INVESTMENT POLICY
Subject to the provisions of the Charter, the Board of Directors may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as it shall deem appropriate in its sole discretion.
ARTICLE XI SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a seal by the Corporation. The seal shall contain the name of the Corporation and the year of its incorporation and the words “Incorporated Maryland.” The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.
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ARTICLE XII WAIVER OF NOTICE
Whenever any notice of a meeting is required to be given pursuant to the Charter or these Bylaws or pursuant to applicable law, a waiver thereof in writing or by electronic transmission, given by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIII AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.
ARTICLE XIV
EXCLUSIVE FORUM FOR CERTAIN LITIGATION
Unless the Corporation consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the Corporation to the Corporation or to the stockholders of the Corporation, (c) any action asserting a claim arising pursuant to any provision of the MGCL or the Charter or Bylaws of the Corporation, or (d) any action asserting a claim that is governed by the internal affairs doctrine, and any record or beneficial stockholder of the Corporation who commences such an action shall cooperate in a request that the action be assigned to the Court’s Business and Technology Case Management Program. For the avoidance of doubt, this Article XIV will not apply to claims arising under the Securities Act of 1933, as amended, or the Exchange Act or to actions arising out of, or in connection with, the sale of securities in, or the violation of the laws of, the states and U.S. territories and districts, in which shares of the Corporation are sold; provided that the inapplicability of this Article XIV to such actions will not cause this Article XIV to be inapplicable to other types of claims, whether they are brought concurrently with or before or after actions arising out of, or in connection with, the sale of securities in, or the violation of the laws of, the states and U.S. territories and districts in which the Corporation’s shares are sold.
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Exhibit 10.4
TENTH AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
AIREIT Operating PARTNERSHIP LP
A DELAWARE LIMITED PARTNERSHIP
February 11, 2022
TABLE OF CONTENTS
Article 1 DEFINED TERMS | 1 | |
| | |
Article 2 PARTNERSHIP FORMATION AND IDENTIFICATION | 14 | |
2.1 | Formation. | 14 |
2.2 | Name, Office and Registered Agent. | 14 |
2.3 | Partners. | 14 |
2.4 | Term and Dissolution. | 14 |
2.5 | Filing of Certificate and Perfection of Limited Partnership. | 15 |
2.6 | Certificates Describing Partnership Units and Special Partnership Units. | 15 |
| | |
Article 3 BUSINESS OF THE PARTNERSHIP | 16 | |
| | |
Article 4 CAPITAL CONTRIBUTIONS AND ACCOUNTS | 16 | |
4.1 | Capital Contributions. | 16 |
4.2 | Additional Capital Contributions and Issuances of Additional Partnership Interests. | 17 |
4.3 | Additional Funding. | 19 |
4.4 | Capital Accounts. | 19 |
4.5 | Percentage Interests. | 20 |
4.6 | No Interest On Contributions. | 20 |
4.7 | Return Of Capital Contributions. | 20 |
4.8 | No Third Party Beneficiary. | 20 |
| | |
Article 5 PROFITS AND LOSSES; DISTRIBUTIONS | 21 | |
5.1 | Allocation of Profit and Loss. | 21 |
5.2 | Distribution of Cash. | 23 |
5.3 | REIT Distribution Requirements. | 27 |
5.4 | No Right to Distributions in Kind. | 27 |
5.5 | Limitations on Return of Capital Contributions. | 27 |
5.6 | Distributions Upon Liquidation. | 27 |
5.7 | Substantial Economic Effect. | 28 |
| | |
Article 6 RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER | 28 | |
6.1 | Management of the Partnership. | 28 |
6.2 | Delegation of Authority. | 30 |
6.3 | Indemnification and Exculpation of Indemnitees. | 31 |
6.4 | Liability of the General Partner. | 32 |
6.5 | Reimbursement of General Partner. | 33 |
6.6 | Outside Activities. | 33 |
6.7 | Employment or Retention of Affiliates. | 33 |
6.8 | General Partner Participation. | 34 |
6.9 | Title to Partnership Assets. | 34 |
6.10 | Redemptions and Exchanges of REIT Shares. | 34 |
6.11 | No Duplication of Fees or Expenses. | 35 |
35 | ||
7.1 | Transfer of the General Partner’s Partnership Interest. | 35 |
7.2 | Admission of a Substitute or Additional General Partner. | 37 |
7.3 | Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner. | 37 |
7.4 | Removal of a General Partner. | 38 |
| | |
Article 8 RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS | 39 | |
8.1 | Management of the Partnership. | 39 |
8.2 | Power of Attorney. | 39 |
8.3 | Limitation on Liability of Limited Partners. | 39 |
8.4 | Ownership by Limited Partner of Corporate General Partner or Affiliate. | 39 |
8.5 | Redemption Right. | 40 |
8.6 | Registration. | 43 |
8.7 | Distribution Reinvestment Plan. | 43 |
| | |
Article 9 TRANSFERS OF LIMITED PARTNERSHIP INTERESTS | 43 | |
9.1 | Purchase for Investment. | 43 |
9.2 | Restrictions on Transfer of Limited Partnership Interests. | 43 |
9.3 | Admission of Substitute Limited Partner. | 45 |
9.4 | Rights of Assignees of Partnership Interests. | 46 |
9.5 | Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner. | 46 |
9.6 | Joint Ownership of Interests. | 46 |
| | |
Article 10 BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS | 47 | |
10.1 | Books and Records. | 47 |
10.2 | Custody of Partnership Funds; Bank Accounts. | 47 |
10.3 | Fiscal and Taxable Year. | 47 |
10.4 | Annual Tax Information and Report. | 48 |
10.5 | Tax Matters Partner; Tax Elections; Special Basis Adjustments. | 48 |
10.6 | Reports to Limited Partners. | 49 |
10.7 | Safe Harbor Election | 49 |
| | |
Article 11 AMENDMENT OF AGREEMENT; MERGER | 50 | |
| | |
Article 12 GENERAL PROVISIONS | 50 | |
12.1 | Notices. | 50 |
12.2 | Survival of Rights. | 51 |
12.4 | Severability. | 51 |
12.5 | Entire Agreement. | 51 |
12.6 | Pronouns and Plurals. | 51 |
12.7 | Headings. | 51 |
12.8 | Counterparts. | 51 |
12.9 | Governing Law. | 51 |
12.10 | Effectiveness. | 51 |
EXHIBITS
EXHIBIT A - | Partners, Capital Contributions and Percentage Interests or Special Percentage Interests | |
| | |
EXHIBIT B - | Notice of Exercise of Redemption Right | |
TENTH AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
aireit Operating Partnership LP
RECITALS
This Tenth Amended and Restated Limited Partnership Agreement (this “Agreement”) is entered into as of February 11, 2022, between Ares Industrial Real Estate Income Trust Inc., a Maryland corporation (f/k/a Black Creek Industrial REIT IV Inc.) (the “General Partner”) and the Limited Partners set forth on Exhibit A attached hereto. Capitalized terms used herein but not otherwise defined shall have the meanings given them in Article 1.
AGREEMENT
WHEREAS, AIREIT Operating Partnership LP (f/k/a BCI IV Operating Partnership LP) (the “Partnership”), was formed on August 12, 2014 as a limited partnership under the laws of the State of Delaware, pursuant to a Certificate of Limited Partnership filed with the Office of the Secretary of State of the State of Delaware on August 12, 2014;
WHEREAS, the Partnership is currently governed by the Ninth Amended and Restated Limited Partnership Agreement of the Partnership dated as of November 24, 2021 (the “Prior Agreement”); and
WHEREAS, the parties desire to amend and restate the Prior Agreement as fully set forth below.
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Prior Agreement shall be and hereby is amended and restated in its entirety as follows:
The following defined terms used in this Agreement shall have the meanings specified below:
“ACT” means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time.
“ADDITIONAL FUNDS” has the meaning set forth in Section 4.3 hereof.
“ADDITIONAL SECURITIES” means any additional REIT Shares (other than REIT Shares issued in connection with a redemption pursuant to Section 8.5 hereof or REIT Shares issued pursuant to a distribution reinvestment plan of the General Partner) or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase REIT Shares, as set forth in Section 4.2(a)(ii).
“ADMINISTRATIVE EXPENSES” means (i) all administrative and operating costs and expenses incurred by the Partnership, (ii) those administrative costs and expenses of the General Partner, including any salaries or other payments to directors, officers or employees of the General Partner, and any accounting and legal expenses of the General Partner, which expenses, the Partners have agreed, are expenses of the Partnership and not the General Partner, (iii) costs and expenses relating to the formation and continuity of existence and operation of the General Partner and any Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included within the definition of General Partner), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director, officer or employee of the General Partner, (iv) costs and expenses relating to any Offering and registration of securities by the General Partner and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwriting discounts and selling commissions applicable to any such Offering, and any costs and expenses associated with any claims made by any holders of such securities or any underwriters or placement agents thereof, (v) costs and expenses associated with any repurchase of any securities by the General Partner, (vi) costs and expenses associated with the preparation and filing of any periodic or other reports and communications by the General Partner under federal, state or local laws or regulations, including filings with the Commission, (vii) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the Commission and any securities exchange, (viii) costs and expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providing for compensation for the employees of the General Partner, (ix) costs and expenses incurred by the General Partner relating to any issuing or redemption of Partnership Interests and (x) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business on behalf of or in connection with the Partnership; provided, however, that Administrative Expenses shall not include any administrative costs and expenses incurred by the General Partner that are attributable to Properties or partnership interests in a Subsidiary Partnership that are owned by the General Partner directly.
“ADVISOR” or “ADVISORS” means the Person or Persons, if any, appointed, employed or contracted with by the General Partner and responsible for directing or performing the day-to-day business affairs of the General Partner, including any Person to whom the Advisor subcontracts all or substantially all of such functions.
“ADVISORY AGREEMENT” means the agreement between the General Partner, the Partnership and the Advisor pursuant to which the Advisor will direct or perform the day-to-day business affairs of the General Partner.
“AFFILIATE” means, with respect to any Person, (i) any Person directly or indirectly owning, controlling or holding, with the power to vote, ten percent or more of the outstanding voting securities of such other Person; (ii) any Person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with the power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person and (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
“AFFIRMATION DATE” has the meaning provided in Section 8.5(a).
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“AGGREGATE SHARE OWNERSHIP LIMIT” shall have the meaning set forth in the Charter.
“AGREED VALUE” means the fair market value of a Partner’s non-cash Capital Contribution as of the date of contribution as agreed to by such Partner and the General Partner. The names and addresses of the Partners, number and Class or Series of Partnership Units or Special Partnership Units issued to each Partner, and the Agreed Value of non-cash Capital Contributions as of the date of contribution are set forth on Exhibit A.
“AGREEMENT” means this Seventh Amended and Restated Limited Partnership Agreement, as amended, modified supplemented or restated from time to time, as the context requires.
“ANNUAL TOTAL RETURN AMOUNT” means the overall investment return, expressed as a dollar amount per Partnership Unit, which shall be equal to the sum of (1) the Weighted-Average Distributions per Partnership Unit over the applicable period, and (2) the Ending VPU, adjusted to remove the negative impact on the overall investment return from the payment or the obligation to pay, or distribute, as applicable, the Performance Allocation and Class-Specific Fees, less the Beginning VPU.
“APPLICABLE PERCENTAGE” has the meaning provided in Section 8.5(b) hereof.
“ASSET” means any Property, Mortgage, other debt or other investment (other than investments in bank accounts, money market funds or other current assets) owned by the General Partner, directly or indirectly through one or more of its Affiliates.
“BEGINNING VPU” means the VPU determined as of the end of the most recent month prior to the commencement of the applicable period.
“CAPITAL ACCOUNT” has the meaning provided in Section 4.4 hereof.
“CAPITAL CONTRIBUTION” means the total amount of cash, cash equivalents, and the Agreed Value of any Property or other asset (other than cash) contributed or agreed to be contributed, as the context requires, to the Partnership by each Partner pursuant to the terms of this Agreement. Any reference to the Capital Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of the Partnership Interest of such Partner.
“CARRYING VALUE” means, with respect to any asset of the Partnership, the asset’s adjusted net basis for federal income tax purposes or, in the case of any asset contributed to the Partnership, the fair market value of such asset at the time of contribution, reduced by any amounts attributable to the inclusion of liabilities in basis pursuant to Section 752 of the Code, except that the Carrying Values of all assets may, at the discretion of the General Partner, be adjusted to equal their respective fair market values (as determined by the General Partner), in accordance with the rules set forth in Regulations Section 1.704-1(b)(2)(iv)(f), as provided for in Section 4.4. In the case of any asset of the Partnership that has a Carrying Value that differs from its adjusted tax basis, the Carrying Value shall be adjusted by the amount of depreciation, depletion and amortization calculated for purposes of the allocations of net profit and net loss pursuant to Article
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5 hereof rather than the amount of depreciation, depletion and amortization determined for federal income tax purposes.
“CASH AMOUNT” means an amount of cash per Partnership Unit equal to the applicable Redemption Price determined by the General Partner.
“CERTIFICATE” means any instrument or document that is required under the laws of the State of Delaware, or any other jurisdiction in which the Partnership conducts business, to be signed and sworn to by the Partners of the Partnership (either by themselves or pursuant to the power-of-attorney granted to the General Partner in Section 8.2 hereof) and filed for recording in the appropriate public offices within the State of Delaware or such other jurisdiction to perfect or maintain the Partnership as a limited partnership, to effect the admission, withdrawal, or substitution of any Partner of the Partnership, or to protect the limited liability of the Limited Partners as limited partners under the laws of the State of Delaware or such other jurisdiction.
“CHARTER” means the Third Articles of Amendment and Restatement of the General Partner filed with the Maryland State Department of Assessments and Taxation, as amended, restated or supplemented from time to time.
“CLASS” means a class of REIT Shares or Partnership Units, as the context may require.
“CLASS D CONVERSION RATE” means the fraction, the numerator of which is the Net Asset Value Per Unit for each Class D Unit and the denominator of which is the Net Asset Value Per Unit for each Class I Unit.
“CLASS D UNIT” means a Partnership Unit entitling the holder thereof to the rights of a holder of a Class D Unit as provided in this Agreement, and shall be a Series 1 Class D Unit or a Series 2 Class D Unit.
“CLASS I REIT SHARES” means the REIT Shares classified as Class I common shares in the Charter.
“CLASS I UNIT” means a Partnership Unit entitling the holder thereof to the rights of a holder of a Class I Unit as provided in this Agreement.
“CLASS-SPECIFIC FEES” means any Distribution Fee expenses accrued or allocated directly or indirectly to a particular Class or Series of Partnership Units or REIT Shares.
“CLASS T CONVERSION RATE” means the fraction, the numerator of which is the Net Asset Value Per Unit for each Class T Unit and the denominator of which is the Net Asset Value Per Unit for each Class I Unit.
“CLASS T REIT SHARES” means the REIT Shares classified as Class T common shares in the Charter.
“CLASS T UNIT” means a Partnership Unit entitling the holder thereof to the rights of a holder of a Class T Unit as provided in this Agreement, and shall be a Series 1 Class T Unit, a Series 2 Class T Unit or a Series 3 Class T Unit.
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“CODE” means the Internal Revenue Code of 1986, as amended, and as hereafter amended from time to time. Reference to any particular provision of the Code shall mean that provision in the Code at the date hereof and any successor provision of the Code.
“COMMISSION” means the U.S. Securities and Exchange Commission.
“COMMON SHARE OWNERSHIP LIMIT” shall have the meaning set forth in the Charter.
“CONTROL” means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities or other beneficial interests, by contract or otherwise. “Controlled” and “Controlling” shall have correlative meanings.
“CONVERSION FACTOR” means 1.0, provided that in the event that the General Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time), and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on such date and, provided further, that in the event that an entity other than an Affiliate of the General Partner shall become General Partner pursuant to any merger, consolidation or combination of the General Partner with or into another entity (the “Successor Entity”), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by the number of shares of the Successor Entity into which one REIT Share is converted pursuant to such merger, consolidation or combination, determined as of the date of such merger, consolidation or combination. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event; provided, however, that if the General Partner receives a Notice of Redemption after the record date, but prior to the effective date of such dividend, distribution, subdivision or combination, the Conversion Factor shall be determined as if the General Partner had received the Notice of Redemption immediately prior to the record date for such dividend, distribution, subdivision or combination. A separate Conversion Factor shall be determined for each Class or Series of Partnership Units (other than Series 2 Class T Units) by taking into account only the outstanding REIT Shares having the same Class designation as the applicable Class of Partnership Units. The Conversion Factor for Series 2 Class T Units shall equal the Conversion Factor for Series 1 Class T Units, multiplied by the Net Asset Value Per Unit for Series 2 Class T Units and divided by the Net Asset Value Per Unit for Series 1 Class T Units.
“DEALER MANAGER” means Ares Wealth Management Solutions, LLC or such other Person or entity selected by the board of directors of the General Partner to act as the dealer manager for the Offering and/or a Private Placement.
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“DEFAULTING LIMITED PARTNER” has the meaning provided in Section 5.2(d) hereof.
“DIRECTOR” shall have the meaning set forth in the Charter.
“DISTRIBUTION FEE” means any ongoing distribution fees, dealer manager fees or similar fees (as distinguished from up-front or one-time selling commissions and dealer manager fees) payable pursuant to any dealer manager agreement between the General Partner and the Dealer Manager with respect to outstanding REIT Shares or Partnership Units.
“DST PROPERTIES” means real properties that meet the following criteria: (i) tenancy-in-common or Delaware statutory trust beneficial interests in such properties have been sold by the General Partner or any of its Affiliates to third party investors and (ii) such properties are being leased by the General Partner or any of its Affiliates from the tenancy-in-common or Delaware statutory trust third party investors.
“ENDING VPU” means the VPU as of the end of the last month in the applicable period.
“EVENT OF BANKRUPTCY” as to any Person means the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of his assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days.
“EXCEPTED HOLDER LIMIT” shall have the meaning set forth in the Charter.
“EXCHANGED REIT SHARES” has the meaning set forth in Section 6.10(b) hereof.
“FMV Option” means a fair market value purchase option giving the Partnership the right, but not the obligation, to acquire Interests from holders thereof at a later time as set forth in the applicable option agreement.
“GENERAL PARTNER” means Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, and any Person who becomes a substitute or additional General Partner as provided herein, and any of their successors as General Partner.
“GENERAL PARTNER LOAN” has the meaning provided in Section 5.2(d) hereof.
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“GENERAL PARTNERSHIP INTEREST” means a Partnership Interest held by the General Partner that is a general partnership interest.
“HURDLE AMOUNT” means for the applicable period, an amount equal to 5.0% of the Beginning VPU.
“INDEMNITEE” means (i) any Person made a party to a proceeding by reason of its status as the General Partner, the Advisor or a director, officer or employee of the General Partner, the Advisor or the Partnership, and (ii) such other Persons (including Affiliates of the General Partner, the Advisor or the Partnership) as the General Partner may designate from time to time, in its sole and absolute discretion.
“INDEPENDENT DIRECTORS” shall have the meaning set forth in the Charter.
“INTERESTS” means beneficial interests in specific Delaware statutory trusts offered in Private Placements.
“JOINT VENTURE” means those joint venture, co-investment, co-ownership or partnership arrangements in which the General Partner or any of its subsidiaries is a co-venturer or general partner established to acquire, develop or hold Assets.
“LIMITED PARTNER” means any Person named as a Limited Partner on Exhibit A attached hereto, including the Special OP Unitholder, and any Person who becomes a Substitute Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership. The Special OP Unitholder shall have the same rights and preferences as a Limited Partner except as set forth in Sections 5.2(c), 8.5 and 9.2(a).
“LIMITED PARTNERSHIP INTEREST” means the ownership interest of a Limited Partner in the Partnership at any particular time, including the right of such Limited Partner to any and all benefits to which such Limited Partner may be entitled as provided in this Agreement and in the Act, together with the obligations of such Limited Partner to comply with all the provisions of this Agreement and of such Act.
“LISTING” means the listing or partial listing of the REIT Shares on a national securities exchange. Upon such Listing, the REIT Shares shall be deemed “Listed.”
“LOSS CARRYFORWARD” means an amount that equaled zero as of July 1, 2017 and shall cumulatively increase by the absolute value of any negative Annual Total Return Amount and decrease by any positive Annual Total Return Amount, provided that the Loss Carryforward shall at no time be less than zero. The effect of the Loss Carryforward is that the recoupment of past Annual Total Return Amount losses will offset the positive Annual Total Return Amount for purposes of the calculation of the Performance Allocation.
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“MINIMUM LIMITED PARTNERSHIP INTEREST” means the lesser of (i) 1% or (ii) if the total Capital Contributions to the Partnership exceeds $50 million, 1% divided by the ratio of the total Capital Contributions to the Partnership to $50 million; provided, however, that the Minimum Limited Partnership Interest shall not be less than 0.2% at any time.
“MORTGAGES” means, in connection with mortgage financing provided, invested in, participated in or purchased by the General Partner, all of the notes, deeds of trust, security interests or other evidences of indebtedness or obligations, which are secured or collateralized by Real Property owned by the borrowers under such notes, deeds of trust, security interests or other evidences of indebtedness or obligations.
“NAV” means net asset value, calculated pursuant to the Valuation Procedures.
“NAV CALCULATIONS” means the calculations used to determine the NAV of the General Partner, the REIT Shares, the Partnership and the Partnership Units, all as provided in the Valuation Procedures.
“NET ASSET VALUE PER UNIT” means, for each Class or Series of Partnership Unit, the net asset value per unit of such Class or Series of Partnership Unit most recently determined in accordance with the Valuation Procedures and in this Agreement.
“NET ASSET VALUE PER REIT SHARE” means, for each Class of REIT Shares, the net asset value per share of such Class of REIT Shares most recently determined in accordance with the Valuation Procedures and in this Agreement.
“NOTICE OF REDEMPTION” means the Notice of Exercise of Redemption Right substantially in the form attached as Exhibit B hereto.
“OFFER” has the meaning set forth in Section 7.1(b) hereof.
“OFFERING” means the offer and sale of REIT Shares to the public.
“OP UNITHOLDERS” means all holders of Partnership Interests other than the Special OP Unitholders.
“ORIGINAL LIMITED PARTNER” means the Limited Partners designated as “Original Limited Partners” on Exhibit A hereto.
“PARTNER” means any General Partner or Limited Partner.
“PARTNER NONRECOURSE DEBT MINIMUM GAIN” has the meaning set forth in Regulations Section 1.704-2(i). A Partner’s share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5).
“PARTNERSHIP” means AIREIT Operating Partnership LP, a Delaware limited partnership.
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“PARTNERSHIP INTEREST” means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.
“PARTNERSHIP LOAN” has the meaning provided in Section 5.2(d) hereof.
“PARTNERSHIP NAV” The NAV of the Partnership, calculated pursuant to the Valuation Procedures.
“PARTNERSHIP MINIMUM GAIN” has the meaning set forth in Regulations Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership nonrecourse liability, any gain the Partnership would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Partner’s share of Partnership Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(1).
“PARTNERSHIP RECORD DATE” means the record date established by the General Partner for the distribution of cash pursuant to Section 5.2 hereof, which record date shall be the same as the record date established by the General Partner for a distribution to its shareholders of some or all of its portion of such distribution.
“PARTNERSHIP UNIT” means a fractional, undivided share of the Partnership Interests of all Partners issued hereunder, including Class D Units, Class I Units and Class T Units but excluding the Partnership Interests represented by Special Partnership Units. The allocation of Partnership Units of each Class and Series among the Partners shall be as set forth on Exhibit A, as such Exhibit may be amended from time to time.
“PERCENTAGE INTEREST” means the percentage ownership interest in the Partnership of each Partner, as determined by dividing the Partnership Units owned by a Partner by the total number of Partnership Units then outstanding. The Percentage Interest of each Partner shall be as set forth on Exhibit A, as such Exhibit may be amended from time to time.
“PERFORMANCE ALLOCATION” shall have the meaning set forth in Section 5.2(c).
“PERSON” means any individual, partnership, limited liability company, corporation, joint venture, trust or other entity.
“PRIVATE PLACEMENT” means a private placement of Interests with respect to which the Partnership will be given a FMV Option.
“PROFIT” has the meaning provided in Section 5.1(g) hereof.
“PROPERTY” means, as the context requires, all or a portion of each Real Property acquired by the General Partner, directly or indirectly through joint venture or co-ownership arrangements or other partnership or investment entities.
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“PROSPECTUS” means the same as that term is defined in Section 2(10) of the Securities Act, including a preliminary prospectus, an offering circular as described in Rule 256 of the general rules and regulations under the Securities Act, or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling REIT Shares to the public.
“REAL PROPERTY” means land, rights in land (including leasehold interests), and any buildings, structures, improvements, furnishings, fixtures and equipment located on or used in connection with land and rights or interests in land. Real estate-related securities and DST Properties shall also be deemed Real Property for purposes of this definition.
“RECEIVED REIT SHARES” has the meaning set forth in Section 6.10(b) hereof.
“REDEMPTION” has the meaning provided in Section 8.5(a) hereof.
“REDEMPTION PRICE” means the Value of the REIT Shares Amount as of the end of the Specified Redemption Date.
“REDEMPTION RIGHT” has the meaning provided in Section 8.5(a) hereof.
“REDEMPTION SHARES” has the meaning provided in Section 8.6(a) hereof.
“REGULATIONS” means the Federal income tax regulations promulgated under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the Regulations shall mean that provision of the Regulations on the date hereof and any successor provision of the Regulations.
“REGULATORY ALLOCATIONS” has the meaning set forth in Section 5.1(i) hereof.
“REIT” means a corporation, trust, association or other legal entity (other than a real estate syndication) that qualifies as a real estate investment trust under Sections 856 through 860 of the Code, and any successor or other provisions of the Code relating to real estate investment trusts (including provisions as to the attribution of ownership of beneficial interests therein) and the regulations promulgated thereunder.
“REIT SHARE” means a common share of beneficial interest in the General Partner (or successor entity, as the case may be), including Class I REIT Shares, Class T REIT Shares and Class D REIT Shares.
“REIT SHARES AMOUNT” means, with respect to any Class or Series of Tendered Units, a number of REIT Shares of such Class equal to the product of the number of Partnership Units of such Class or Series offered for exchange by a Tendering Party, multiplied by the Conversion Factor for such Class or Series of Partnership Units as adjusted to and including the Specified Redemption Date; provided that in the event the General Partner issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the “rights”), and the rights have not expired at the Specified Redemption Date, then the REIT Shares Amount shall also include the rights issuable to a holder of the REIT Shares Amount of REIT
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Shares on the record date fixed for purposes of determining the holders of REIT Shares entitled to rights.
“RELATED PARTY” means, with respect to any Person, any other Person whose ownership of shares of the General Partner’s capital stock would be attributed to the first such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)).
“SAFE HARBOR” means, the election described in the Safe Harbor Regulation, pursuant to which a partnership and all of its partners may elect to treat the fair market value of a partnership interest that is transferred in connection with the performance of services as being equal to the liquidation value of that interest.
“SAFE HARBOR ELECTION” means the election by a partnership and its partners to apply the Safe Harbor, as described in the Safe Harbor Regulation and Internal Revenue Service Notice 2005-43 , issued on May 19, 2005.
“SAFE HARBOR REGULATION” means Proposed Treasury Regulations Section 1.83-3(l) issued on May 19, 2005.
“SECURITIES ACT” means the Securities Act of 1933, as amended from time to time, or any successor statute thereto. Reference to any provision of the Securities Act shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, and the rules and regulations promulgated thereunder.
“SERIES” means a series of a Class of Partnership Units, as the context may require.
“SERIES 1 CLASS D INVESTOR SERVICING FEE” means a fee paid to the Dealer Manager of the Private Placements equal to 0.25% per annum of the Net Asset Value Per Unit of each Class D Unit (calculated monthly in accordance with the Valuation Procedures and in this Agreement, as they may be amended from time to time), which will be allocated to the holders of Class D Units through a reduction in their distributions.
“SERIES 1 CLASS D UNITS” means Class D Units with the rights, privileges and obligations set forth for in this Agreement with respect to Series 1 Class D Units.
“SERIES 1 CLASS T UNITS” means Class T Units with the rights, privileges and obligations set forth for in this Agreement with respect to Series 1 Class T Units.
“SERIES 2 CLASS D INVESTOR SERVICING FEE” means a fee paid to the Dealer Manager of the Private Placements equal to 0.25% per annum of the Net Asset Value Per Unit of each Class D Unit (calculated monthly in accordance with the Valuation Procedures and in this Agreement, as they may be amended from time to time), which will be allocated to the holders of Class D Units through a reduction in their distributions.
“SERIES 2 CLASS D UNITS” means Class D Units with the rights, privileges and obligations set forth for in this Agreement with respect to Series 2 Class D Units.
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“SERIES 2 CLASS T UNITS” means Class T Units with the rights, privileges and obligations set forth for in this Agreement with respect to Series 2 Class T Units.
“SERIES 3 CLASS T INVESTOR SERVICING FEE” means a fee paid to the Dealer Manager of the Private Placements equal to 0.85% per annum of the Net Asset Value Per Unit of each Series 3 Class T Unit (calculated monthly in accordance with the Valuation Procedures and in this Agreement, as they may be amended from time to time), which will be allocated to the holders of Class T Units through a reduction in their distributions.
“SERIES 3 CLASS T UNITS” means Class T Units with the rights, privileges and obligations set forth for in this Agreement with respect to Series 3 Class T Units.
“SERVICE” means the United States Internal Revenue Service.
“SPECIAL OP UNITHOLDERS” means the holder or holders of Special Partnership Units; provided, that, if such holders of Special Partnership Units own Partnership Units, then such holders shall be Partners and not Special OP Unitholders with respect to such Partnership Units.
“SPECIAL PARTNERSHIP UNIT” means a unit of a series of Partnership Interests, designated as Special Partnership Units, issued pursuant to Section 4.1. The number of Special Partnership Units outstanding and the Special Percentage Interests in the Partnership represented by such Special Partnership Units are set forth on Exhibit A, as such Exhibit may be amended from time to time. A holder of a Special Partnership Unit shall have the same rights and preferences as a holder of a Partnership Unit under this Agreement that is a Limited Partner except as set forth in Sections 5.2(c), 8.5, and 9.2(a).
“SPECIAL PERCENTAGE INTEREST” shall mean the percentage ownership interest in the Special Partnership Units of each Special OP Unitholder, as determined by dividing the Special Partnership Units owned by each Special OP Unitholder by the total number of Special Partnership Units then outstanding. The Special Percentage Interest of each Partner shall be as set forth on Exhibit A, as such Exhibit may be amended from time to time.
“SPECIAL TRANSFEREE” has the meaning provided in Section 8.5(a) hereof.
“SPECIFIED REDEMPTION DATE” means, if the Affirmation Date is at least three business days before the end of a month, the last business day of such month, and otherwise the last business day of the month following the month in which the Affirmation Date occurred..
“SPONSOR PARTIES” has the meaning provided in Section 8.5(a) hereof.
“SRP” has the meaning provided in Section 5.2(c)(iii) hereof.
“SUBSIDIARY” means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.
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“SUBSIDIARY PARTNERSHIP” means any partnership of which the partnership interests therein are owned by the General Partner or a direct or indirect subsidiary of the General Partner.
“SUBSTITUTE LIMITED PARTNER” means any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.3 hereof.
“SUCCESSOR ENTITY” has the meaning provided in the definition of “Conversion Factor” contained herein.
“SURVIVOR” has the meaning set forth in Section 7.1(c) hereof.
“TAX MATTERS PARTNER” has the meaning described in Section 10.5(a) hereof.
“TENDERED UNITS” has the meaning provided in Section 8.5(a) hereof.
“TENDERING PARTY” has the meaning provided in Section 8.5(a) hereof.
“TRANSACTION” has the meaning set forth in Section 7.1(b) hereof.
“TOTAL EQUITY AMOUNT” means the cash purchase price of Interests in a Private Placement less the amount of any loan from the Partnership or any of its affiliates to finance a portion of such purchase price.
“TRANSACTION PRICE” shall mean the most recently disclosed NAV per REIT Share; provided that the General Partner may, in its discretion, adjust the Transaction Price to a price that the General Partner believes reflects the NAV per REIT Share more appropriately than the most recently disclosed NAV per REIT Share, including by updating a previously disclosed Transaction Price, in cases where the General Partner believes there has been a material change (positive or negative) to the NAV per REIT Share relative to the most recently disclosed NAV per REIT Share.
“TRANSFER” has the meaning set forth in Section 9.2(a) hereof.
“VALUATION PROCEDURES” means the written valuation procedures adopted by the Board of Directors of the General Partner, as such procedures may be amended from time to time, that set forth the method by which the NAV per each Class of REIT Share and Class or Series of Partnership Unit shall be calculated. Pursuant to such Valuation Procedures, certain Classes or Series of Partnership Units are each economically equivalent to the corresponding class of REIT Shares. Series 2 Class T Units, however, are not economically equivalent to any Class of REIT Shares. Accordingly, the Net Asset Value Per Unit of Series 2 Class T Units shall, upon their initial issuance, be set at the Net Asset Value Per Unit of Series 1 Class T Units, and thereafter each respective Class or Series of such Partnership Units shall be adjusted as described in the Valuation Procedures as if they were a separate Class of REIT Shares, taking into account their specific economic terms (specifically, their specific dividends and ongoing Distribution Fees) set forth herein.
“VALUE” means, for each Class of REIT Shares, the fair market value per share of that Class of REIT Shares which will equal: (i) if REIT Shares of that Class are Listed, the average
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closing price per share for the previous thirty business days, or (ii) if REIT Shares of that Class are not Listed, the Net Asset Value Per REIT Share for REIT Shares of that Class.
PARTNERSHIP FORMATION AND IDENTIFICATION
Formation. The Partnership was formed as a limited partnership pursuant to the Act and all other pertinent laws of the State of Delaware, for the purposes and upon the terms and conditions set forth in this Agreement.
Name, Office and Registered Agent. The name of the Partnership is AIREIT Operating Partnership LP. The specified office and place of business of the Partnership shall be 518 17th Street, 17th Floor, Denver, Colorado 80202. The General Partner may at any time change the location of such office, provided the General Partner gives notice to the Partners of any such change. The name and address of the Partnership’s registered agent is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The sole duty of the registered agent as such is to forward to the Partnership any notice that is served on him as registered agent.
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Filing of Certificate and Perfection of Limited Partnership. The General Partner shall execute, acknowledge, record and file at the expense of the Partnership, any and all amendments to the Certificate(s) and all requisite fictitious name statements and notices in such places and jurisdictions as may be necessary to cause the Partnership to be treated as a limited partnership under, and otherwise to comply with, the laws of each state or other jurisdiction in which the Partnership conducts business.
Certificates Describing Partnership Units and Special Partnership Units. At the request of a Limited Partner, the General Partner, at its option, may issue (but in no way is obligated to issue) a certificate summarizing the terms of such Limited Partner’s interest in the Partnership, including the number and Class or Series of Partnership Units or Special Partnership Units owned and the Percentage Interest and Special Percentage Interest represented by such Partnership Units and Special Partnership Units as of the date of such certificate. Any such certificate (i) shall be in form and substance as approved by the General Partner, (ii) shall not be negotiable and (iii) shall bear a legend to the following effect:
This certificate is not negotiable. The Partnership Units and Special Partnership Units represented by this certificate are governed by and transferable only in accordance with the provisions of the Limited Partnership Agreement of AIREIT Operating Partnership LP, as amended from time to time.
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The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, provided, however, that such business shall be limited to and conducted in such a manner as to permit the General Partner at all times to qualify as a REIT, unless the General Partner otherwise ceases to qualify as a REIT, and in a manner such that the General Partner will not be subject to any taxes under Section 857 or 4981 of the Code, (ii) to enter into any partnership, joint venture, co-ownership or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii) to do anything necessary or incidental to the foregoing. In connection with the foregoing, and without limiting the General Partner’s right in its sole and absolute discretion to qualify or cease qualifying as a REIT, the Partners acknowledge that the General Partner intends to qualify as a REIT for federal income tax purposes and upon such qualification the avoidance of income and excise taxes on the General Partner inures to the benefit of all the Partners and not solely to the General Partner. Notwithstanding the foregoing, the Limited Partners agree that the General Partner may terminate its status as a REIT under the Code at any time to the full extent permitted under the Charter. The General Partner on behalf of the Partnership shall also be empowered to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Code.
CAPITAL CONTRIBUTIONS AND ACCOUNTS
Capital Contributions. The General Partner and the Limited Partners have made capital contributions to the Partnership in exchange for the Partnership Interests set forth opposite their names on Exhibit A, as such Exhibit may be amended from time to time. The Partners shall own Partnership Units or Special Partnership Units of the Class or Series and in the amounts set forth in Exhibit A and shall have a Percentage Interest in the Partnership as set forth in Exhibit A. Notwithstanding the foregoing, the General Partner may keep Exhibit A current through separate revisions to the books and records of the Partnership that reflect periodic changes to the capital contributions made by the Partners and redemptions and other purchases of Partnership Units by the Partnership, and corresponding changes to the Partnership Interests of the Partners, without preparing a formal amendment to this Agreement, provided that such amendment shall be prepared upon the written request of any Limited Partner.
Classes and Series of Partnership Units.
The General Partner is hereby authorized to cause the Partnership to issue Partnership Units designated as Class T Units (which may be designated by the General Partner upon issuance as Series 1 Class T Units, Series 2 Class T Units or Series 3 Class T Units; provided, that all Class T Units issued to the General Partner shall be Series 1 Class T Units), Class I Units and Class D Units (which may be designated by the General Partner upon issuance as Series 1 Class D Units or Series 2 Class D Units; provided, that all Class D Units issued to the General Partner shall be Series 1 Class D Units). Each such Class shall have the rights and obligations attributed to that Class under this Agreement.
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Immediately following the time (if any) that the aggregate Series 3 Class T Investor Servicing Fees paid with respect to Series 3 Class T Units related to a single purchase of Interests in a Private Placement equals or exceeds such percentage of the Total Equity Amount as set forth in any applicable agreement between the Dealer Manager and a participating broker-dealer (provided that the Dealer Manager advises the General Partner’s transfer agent of such percentage in writing), all such Series 3 Class T Units (or fraction thereof) shall automatically convert to a number of Class I Units equal to the product of (i) the number of such Series 3 Class T Units and (ii) the Value of Class T Units divided by the Value of Class I Units.
Immediately following the time (if any) that the aggregate Series 2 Class D Investor Servicing Fees paid with respect to Series 2 Class D Units related to a single purchase of Interests in a Private Placement equals or exceeds such percentage of the Total Equity Amount as set forth in any applicable agreement between the Dealer Manager and a participating broker-dealer (provided that the Dealer Manager advises the General Partner’s transfer agent of such percentage in writing), all such Series 2 Class D Units (or fraction thereof) shall automatically convert to a number of Class I Units equal to the product of (i) the number of such Series 2 Class D Units and (ii) the Value of Class D Units divided by the Value of Class I Units.
Additional Capital Contributions and Issuances of Additional Partnership Interests. Except as provided in this Section 4.3 or in Section 4.4, the Partners shall have no right or obligation to make any additional Capital Contributions or loans to the Partnership. The General Partner may contribute additional capital to the Partnership, from time to time, and receive additional Partnership Interests in respect thereof, in the manner contemplated in this Section 4.3. Limited Partnership Interests will be issued to the General Partner in exchange for contributions by the General Partner to the capital of the Partnership of the proceeds received by the General Partners from the issuance of REIT Shares.
(e) | Issuances of Additional Partnership Interests. |
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(A) the additional Partnership Interests are issued in connection with an issuance of REIT Shares of or other interests in the General Partner, which shares or interests have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner by the Partnership in accordance with this Section 4.3 (without limiting the foregoing, for example, the Partnership shall issue Partnership Interests consisting of Class I Units to the General Partner in connection with the issuance of Class I REIT Shares, shall issue Partnership Interests consisting of Class T Units to the General Partner in connection with the issuance of Class T REIT Shares and shall issue Class D Units to the General Partner in connection with the issuance of Class D REIT Shares) and (B) the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the proceeds raised in connection with the issuance of such shares of stock of or other interests in the General Partner;
Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership.
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Additional Funding. If the General Partner determines that it is in the best interests of the Partnership to provide for additional Partnership funds (“Additional Funds”) for any Partnership purpose, the General Partner may (i) cause the Partnership to obtain such funds from outside borrowings, or (ii) elect to have the General Partner or any of its Affiliates provide such Additional Funds to the Partnership through loans or otherwise, provided, however, that the Partnership may not borrow money from its Affiliates, unless a majority of the Directors of the General Partner (including a majority of Independent Directors) not otherwise interested in such transaction approve the transaction as being fair, competitive, and commercially reasonable and no less favorable to the Partnership than comparable loans between unaffiliated parties.
Capital Accounts. A separate capital account (each a “Capital Account”) shall be established and maintained for each Partner in accordance with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires an additional Partnership Interest in exchange for more than a de minimis Capital Contribution, (ii) the Partnership distributes to a Partner more than a de minimis amount of Partnership property, or money as consideration for a Partnership Interest, (iii) the Partnership is liquidated within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g), or (iv) the Partnership grants a Partnership Interest (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Partnership, the General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership’s property is revalued by the General Partner, the Capital Accounts of the Partners shall be adjusted in accordance with Regulations Section 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected
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in the Capital Accounts previously) would be allocated among the Partners pursuant to Section 5.1 if there were a taxable disposition of such property for its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) on the date of the revaluation.
Percentage Interests. If the number of outstanding Partnership Units increases or decreases during a taxable year, each Partner’s Percentage Interest shall be adjusted by the General Partner effective as of the effective date of each such increase or decrease to a percentage equal to the number of Partnership Units held by such Partner divided by the aggregate number of Partnership Units outstanding after giving effect to such increase or decrease. If the Partners’ Percentage Interests are adjusted pursuant to this Section 4.6, the Profits and Losses (and items thereof) for the taxable year in which the adjustment occurs shall be allocated between the part of the year ending on the day when the Partnership’s property is revalued by the General Partner and the part of the year beginning on the following day either (i) as if the taxable year had ended on the date of the adjustment or (ii) based on the number of days in each part. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate Profits and Losses (or items thereof) for the taxable year in which the adjustment occurs. The allocation of Profits and Losses (or items thereof) for the earlier part of the year shall be based on the Percentage Interests before adjustment, and the allocation of Profits and Losses (or items thereof) for the later part shall be based on the adjusted Percentage Interests.
No Interest On Contributions. No Partner shall be entitled to interest on its Capital Contribution.
Return Of Capital Contributions. No Partner shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Partnership, except as specifically provided in this Agreement. Except as otherwise provided herein, there shall be no obligation to return to any Partner or withdrawn Partner any part of such Partner’s Capital Contribution for so long as the Partnership continues in existence.
No Third Party Beneficiary. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership.
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PROFITS AND LOSSES; DISTRIBUTIONS
Allocation of Profit and Loss.
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Special Allocations of Class-Specific Items. To the extent that any items of income, gain, loss or deduction of the General Partner are allocable to a specific Class or Classes of REIT Shares as provided in the Prospectus, including, without limitation, Distribution Fees, such items, or an amount equal thereto, shall be specially allocated to the Classes or Series of Partnership Units corresponding to such Class or Classes of REIT Shares.
Curative Allocations. The allocations set forth in Section 5.1(c), (d) and (e) of this Agreement (the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. The General Partner is authorized to offset all Regulatory Allocations either with other Regulatory Allocations or with special allocations of other items of Partnership income, gain, loss or deduction pursuant to this Section 5.1(i). Therefore, notwithstanding any other provision of this Section 5.1 (other than the Regulatory Allocations), the General Partner shall make such offsetting special allocations of Partnership income, gain, loss or deduction in whatever manner it deems appropriate so that, after such offsetting allocations are made, each Partner’s Capital Account is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of this Agreement and all Partnership items were allocated pursuant to Sections 5.1(a), (b), (f) and (h).
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(i)the lesser of (A) the amount equal to 12.5% of (1) the Annual Total Return Amount less (2) the Loss Carryforward, and (B) the amount equal to (x) the Annual Total Return Amount, less (y) the Loss Carryforward, less (z) the Hurdle Amount;
multiplied by:
(ii)the weighted-average number of Partnership Units outstanding during the applicable year, calculated in accordance with GAAP as applied on a consistent basis;
(iii) provided, that the Performance Allocation shall at no time be less than zero.
Except as described in the definition of Loss Carryforward in this Agreement, any amount by which the Annual Total Return Amount falls below the Hurdle Amount will not be carried forward to subsequent periods. If the Performance Allocation is distributable pursuant to this Section 5.2(c), the Special OP Unitholders shall be entitled to such distribution even in the event that the total percentage return to OP Unitholders over any longer or shorter period, or the total percentage return to any particular OP Unitholder over the same, longer or shorter period, has been less than the Annual Total Return Amount used to calculate the Hurdle Amount. The Special OP Unitholders shall not be obligated to return any portion of any Performance Allocation paid based on the General Partner’s or the Partnership’s subsequent performance.
If the Performance Allocation is being calculated with respect to a year in which the General Partner completes a Liquidity Event, for purposes of determining the Annual Total Return Amount, the change in VPU shall be deemed to equal the difference between the Ending VPU as of the end of the prior calendar year and the value per Partnership Unit determined in connection with such Liquidity Event. In connection with a Listing, for purposes of determining the Annual Total Return Amount, the change in VPU shall be deemed to equal the difference between the Ending VPU as of the end of the prior calendar year and an amount equal to the market value of the Listed shares based upon the average closing price or, if the average closing price is not available, the average of the bid and asked prices, for the 30-day period beginning 90 days after such Listing. Upon a Liquidity Event other than a Listing, for purposes of determining the Annual
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Total Return Amount, the change in VPU shall be deemed to equal the difference between the Ending VPU as of the end of the prior calendar year and an amount equal to the consideration per Fund Interest received by holders of Fund Interests in connection with such Liquidity Event.
The Performance Allocation with respect to any calendar year is distributable after the completion of the NAV Calculations for December of such year. The Performance Allocation shall be distributable for each calendar year in which the Advisory Agreement is in effect, even if the Advisory Agreement is in effect for a partial calendar year. If the Performance Allocation is distributable with respect to any partial calendar year, the Performance Allocation shall be calculated based on the annualized total return amount determined using the total return achieved for the period of such partial calendar year. In the event the Advisory Agreement is terminated or its term expires without renewal, the partial period Performance Allocation shall be calculated and due and distributable upon the date of such termination or non-renewal. In such event, for purposes of determining the Annual Total Return Amount, the change in VPU shall be determined based on a good faith estimate of what the NAV Calculations would be as of that date; provided, that, if the Advisory Agreement is terminated with respect to a Liquidity Event, the Performance Allocation will be due and distributable in connection with such Liquidity Event and the Annual Total Return Amount will be calculated as set forth in in this Section 5.2(c). Notwithstanding anything to the contrary in this paragraph, upon the triggering of a Pro-Rata Period as defined in the General Partner’s share redemption program in effect as of the date hereof (as it may be amended from time to time, the “SRP”), distribution of the Performance Allocation shall be deferred until all REIT Share redemption requests under the SRP are satisfied.
In the event the Partnership commences a liquidation of its Assets during any calendar year, the Special OP Unitholders shall be distributed the Performance Allocation from the proceeds of the liquidation and the Performance Allocation shall be calculated at the end of the liquidation period prior to the distribution of the liquidation proceeds to the OP Unitholders. The calculation of the Performance Allocation for any partial year shall be calculated consistent with the applicable provisions of this Section 5.2(c).
At the election of the Advisor, all or a portion of the Performance Allocation shall be paid instead to the Special OP Unitholders as a fee as set forth in Paragraph 9(a) of the Advisory Agreement. If the Advisor does not elect on or before the first day of a calendar year to have all or a portion of the Performance Allocation paid as a fee in cash to the Special OP Unitholders, then the Performance Allocation shall be distributable to the Special OP Unitholders as set forth in this Section 5.2(c).
The Performance Allocation may be payable in cash or as a distribution of Class I Units or any combination thereof at the election of the Special OP Unitholders. If the Special OP Unitholders elect to receive such distributions in Class I Units, the Special OP Unitholders will receive the number of Class I Units that results from dividing an amount equal to the value of the Performance Allocation by the NAV per Class I Unit at the time of such distribution. If the Special OP Unitholders elect to receive such distributions in Class I Units, the Special OP Unitholders may request the Partnership to redeem such Class I Units from the Special OP Unitholders at any time thereafter pursuant to Section 8.5.
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The measurement of the change in VPU for the purpose of calculating the Annual Total Return Amount is subject to adjustment by the board of directors of the General Partner to account for any dividend, split, recapitalization or any other similar change in the Partnership’s capital structure or any distributions that the board of directors of the General Partner deems to be a return of capital if such changes are not already reflected in the Partnership’s net assets.
The Partnership shall not calculate or accrue the Performance Allocation with respect to any year in which the General Partner has not determined an initial VPU in accordance with the Valuation Procedures.
Any amounts treated as a Partnership Loan or a General Partner Loan pursuant to this Section 5.2(d) shall bear interest at the lesser of (i) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in The Wall Street Journal, or (ii) the maximum lawful rate of interest on such obligation, such interest to accrue from the date the Partnership or the General Partner, as applicable, is deemed to extend the loan until such loan is repaid in full.
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REIT Distribution Requirements. The General Partner shall use its commercially reasonable efforts to cause the Partnership to distribute amounts sufficient to enable the General Partner to make shareholder distributions that will allow the General Partner to (i) meet its distribution requirement for qualification as a REIT as set forth in Section 857 of the Code and (ii) avoid any federal income or excise tax liability imposed by the Code.
No Right to Distributions in Kind. No Partner shall be entitled to demand property other than cash in connection with any distributions by the Partnership.
Limitations on Return of Capital Contributions. Notwithstanding any of the provisions of this Article 5, no Partner shall have the right to receive and the General Partner shall not have the right to make, a distribution that includes a return of all or part of a Partner’s Capital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Partnership liabilities, other than the liabilities to a Partner for the return of his Capital Contribution, does not exceed the fair market value of the Partnership’s assets.
Distributions Upon Liquidation. Immediately before liquidation of the Partnership, Class T Units will automatically convert to Class I Units at the Class T Conversion Rate and Class D Units will automatically convert to Class I Units at the Class D Conversion Rate. Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, and after making the distribution to the Special OP Unitholders (or payment as a cash fee to the Special OP Unitholders, as applicable) called for by Section 5.2(c) in connection with a liquidation of the Partnership (which shall be deemed the liquidating distribution for the Special OP Unitholders) any remaining assets of the Partnership shall be distributed to all Partners such that the holder of each Partnership Unit receives an amount equal to the Net Asset Value Per Unit for each Partnership Unit held. If, however, the remaining assets of the Partnership are not sufficient to pay in full the Net Asset Value Per Unit for each Partnership Unit, then the holders of Partnership Units of each Class or Series shall be distributed an amount equal to the product of (i) the remaining assets of the Partnership that are legally available for distribution to the Partners and (ii) the quotient obtained by dividing (A) the net asset value of the Partnership allocable to such Class or Series of Partnership Units by (B) the aggregate net asset value of the Partnership, all as calculated as described in the Valuation Procedures. Amounts to be distributed to the holders of each Class or Series of Partnership Units shall be distributed among those holders in proportion to the number of Units of that Class or Series held by each holder. After application of the foregoing, any remaining assets available for distribution to the Partners shall be distributed to the Partners in accordance with their Percentage Interests.
Notwithstanding any other provision of this Agreement, the amount by which the value, as determined in good faith by the General Partner, of any property other than cash to be distributed in kind to the Partners exceeds or is less than the Carrying Value of such property shall, to the extent not otherwise recognized by the Partnership, be taken into account in computing Profit and Loss of the Partnership for purposes of crediting or charging the Capital Accounts of, and
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distributing proceeds to, the Partners, pursuant to this Agreement. To the extent deemed advisable by the General Partner, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations.
Substantial Economic Effect. It is the intent of the Partners that the allocations of Profit and Loss, under this Agreement have substantial economic effect (or be consistent with the Partners’ interests in the Partnership in the case of the allocation of losses attributable to nonrecourse debt) within the meaning of Section 704(b) of the Code as interpreted by the Regulations promulgated pursuant thereto. Article 5 and other relevant provisions of this Agreement shall be interpreted in a manner consistent with such intent.
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
Management of the Partnership.
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Delegation of Authority. The General Partner may delegate any or all of its powers, rights and obligations hereunder, and may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervision of the General Partner, perform any acts or services for the Partnership as the General Partner may approve.
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Indemnification and Exculpation of Indemnitees.
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Liability of the General Partner.
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taxes under Section 857, Section 4981, or any other provision of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.
Reimbursement of General Partner.
Outside Activities. Subject to (a) Section 6.8 hereof, (b) the Charter and (c) any agreements entered into by the General Partner or its Affiliates with the Partnership, a Subsidiary or any officer, director, employee, agent, trustee, Affiliate or shareholder of the General Partner, the General Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities substantially similar or identical to those of the Partnership. Neither the Partnership nor any of the Limited Partners shall have any rights by virtue of this Agreement in any such business ventures, interests or activities. None of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any such business ventures, interests or activities, and the General Partner shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures, interests and activities to the Partnership or any Limited Partner, even if such opportunity is of a character which, if presented to the Partnership or any Limited Partner, could be taken by such Person.
Employment or Retention of Affiliates.
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General Partner Participation. The General Partner agrees that all business activities of the General Partner, including activities pertaining to the acquisition, development or ownership of any Asset shall be conducted through the Partnership or one or more Subsidiary Partnerships; provided, however, that the General Partner is allowed to make a direct acquisition, but if and only if, such acquisition is made in connection with the issuance of Additional Securities, which direct acquisition and issuance have been approved and determined to be in the best interests of the General Partner and the Partnership by a majority of the Independent Directors.
Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership or one or more Subsidiary Partnerships in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its commercially reasonable efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.
Redemptions and Exchanges of REIT Shares.
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Exchanges. If the General Partner exchanges any REIT Shares of any Class (“Exchanged REIT Shares”) for REIT Shares of a different Class (“Received REIT Shares”), then the General Partner shall, and shall cause the Partnership to, exchange a number of Partnership Units having the same Class designation as the Exchanged REIT Shares, as determined based on the application of the Conversion Factor, for Partnership Units having the same Class designation as the Received REIT Shares on the same terms that the General Partner exchanged the Exchanged REIT Shares. The exchange of Units shall occur automatically after the close of business on the applicable date of the exchange of REIT Shares, as of which time the holder of a Class of Units having the same designation as the Exchanged REIT Shares shall be credited on the books and records of the Partnership with the issuance, as of the opening of business on the next day, of the applicable number of Units having the same designation as the Received REIT Shares.
No Duplication of Fees or Expenses. The Partnership may not incur or be responsible for any fee or expense (in connection with the Offering or otherwise) that would be duplicative of fees and expenses paid by the General Partner.
Transfer of the General Partner’s Partnership Interest.
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Subject to Section 6.4(b), in respect of any transaction described in this Section 7.1, the General Partner shall use its commercially reasonable efforts to structure such transaction to avoid causing the Limited Partners to recognize a gain for federal income tax purposes by virtue of the occurrence of or their participation in such transaction, provided such efforts are consistent with
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the exercise of the fiduciary duties of the board of directors of the General Partner to the shareholders of the General Partner under applicable law.
Admission of a Substitute or Additional General Partner. A Person shall be admitted as a substitute or additional General Partner of the Partnership only if the following terms and conditions are satisfied:
Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner.
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RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
Management of the Partnership. The Limited Partners shall not participate in the management or control of Partnership business nor shall they transact any business for the Partnership, nor shall they have the power to sign for or bind the Partnership, such powers being vested solely and exclusively in the General Partner.
Power of Attorney. Each Limited Partner hereby irrevocably appoints the General Partner its true and lawful attorney-in-fact, who may act for each Limited Partner and in its name, place and stead, and for its use and benefit, to sign, acknowledge, swear to, deliver, file or record, at the appropriate public offices, any and all documents, certificates, and instruments as may be deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement and the Act in accordance with their terms, which power of attorney is coupled with an interest and shall survive the death, dissolution or legal incapacity of the Limited Partner, or the transfer by the Limited Partner of any part or all of its Partnership Interest.
Limitation on Liability of Limited Partners. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership. A Limited Partner shall be liable to the Partnership only to make payments of its Capital Contribution, if any, as and when due hereunder. After its Capital Contribution is fully paid, no Limited Partner shall, except as otherwise required by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Partnership.
Ownership by Limited Partner of Corporate General Partner or Affiliate. No Limited Partner shall at any time, either directly or indirectly, own any stock or other interest in
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the General Partner or in any Affiliate thereof, if such ownership by itself or in conjunction with other stock or other interests owned by other Limited Partners would, in the opinion of counsel for the Partnership, jeopardize the classification of the Partnership as a partnership for federal tax purposes. The General Partner shall be entitled to make such reasonable inquiry of the Limited Partners as is required to establish compliance by the Limited Partners with the provisions of this Section.
Notwithstanding the foregoing, the Special OP Unitholders, the Advisor and any Person to whom the Special OP Unitholders or the Advisor transfers Partnership Units or Special Partnership Units (collectively with the Special OP Unitholders and the Advisor, the “Sponsor Parties”) shall have the right to require the Partnership to redeem all or a portion of their Partnership Units pursuant to this Section 8.5 at any time irrespective of the period the Partnership Units have been held by such Limited Partner. The Partnership shall redeem any Partnership Units of the Sponsor Parties for the Cash Amount unless the board of directors of the General Partner determines that any such redemption for cash would be prohibited by applicable law or this Agreement, in which case such Partnership Units will be redeemed for an amount of REIT Shares having the same Class designation as the Tendered Units with an aggregate NAV equivalent to the aggregate NAV of such Partnership Units.
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No Limited Partner, other than the Sponsor Parties, may deliver more than two Notices of Redemption during each calendar year. A Limited Partner, other than the Sponsor Parties, may not exercise the Redemption Right for less than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000 Partnership Units, all of the Partnership Units held by such Partner. The Tendering Party shall have no right, with respect to any Partnership Units so redeemed, to receive any distribution paid with respect to such Partnership Units if the record date for such distribution is on or after the Specified Redemption Date.
(1)A written affidavit, dated the same date as the Notice of Redemption, (a) disclosing the actual and constructive ownership, as determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such Tendering Party and (ii) any Related Party and (b) representing that, after giving effect to the Redemption, neither the Tendering Party nor any Related Party will own REIT Shares in excess of the Aggregate Share Ownership Limit (or, if applicable the Excepted Holder Limit);
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(2)A written representation that neither the Tendering Party nor any Related Party has any intention to acquire any additional REIT Shares prior to the closing of the Redemption on the Specified Redemption Date;
(3)An undertaking to certify, at and as a condition to the closing of the Redemption on the Specified Redemption Date, that either (a) the actual and constructive ownership of REIT Shares by the Tendering Party and any Related Party remain unchanged from that disclosed in the affidavit required by Section 8.5(c)(1) or (b) after giving effect to the Redemption, neither the Tendering Party nor any Related Party shall own REIT Shares in violation of the Aggregate Share Ownership Limit (or, if applicable, the Excepted Holder Limit);
(4)With respect to any Cash Amount to be received by a Tendering Party, a waiver and release in a form acceptable to the General Partner; and
(5)An undertaking that all Partnership Units being delivered for redemption are free and clear of all liens, it being understood that the General Partner shall not be under any obligation to acquire Partnership Units which are or may be subject to any liens.
(6) Any other documents as the General Partner may reasonably require.
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Distribution Reinvestment Plan.
OP Unitholders may have the opportunity to join the General Partner’s distribution reinvestment plan by completing an enrollment form which is available upon request. A copy of the General Partner’s distribution reinvestment plan is also available upon request. The shares of the General Partner’s common stock which may be issued under the General Partner’s distribution reinvestment plan are offered only by a prospectus.
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
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Admission of Substitute Limited Partner.
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Rights of Assignees of Partnership Interests.
Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner. The occurrence of an Event of Bankruptcy as to a Limited Partner, the death of a Limited Partner or a final adjudication that a Limited Partner is incompetent (which term shall include, but not be limited to, insanity) shall not cause the termination or dissolution of the Partnership, and the business of the Partnership shall continue if an order for relief in a bankruptcy proceeding is entered against a Limited Partner, the trustee or receiver of his estate or, if he dies, his executor, administrator or trustee, or, if he is finally adjudicated incompetent, his committee, guardian or conservator, shall have the rights of such Limited Partner for the purpose of settling or managing his estate property and such power as the bankrupt, deceased or incompetent Limited Partner possessed to assign all or any part of his Partnership Interest and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute Limited Partner.
Joint Ownership of Interests. A Partnership Interest may be acquired by two individuals as joint tenants with right of survivorship, provided that such individuals either are
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married or are related and share the same home as tenants in common. The written consent or vote of both owners of any such jointly held Partnership Interest shall be required to constitute the action of the owners of such Partnership Interest; provided, however, that the written consent of only one joint owner will be required if the Partnership has been provided with evidence satisfactory to the counsel for the Partnership that the actions of a single joint owner can bind both owners under the applicable laws of the state of residence of such joint owners. Upon the death of one owner of a Partnership Interest held in a joint tenancy with a right of survivorship, the Partnership Interest shall become owned solely by the survivor as a Limited Partner and not as an assignee. The Partnership need not recognize the death of one of the owners of a jointly-held Partnership Interest until it shall have received notice of such death. Upon notice to the General Partner from either owner, the General Partner shall cause the Partnership Interest to be divided into two equal Partnership Interests, which shall thereafter be owned separately by each of the former owners.
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
Books and Records. At all times during the continuance of the Partnership, the Partners shall keep or cause to be kept at the Partnership’s specified office true and complete books of account in accordance with generally accepted accounting principles, including: (a) a current list of the full name and last known business address of each Partner, (b) a copy of the Certificate of Limited Partnership and all Certificates of amendment thereto, (c) copies of the Partnership’s federal, state and local income tax returns and reports, (d) copies of this Agreement and amendments thereto and any financial statements of the Partnership for the three most recent years and (e) all documents and information required under the Act. Any Partner or its duly authorized representative, upon paying the costs of collection, duplication and mailing, shall be entitled to inspect or copy such records during ordinary business hours.
Custody of Partnership Funds; Bank Accounts.
Fiscal and Taxable Year. The fiscal and taxable year of the Partnership shall be the calendar year.
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Annual Tax Information and Report. Within seventy-five (75) days after the end of each fiscal year of the Partnership, the General Partner shall furnish to each person who was a Limited Partner at any time during such year the tax information necessary to file such Limited Partner’s individual tax returns as shall be reasonably required by law.
Tax Matters Partner; Tax Elections; Special Basis Adjustments; Partnership Representative.
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Safe Harbor Election. The Partners agree that, in the event the Safe Harbor Regulation is finalized, the Partnership shall be authorized and directed to make the Safe Harbor Election and the Partnership and each Partner (including any person to whom an interest in the Partnership is transferred in connection with the performance of services) agrees to comply with all requirements of the Safe Harbor with respect to all interests in the Partnership transferred in connection with the performance of services while the Safe Harbor Election remains effective. The Tax Matters Partner shall be authorized to (and shall) prepare, execute, and file the Safe Harbor Election.
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AMENDMENT OF AGREEMENT; MERGER
The General Partner’s consent shall be required for any amendment to this Agreement. The General Partner, without the consent of the Limited Partners, may amend this Agreement in any respect or merge or consolidate the Partnership with or into any other partnership or business entity (as defined in Section 17-211 of the Act) in a transaction pursuant to Section 7.1(b), (c) or (d) hereof; provided, however, that (1) the following amendments described in Section 11(a), 11(b), 11(c) and 11(d), and any other merger or consolidation of the Partnership, shall require the consent of Limited Partners holding more than 50% of the Percentage Interests of the Limited Partners and (2) the following amendments described in Section 11(e) shall require the consent of Special OP Unitholders holding more than 50% of the Percentage Interests of the Special OP Unitholders:
Notices. All communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or upon deposit in the United States mail, registered, postage prepaid return receipt requested, to the Partners at the addresses set forth in Exhibit A attached hereto; provided, however, that any Partner may specify a different address by notifying the General Partner in writing of such different address. Notices to the Partnership shall be delivered at or mailed to its specified office.
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Survival of Rights. Subject to the provisions hereof limiting transfers, this Agreement shall be binding upon and inure to the benefit of the Partners and the Partnership and their respective legal representatives, successors, transferees and assigns.
Additional Documents. Each Partner agrees to perform all further acts and execute, swear to, acknowledge and deliver all further documents which may be reasonable, necessary, appropriate or desirable to carry out the provisions of this Agreement or the Act.
Severability. If any provision of this Agreement shall be declared illegal, invalid, or unenforceable in any jurisdiction, then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof.
Entire Agreement. This Agreement and exhibits attached hereto constitute the entire Agreement of the Partners and supersede all prior written agreements and prior and contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof.
Pronouns and Plurals. When the context in which words are used in the Agreement indicates that such is the intent, words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the context may require.
Headings. The Article headings or sections in this Agreement are for convenience only and shall not be used in construing the scope of this Agreement or any particular Article.
Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart.
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware; provided, however, that any cause of action for violation of federal or state securities laws shall not be governed by this Section 12.9.
Effectiveness.Pursuant to Section 17-201(d) of the Act, this Agreement shall be effective as of the date set forth in the Recitals.
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IN WITNESS WHEREOF, the parties hereto have hereunder affixed their signatures to this Agreement, all as of the date first above written.
GENERAL PARTNER:
ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC., a Maryland corporation
By: /s/ Jeffrey W. Taylor
Name: Jeffrey W. Taylor
Title: Managing Director and Co-President
LIMITED PARTNER:
ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC., a Maryland corporation, on its own behalf and as attorney-in-fact for all Limited Partners other than the Special OP Unitholder
By: /s/ Jeffrey W. Taylor
Name: Jeffrey W. Taylor
Title: Managing Director and Co-President
SPECIAL OP UNITHOLDER:
BCI IV INCENTIVE FEE LP, a Delaware limited partnership, as sole Special OP Unitholder
By: AIREIT INCENTIVE FEE GP LLC, a Delaware limited liability company, as its General Partner
By: ARES COMMERCIAL REAL ESTATE MANAGEMENT LLC, a Delaware limited liability company, as its sole member
By: /s/ Anton Feingold
Name: Anton Feingold
Title: Vice President
EXHIBIT A
As of January 1, 2022
A-1
EXHIBIT B
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.5 of the Limited Partnership Agreement (the “Agreement”) of AIREIT Operating Partnership LP, the undersigned hereby irrevocably (i) presents for redemption [number] [Series and/or Class] Partnership Units in AIREIT Operating Partership LP in accordance with the terms of the Agreement and the Redemption Right referred to in Section 8.5 thereof, (ii) surrenders such Partnership Units and all right, title and interest therein, and (iii) directs that the Cash Amount or REIT Shares Amount (as defined in the Agreement) as determined by the General Partner deliverable upon exercise of the Redemption Right be delivered to the address specified below, and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT Shares be registered or placed in the name(s) and at the address(es) specified below.
Dated:________ __, ___________________________________
(Name of Limited Partner)
______________________________
(Signature of Limited Partner)
______________________________
(Mailing Address)
______________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
______________________________
If REIT Shares are to be issued, issue to:
Name: ____________________________
Social Security
or Tax I.D. Number: _________________
B-1
EXECUTION VERSION
FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 9, 2022 (this “Agreement”), is among AIREIT OPERATING PARTNERSHIP LP (f/k/a BCI IV OPERATING PARTNERSHIP LP), a Delaware limited partnership (the “Borrower”), the other Loan Parties (as defined in the Amended Credit Agreement (defined below)) solely for purpose of Section IV hereof, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent (in such capacity, the “Agent”), and the Lenders party hereto.
RECITALS
WHEREAS, the Borrower, the lenders from time to time party thereto (the “Lenders”) and the Agent are parties to the Third Amended and Restated Credit Agreement, dated as of March 31, 2022 (as amended, restated, modified or supplemented prior to the date hereof, the “Credit Agreement”; the Credit Agreement, as modified hereby and as further amended from time to time in accordance with the terms thereof, the “Amended Credit Agreement”). Terms used but not defined herein shall have the respective meanings ascribed thereto in the Amended Credit Agreement.
WHEREAS, the Borrower, the Agent, and the Lenders party hereto have agreed to amend the Credit Agreement in accordance with and subject to the terms and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
“Mortgage” means a mortgage, deed of trust, deed to secure debt or similar security instrument made by a Person owning an interest in real estate granting a first-priority Lien on such interest in real estate as security for the payment of Indebtedness.
“Mortgage Backed Securities” means direct or indirect participations in, or direct or indirect participations or investments that are collateralized by and payable from, mortgage loans secured by real property, including, without limitation, mortgage loans utilizing a single asset, single borrower (SASB) structure, commercial mortgage backed securities (CMBS) structure, or commercial real estate collateralized loan obligations (CRE CLOs). Mortgage Backed Securities as used in this Agreement may or may not be issued or guaranteed by the full faith and credit of the U.S. government.
“Mortgage Receivable” means a loan or advance in respect of which any member of the Consolidated Group is the lender and that is secured by a Mortgage in favor of such lender.
“Debt Instrument” means any instrument evidencing a debt, including
Mortgage Receivables, mezzanine notes, second lien loans, preferred equity investments and B notes,
but excluding Exchange Debt Investments, Mortgage Backed Securities, REIT preferred securities and REIT debt securities.
“(v) investments in Debt Instruments (based on current book value) of any member of the Consolidated Group, Exchange Debt Investments (based on current book value) of any member of the Consolidated Group and REIT stocks, REIT preferred securities, REIT debt securities or Mortgage Backed Securities (in each case based on current market value) of any member of the Consolidated Group; provided that no Exchange Debt Investment shall be included under this clause if it relates to an Exchange Property already included in the calculation of Total Asset Value; plus (vi) an amount equal to the Consolidated Group Pro Rata Share of investments in Debt Instruments, Exchange Debt Investments, REIT stocks, REIT preferred securities, REIT debt securities and Mortgage Backed Securities (in each case based on values described in clause (v) above) owned by Unconsolidated Affiliates, any Exchange Fee Titleholder or any Exchange Property Owner;”
“For the avoidance of doubt, repurchase obligations (relating to debt or equity investments) shall be included in Total Secured Indebtedness.”
“Total Unencumbered Property Pool Value” means, as of any date of calculation, the aggregate, without duplication, of: (a) the Unencumbered Property Values of all Unencumbered Properties; plus (b) an amount equal to one hundred percent (100%) of the then current book value of each Exchange Debt Investment, provided that such Exchange Debt Investment is not subject to any Liens or encumbrances and so long as the Exchange Property Investor with respect to such Exchange Debt Investment is not delinquent thirty
(30) days or more in any payment of interest or principal payments thereunder; plus (c) the amount in excess of $10,000,000 of the total of (i) all Unrestricted Cash and Cash Equivalents, plus (ii) the amount of Eligible Cash 1031 Proceeds resulting from the sale of Unencumbered Properties; plus (d) an amount equal to one hundred percent (100%) of the then current book value of each Debt Instrument owned by a member of the Consolidated Group, provided that such Debt Instrument is not subject to any Liens or encumbrances and so long as the borrower with respect to such Debt Instrument is not delinquent thirty
(30) days or more in any payment of interest or principal payments thereunder.
“Unencumbered Interest Coverage Ratio” means, at any time, (a)
Unencumbered Property NOI for the most recent quarter plus interest income from Exchange Debt Investments and Debt Instruments (including without limitation Mortgage Receivables), annualized, divided by (b) Unsecured Interest Expense for the immediately preceding calendar quarter, annualized.
G. | Section 6.04 of the Credit Agreement is hereby amended by (i) amending and restating clauses (d) through (f) thereof with the following clauses (d) through (g), and (ii) replacing each reference to “clauses (a) through (f)” in the first and last sentences thereof with the text “clauses |
(a) | through (g)”: |
(d) | Debt Instruments up to ten percent (10%) of Total Asset Value; |
“(a)Minimum Unencumbered Interest Coverage Ratio. Not permit the Unencumbered Interest Coverage Ratio to be less than 1.75:1.00.”
(a) or (b), as applicable, of Section 5.01 of the Amended Credit Agreement, (ii) no Default or Event of Default exists, and (iii) attached thereto are pro forma calculations of the financial covenants set forth in Section 6.11 of the Amended Credit Agreement and the Borrowing Base Covenants (which pro forma calculations may, in each case, take into account, among other things, the straight line rent treatment of any free rent periods for all leases that have commenced as of the First Amendment Effective Date), in each case for the fiscal quarter of Borrower ending June 30, 2022.
The Agent will promptly notify the Borrower in writing of the occurrence of the First Amendment
Effective Date.
(i) agrees that, for all purposes, electronic images of this Amendment (including with respect to any of the Lender Parties’ signature pages thereto) shall have the same legal effect, validity, admissibility into evidence and enforceability as any paper original, and (ii) waives any argument, defense or right to contest the validity, admissibility into evidence or enforceability of this Agreement based solely on the lack of paper original copies hereof, including with respect to any of the Lender Parties’ signatures hereto.
[Remainder of page intentionally blank]
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written.
| | AIREIT OPERATING PARTNERSHIP LP, a Delaware limited partnership |
By: | | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: | | /s/ SCOTT SEAGER |
Name: | | Scott Seager |
Title: | | Principal, Chief Financial Officer and Treasurer |
| | ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC., a Maryland corporation |
By: | | /s/ SCOTT SEAGER |
Name: | | Scott Seager |
Title: | | Principal, Chief Financial Officer and Treasurer |
SUBSIDIARY GUARANTORS:
AIREIT 101 CORPORA TE IC LLC
AIREIT 1201 LOGISTICS WAY LLC
AIREIT BOLINGBROOK LC I LLC
AIREIT BOLINGBROOK LC II LLC
AIREIT CHICAGO INDUSTRIAL CENTER LLC
AIREIT CROSSROADS DC I LLC
AIREIT CROSSROADS DC II LLC
AIREIT ELGIN INDUSTRIAL CENTER LLC
AIREIT ENTERPRISE IC LLC
AIREIT HOAGLAND DC LLC
AIREIT I-465 EAST LC LLC
AIREIT I-80 LOGISTICS CENTER LLC
AIREIT INNOVATION CORPORATE PARK LLC
AIREIT MEDLEY 104 IC LLC
AIREIT REMINGTON IC LLC
AIREIT TECHNOLOGY IC LLC
AIREIT TRADEPORT LC LLC
BCI IV 355 LOGISTICS CENTER LLC
BCI IV 7A DC II LLC
BCI IV 7A DC LLC
BCI IV AIR COMMERCE CENTER LLC
BCI IV AIRPARK INTERNATIONAL LOGISTICS CENTER LLC
BCI IV AURORA CORPORATE CENTER LLC
BCI IV AVENUE B INDUSTRIAL CENTER LLC
BCI IV CALIFORNIA BUSINESS CENTER LLC
BCI IV CARLSTADT IC LLC
BCI IV COMMERCE FARMS LOGISTICS CENTER LLC
BCI IV EAGLEPOINT LC LLC
BCI IV EXECUTIVE AIRPORT DC III LLC
BCI IV GREATER BOSTON IC I LLC
BCI IV GREATER BOSTON IC II LLC
BCI IV HEBRON LC LLC
BCI IV I-24 IC LLC
BCI IV LAKEWOOD LOGISTICS CENTER I LLC
BCI IV LAKEWOOD LOGISTICS CENTER V LLC
BCI IV LIMA DC LLC
BCI IV MADISON DC LLC
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
the sole member of each of the foregoing entities
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV RICHMOND LOGISTICS CENTER LLC
BCI IV RIGGS HILL INDUSTRIAL CENTER LLC
BCI IV SAN ANTONIO LOGISTICS CENTER LLC
BCI IV SILICON VALLEY IC LLC
BCI IV SOUTHPARK CC I LLC
BCI IV SOUTHPARK CC II LLC
BCI IV WESTLAKE LC LLC
BCI IV WINDWARD RIDGE BC LLC
IPT AVENEL DC URBAN RENEWAL LLC
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
the sole member of each of the foregoing entities
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
AIREIT 350 LOGISTICS CENTER LLC
AIREIT BLUFF ROAD LC LLC
AIREIT DECATUR DC LLC
AIREIT STATELINE DC LLC
AIREIT THOMPSON MILL IC LLC
By:AIREIT TRS Holdco LLC,
a Delaware limited liability company,
its sole member
By:AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name:Scott Seager
Title: Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
AIREIT 4 STUDEBAKER CC LP,
a Delaware limited partnership
By:AIREIT 4 Studebaker CC GP LLC,
a Delaware limited liability company,
its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
AIREIT FORT WORTH DC LP,
a Delaware limited partnership
By:AIREIT Fort Worth DC GP LLC,
a Delaware limited liability company,
its general partner
By:AIREIT TRS Holdco LLC,
a Delaware limited liability company,
its sole member
By:AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
AIREIT GARLAND DC LP,
a Delaware limited pa1tnership
By:AIREIT Garland DC GP LLC,
a Delaware limited liability company,
its general partner
By:AIREIT TRS Holdco LLC,
a Delaware limited liability company,
its sole member
By:AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
AIREIT INDUSTRY CC LP,
a Delaware limited partnership
By:AIREIT Industry CC GP LLC,
a Delaware limited liability company,
its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
AIREIT SKYLINE DC LP,
a Delaware limited partnership
By:AIREIT Skyline DC GP LLC,
a Delaware limited liability company,
its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
AIREX PORTFOLIO V TRS LLC,
a Delaware limited liability company
By:Ares Industrial Real Estate Exchange LLC,
a Delaware limited liability company,
its sole member
By:AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV PORT 146 DC LP,
a Delaware limited partnership
By:BCI IV Port 146 DC GP LLC,
a Delaware limited liability company,
its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV PALM BEACH CC LLC
BCI IV POMPANO IC LLC
BCI IV TRADE ZONE IC LLC
BCI IV CHICAGO IC LLC
BCI IV UPLAND DC LLC
BCI IV SALT LAKE CITY DC LLC
BCI IV SALT LAKE CITY DC II LLC
BCI IV KENT IP LLC
BCI IV RENTON DC LLC
BCI IV WEST VALLEY DC II LLC
BCI IV AUBURN 167 IC LLC
BCI IV TACOMA CC LLC
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company,
the sole member of each of the foregoing entities
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV AIRPORT IC LP,
a Delaware limited partnership
By:BCI IV Airport IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV MONTE VISTA IC LP,
a Delaware limited partnership
By:BCI IV Monte Vista IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV EXECUTIVE AIRPORT DC II LLC,
a Delaware limited liability company
By:BCI IV BR LLC,
a Delaware limited liability company, its sole member
By:BCI IV Executive Airport DC II Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV MARIGOLD DC LP,
a Delaware limited partnership
By:BCI IV Marigold DC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV INTERMODAL LOGISTICS CENTER LP,
a Delaware limited partnership
By:BCI IV Intermodal Logistics Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV MIRALOMA IC LP,
a Delaware limited partnership
By:BCI IV Miraloma IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV NELSON INDUSTRIAL CENTER LP,
a Delaware limited pa11nership
By:BCI IV Nelson Industrial Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV RANCHO CUCAMONGA BC LP,
a Delaware limited partnership
By:BCI IV Rancho Cucamonga BC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland Corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV BRODHEAD DC LLC,
a Delaware limited liability company
By:BCI IV Brodhead DC Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV LAPORTE DC LP,
a Delaware limited partnership
By:BCI IV LaPorte DC GP LLC,
a Delaware limited liability company, its general partner
By:BTC I REIT B LLC,
a Delaware limited liability company, its sole member
By:IPT BTC I GP LLC,
a Delaware limited liability company, its manager
By:AIREIT Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV IRON RUN DC II LLC,
a Delaware limited liability company
By:BCI IV Iron Run DC II Holdco LLC,
a Delaware limited liability company, its managing member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV MECHANICSBURG DC LLC,
a Delaware limited liability company
By:BCI IV Mechanicsburg DC Holdco LLC,
a Delaware limited liability company, its managing member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV STOCKTON DC II LP,
a Delaware limited partnership
By:BCI IV Stockton DC II GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV STOCKTON INDUSTRIAL CENTER LP,
a Delaware limited partnership
By:BCI IV Stockton Industrial Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV TRACY DC LP,
a Delaware limited partnership
By:BCI IV Tracy DC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV TRACY DC II LP,
a Delaware limited partnership
By:BCI IV Tracy DC II GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV ETIWANDA IC LP,
a Delaware limited partnership
By:BCI IV Etiwanda IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV VALENCIA IC LP,
a Delaware limited partnership
By:BCI IV Valencia IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV STONEWOOD LOGISTICS CENTER LLC,
a Delaware limited liability company
By:BCI IV Stonewood LC Holdco LLC,
a Delaware limited liability company, its sole and managing member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV COLONY CROSSING LP,
a Delaware limited partnership
By:BCI IV Colony Crossing GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV MONUMENT BP LP,
a Delaware limited partnership
By:BCI IV Monument BP GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By:/s/ SCOTT SEAGER
Name:Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
| | WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and as a Lender |
By: | | /s/ CRAIG V. KOSHKARIAN |
Name: | | Craig V. Koshkarian |
Title: | | Director |
| | Name of Institution: Eastern Bank, as a Lender |
By: | | /s/ JARED H. WARD |
Name: | | Jared H. Ward |
Title: | | Senior Vice President |
| | |
| | [If second signature block is necessary] |
By: | | |
Name: | | |
Title: | | |
| | Name of Institution: ASSOCIATED BANK, NATIONAL ASSOCIATION, as a Lender |
By: | | /s/ MITCHELL VEGA |
Name: | | Mitchell Vega |
Title: | | Senior Vice President |
| | REGIONS BANK, as a Lender |
By: | | /s/ GHI S. GAVIN |
Name: | | Ghi S. Gavin |
Title: | | Senior Vice President |
| | Truist Bank, as a Lender |
By: | | /s/ CHRISTOPHER D. DANIELS |
Name: | | Christopher D. Daniels |
Title: | | Director |
| | Name of Institution: GOLDMAN SACHS BANK USA, as a Lender |
By: | | /s/ KESHIA LEDAY |
Name: | | Keshia Leday |
Title: | | Authorized Signatory |
| | THE HUNTINGTON NATIONAL BANK, as a Lender |
By: | | /s/ ERIN L. MAHON |
Name: | | Erin L. Mahon |
Title: | | Assistant Vice President |
| | Name of Institution: Bank of America, N.A., as a Lender |
By: | | /s/ KYLE PEARSON |
Name: | | Kyle Pearson |
Title: | | Vice President |
| | U.S. Bank National Association, as a Lender |
By: | | /s/ TRAVIS MYERS |
Name: | | Travis Myers |
Title: | | Vice President |
| | JPMORGAN CHASE BANK, N.A., as a Lender |
By: | | /s/ RYAN DEMPSEY |
Name: | | Ryan Dempsey |
Title: | | Authorized Signatory |
| | Name of Institution: Zions Bancorporation, N.A., dba Vectra Bank Colorado, as a Lender |
By: | | /s/ H. SHAW THOMAS |
Name: | | H. Shaw Thomas |
Title: | | Senior Vice President |
| | Name of Institution: Pinnacle Bank, a Tennessee Bank, as a Lender |
By: | | /s/ J. PATRICK DAUGHERTY |
Name: | | J. Patrick Daugherty |
Title: | | Senior Vice President |
| | Name of Institution: CITIBANK, N.A., as a Lender |
By: | | /s/ SCOTT DUNLEVIE |
Name: | | Scott Dunlevie |
Title: | | Authorized Signatory |
| | |
| | [If second signature block is necessary] |
By: | | |
Name: | | |
Title: | | |
Exhibit 10.17
CREDIT AGREEMENT dated as of May 6, 2021 among BCI IV OPERATING PARTNERSHIP LP, JPMORGAN CHASE BANK , N.A., WELLS FARGO BANK, N.A., WELLS FARGO SECURITIES, LLC, BOFA SECURITIES, INC., and THE LENDERS PARTY THERETO |
TABLE OF CONTENTS
Page
i
ii
iii
SCHEDULES:
Schedule 1.01(g) Existing Liens
Schedule 2.01 Commitments
Schedule 3.06 Disclosed Matters
Schedule 3.13 Unencumbered Properties
Schedule 6.01 Restrictions and Conditions
Schedule 6.07Agreements with Affiliates
iv
CREDIT AGREEMENT
CREDIT AGREEMENT (this “Agreement”), dated as of May 6, 2021, among BCI IV OPERATING PARTNERSHIP LP, a Delaware limited partnership, the Lenders party hereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.
RECITALS
WHEREAS, the Borrower has requested, and the Administrative Agent and the Lenders desire to make available to the Borrower, a delayed draw term loan credit facility in the maximum amount of $600,000,000 on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto agree as follows:
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the Alternate Base Rate.
“Adjusted EBITDA” means, Consolidated EBITDA minus, with respect to Properties owned by the Consolidated Group, the Capital Expenditure Reserve, and minus, with respect to Properties owned by Unconsolidated Affiliates, the Consolidated Group Pro Rata Share of the Capital Expenditure Reserve.
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders hereunder.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Advisor” means BCI IV Advisors LLC.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent-Related Person” has the meaning assigned to it in Section 9.03(d).
“Agreement” has the meaning assigned to such term in the preamble hereto.
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%; provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate (or if the LIBO Screen Rate is not available for such one month Interest Period, the Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.14 (for the avoidance of doubt, only until the Benchmark Replacement has been determined pursuant to Section 2.14(b)), then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate as determined pursuant to the foregoing would be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“Ancillary Document” has the meaning assigned to it in Section 9.06(b).
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Trust, the Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Applicable Percentage” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitment; provided that, in the case of Section 2.20 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitment) represented by such Lender’s Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments and to any Lender’s status as a Defaulting Lender at the time of determination.
“Applicable Rate” means the following basis points per annum, based upon the Consolidated Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 5.01(d):
CATEGORY | LEVERAGE RATIO | EURODOLLAR APPLICABLE MARGIN | ABR APPLICABLE MARGIN |
1 | < 40% | 135.00 | 35.0 |
2 | >40% and <45% | 140.0 | 40.0 |
3 | >45% and <50% | 155.0 | 55.0 |
4 | >50% and <55% | 165.0 | 65.0 |
5 | >55% and <60% | 195.0 | 95.0 |
6 | >60% | 220.0 | 120.0 |
2
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Leverage Ratio shall become effective as of the first Business Day immediately following the date the certificate is delivered pursuant to Section 5.01(d) (a “Compliance Certificate”); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then, upon the request of the Required Lenders, the then-highest Category shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the first Business Day after the date on which such Compliance Certificate is delivered. The Applicable Rate in effect from the Effective Date through the date of the next change in the Applicable Rate pursuant to the preceding sentence shall be determined based upon Category 1.
“Approved Electronic Platform” has the meaning assigned to it in Section 8.03(a).
“Approved Fund” has the meaning assigned to such term in Section 9.04(b).
“Asset Under Development” means any Property (a) for which the Consolidated Group is actively pursuing construction, major renovation, or expansion of such Property or (b) for which no construction has commenced but all necessary entitlements (excluding foundation, building and similar permits) have been obtained in order to allow the Consolidated Group to commence constructing improvements on such Property. Notwithstanding the foregoing, tenant improvements in a previously constructed Property shall not be considered an Asset Under Development and with respect to any existing Property only the major renovation or expansion portion of such Property shall be considered an Asset Under Development.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
“Availability Period” means the period from and including the Effective Date to and including the Facility Commitment Expiration Date.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest Period pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to clause (f) of Section 2.14.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as now and hereafter in effect, or any successor statute.
“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian,
3
assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, unless such ownership interest results in or provides such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“BAQ” means the Administrative Agent’s questionnaire dated the same date as this Agreement containing disbursement instructions, rate elections and other administrative matters completed and executed by the Borrower.
“Benchmark” means, initially, LIBO Rate; provided that if a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have occurred with respect to LIBO Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to clause (b) or clause (c) of Section 2.14.
“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(1)the sum of: (a) Term SOFR and (b) the related Benchmark Replacement Adjustment;
(2)the sum of: (a) Daily Simple SOFR and (b) the related Benchmark Replacement Adjustment;
(3)the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for dollar-denominated syndicated credit facilities at such time and (b) the related Benchmark Replacement Adjustment;
provided that, in the case of clause (1), such Unadjusted Benchmark Replacement is displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; provided further that, notwithstanding anything to the contrary in this Agreement or in any other Loan Document, upon the occurrence of a Term SOFR Transition Event, and the delivery of a Term SOFR Notice, on the applicable Benchmark Replacement Date the “Benchmark Replacement” shall revert to and shall be deemed to be the sum of (a) Term SOFR and (b) the related Benchmark Replacement Adjustment, as set forth in clause (1) of this definition (subject to the first proviso above).
If the Benchmark Replacement as determined pursuant to clause (1), (2) or (3) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
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“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:
(1)for purposes of clauses (1) and (2) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Administrative Agent:
(a)the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that has been selected or recommended by the Relevant Governmental Body for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for the applicable Corresponding Tenor;
(b)the spread adjustment (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that would apply to the fallback rate for a derivative transaction referencing the ISDA Definitions to be effective upon an index cessation event with respect to such Benchmark for the applicable Corresponding Tenor; and
(2)for purposes of clause (3) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for dollar-denominated syndicated credit facilities;
provided that, in the case of clause (1) above, such adjustment is displayed on a screen or other information service that publishes such Benchmark Replacement Adjustment from time to time as selected by the Administrative Agent in its reasonable discretion.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides in its reasonable discretion may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:
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(1)in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof);
(2)in the case of clause (3) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein;
(3)in the case of a Term SOFR Transition Event, the date that is thirty (30) days after the date a Term SOFR Notice is provided to the Lenders and the Borrower pursuant to Section 2.14(c); or
(4)in the case of an Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders.
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:
(1)a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(2)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the NYFRB, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(3)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer representative.
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For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.14 and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.14.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation, which certification shall be substantially similar in form and substance to the form of Certification Regarding Beneficial Owners of Legal Entity Customers published jointly, in May 2018, by the Loan Syndications and Trading Association and Securities Industry and Financial Markets Association, or such other form as may be approved by the Administrative Agent.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Borrower” means BCI IV OPERATING PARTNERSHIP LP, a Delaware limited partnership .
“Borrowing” means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.
“Borrowing Base Covenants” means the covenants in Section 6.12.
“Borrowing Request” means a request by the Borrower in the form attached hereto as Exhibit H for a Loan to be delivered to Administrative Agent in accordance with Section 2.03.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
“Capital Expenditure Reserve” means $0.10 per square foot of leasable space (as annualized for the applicable ownership period).
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
“Capitalization Rate” means six percent (6.00%).
“Cash Equivalents” means, as of any date:
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“Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) of Equity Interests representing thirty percent (30%) or more of the of the voting stock of Trust; (b) occupation at any time of a majority of the seats (other than vacant seats) on the board of directors or trustees of the Trust (the “Board”) by Persons who were not (i) members of the Board on the date of this Agreement or (ii) nominated or appointed by the Board; (c) Trust consolidates with, is acquired by, or merges into or with any Person (other than a
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consolidation or merger in which the Trust is the continuing or surviving entity); or (d) Trust fails to own, directly or indirectly, seventy percent (70%) of the Equity Interests of Borrower and be the sole general partner of Borrower (except for a merger of the Borrower into the Trust as permitted by Section 6.03(a)).
“Change in Law” means the occurrence after the date of this Agreement (or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement) of (a) the adoption of or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by any Governmental Authority, or (c) compliance by any Lender (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s or holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Code” means the Internal Revenue Code of 1986, as amended.
“Commitment” means, as to each Lender, its obligation to make Loans to the Borrower pursuant to Section 2.01(a) in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 under the caption “Commitment” or opposite such caption in the Assignment and Assumption or other documentation or record (as such term is defined in Section 9-102(a)(70) of the New York Uniform Commercial Code) as provided in Section 9.04(b)(ii)(C), pursuant to which such Lender shall have assumed its Commitment, as applicable, and giving effect to (a) any reduction in such amount from time to time pursuant to Section 2.09 and (b) any reduction or increase in such amount from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial aggregate amount of the Lenders’ Commitments is $600,000,000.00.
“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent or any Lender by means of electronic communications pursuant to Section 8.03(c), including through an Approved Electronic Platform.
“Compliance Certificate” means a certificate substantially in the form of Exhibit G.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Debt Service” means, for any period, without duplication, (a) Recurring Interest Expense for such period plus (b) the aggregate amount of scheduled principal payments attributable to Total Indebtedness (excluding optional prepayments and prepayment premiums and scheduled balloon principal payments in respect of any such Indebtedness which is not amortized through periodic installments of principal and interest over the term of such Indebtedness) required to be made during such period by any member of the Consolidated Group plus (c) a percentage of all such scheduled principal payments required to be made during such period by any Unconsolidated Affiliate on Indebtedness (excluding optional prepayments and prepayment premiums and scheduled balloon principal payments with respect to any such indebtedness which is not amortized through periodic installments of principal and interest over the term of such Indebtedness) taken into account in calculating Recurring Interest Expense, equal to the greater of (x) the percentage of the principal amount of such Indebtedness for which any member of the Consolidated Group is liable and (y) the Consolidated Group Pro Rata Share of such Unconsolidated Affiliate.
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“Consolidated EBITDA” means, for any period, Consolidated Net Income for such period plus (a) adjustments for straight line rent, which adjustment may be included or excluded at Borrower’s discretion, plus (b) to the extent deducted from revenues in determining Consolidated Net Income, (i) Recurring Interest Expense, (ii) expense for taxes paid or accrued, (iii) depreciation, (iv) amortization, (v) impairment charges, (vi) amounts deducted as a result of the application of FAS 141 as it pertains to above-market rents, (vii) non-cash expenses related to employee and trustee stock and stock option plans, (viii) non-recurring financing, acquisition and disposition related fees and costs, (ix) extraordinary losses incurred other than in the ordinary course of business, and (x) any Performance Fees paid in cash, provided that any addback of such payment pursuant to this clause (x) will only be permitted if payment of such Performance Fees is subordinated to payment of the Obligations pursuant to a subordination agreement substantially the same as the one delivered for the Expense Support Agreement prior to the Effective Date or otherwise on terms reasonably acceptable to the Administrative Agent (it being acknowledged and agreed that the Performance Fees are not required to be subordinated unless Borrower desires to add back Performance Fees as provided in this clause (x)), minus (c) to the extent added to revenues in determining Consolidated Net Income, (i) amounts added as a result of the application of FAS 141 as it pertains to below-market rents and (ii) extraordinary gains realized other than in the ordinary course of business, in each case for or during such period. For the avoidance of doubt, Consolidated EBITDA shall not include gains and losses from asset sales. In addition, Consolidated EBITDA shall be adjusted to include amounts deferred for any given period pursuant to that certain Second Amended and Restated Expense Support Agreement, dated as of January 1, 2019 (the “Expense Support Agreement”), among the Advisor, the Borrower and the Trust, including any extensions of the term of such agreement or any similar amendments to such agreement or any similar replacement or successor agreements, and shall be adjusted to exclude the non-cash accrual or subsequent cash reimbursement required in connection therewith, provided that payment of such deferred amount is subordinated to payment of the Obligations so that such payment is not permitted if an Event of Default exists. For purposes of this definition, an amendment to the existing agreement or a replacement or successor agreement, will be deemed similar to the Expense Support Agreement (a “Similar Agreement/Amendment”) if it is on substantially the same terms and conditions as the Expense Support Agreement, including without limitation a limitation on term, similar pre-conditions to the payment of deferred amounts, an outside date after which reimbursement obligations are cancelled, and similar limitations on the right to accelerate the payment of such accrued amounts, and such successor or replacement agreement or amendment must be subordinated to the Obligations pursuant to a subordination agreement substantially the same as the one delivered for the Expense Support Agreement.
“Consolidated Fixed Charge Coverage Ratio” means the ratio of Adjusted EBITDA to Fixed Charges.
“Consolidated Group” means the Trust, the Borrower and all Subsidiaries which are required to be consolidated with them for financial reporting purposes under GAAP.
“Consolidated Group Pro Rata Share” means (i) with respect to any Unconsolidated Affiliate, the pro rata share of the ownership interests held by the Consolidated Group, in the aggregate, in such Unconsolidated Affiliate, without duplication, and (ii) with respect to any Exchange Fee Titleholder, the pro rata share of the ownership interests in such Exchange Fee Titleholder pledged to the Consolidated Group, in the aggregate, without duplication, which, for purposes of this clause (ii), will be one hundred percent (100%) if all of the ownership interests in such Exchange Fee Titleholder are pledged to the Consolidated Group, in the aggregate, without duplication.
“Consolidated Leverage Ratio” means, at any time (i) the sum of (a) Total Indebtedness minus Specified Excess Cash, plus (b) the Master Lease Obligations, divided by (ii) Total Asset Value minus Specified Excess Cash, expressed as a percentage.
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“Consolidated Net Income” means, for any period, the sum, without duplication, of (i) net earnings (or loss) after taxes of the Consolidated Group (adjusted by eliminating any such earnings or loss attributable to Unconsolidated Affiliates) plus (ii) the applicable Consolidated Group Pro Rata Share of net earnings (or loss) of all Unconsolidated Affiliates for such period, in each case determined in accordance with GAAP (provided, however, that lease payments attributable to Sale-Leaseback Master Leases which are generally excluded from “consolidated net income” in accordance with GAAP shall nonetheless be included as earnings for purposes of this definition). For the avoidance of doubt, Consolidated Net Income for the Consolidated Group or Unconsolidated Affiliates shall not include unrealized gains or losses on real estate investments or other changes in fair value.
“Consolidated Tangible Net Worth” means, at any time, total assets (excluding accumulated depreciation and intangible assets) minus total liabilities, calculated in accordance with GAAP. However, for the purpose of this calculation, intangible assets resulting from the application of FAS141 shall not be excluded from Consolidated Tangible Net Worth.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Covered Party” has the meaning assigned to such term in Section 9.21.
“Credit Party” means the Administrative Agent or any other Lender.
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which may include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for business loans; provided, that if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its reasonable discretion.
“Debt Instrument” means any instrument evidencing a debt, including mortgage notes and mezzanine notes, but excluding Exchange Debt Investments.
“Debt Rating” means, as of any date of determination, the non-credit enhanced, senior unsecured long-term debt rating assigned by any of S&P, Moody’s and/or Fitch to the Borrower or Trust or the debt thereof.
“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
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“Defaulting Lender” means any Lender that (a) has failed, within two (2) Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, or (ii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three (3) Business Days after request by a Credit Party, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, (d) has become the subject of a Bankruptcy Event and/or (e) has become the subject of a Bail-in Action.
“Delaware Divided LLC” means any Delaware LLC which has been formed upon the consummation of a Delaware LLC Division.
“Delaware Divided LP” means a Delaware limited partnership which has been formed upon the consummation of a Delaware LP Division.
“Delaware LLC Division” means the statutory division of any Delaware LLC into two or more Delaware LLCs pursuant to Section 18-217 of the Delaware Limited Liability Company Act, as amended from time to time.
“Delaware LP Division” means the statutory division of any Delaware limited partnership into two or more limited partnerships pursuant to Section 17-220 of the Delaware Limited Partnership Act, as amended from time to time.
“Disclosed Matters” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.
“dollars” or “$” means lawful money of the United States of America.
“Early Opt-in Election” means, if the then-current Benchmark is LIBO Rate, the occurrence of:
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this
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definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Effective Date” means the date on which this Agreement is executed and delivered by all of the parties hereto and upon which each of the conditions in Section 4.01 is satisfied (or waived in accordance with Section 9.02).
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“Eligible Cash 1031 Proceeds” means the cash proceeds held by a “qualified intermediary” from the sale of a Property by Borrower or a Subsidiary, which cash proceeds are intended to be used by the qualified intermediary to acquire one or more “replacement properties” that are of “like-kind” to such Property in an exchange that qualifies as a tax-deferred exchange under Section 1031 of the Code and the Treasury Regulations promulgated thereunder (the “Regulations”), and no portion of which cash proceeds the Borrower or any Subsidiary has the right to receive, pledge, borrow or otherwise obtain the benefits of until the earlier of (i) such time as provided under Regulation Section 1.1031(k)-1(g)(6) and the applicable “exchange agreement” or (ii) such exchange is terminated in accordance with the “exchange agreement” and the Regulations. Upon the cash proceeds no longer being held by the qualified intermediary pursuant to the Regulations or otherwise qualifying under the Regulations for like-kind exchange treatment, such proceeds shall cease being Eligible Cash 1031 Proceeds. Terms in quotations in this definition shall have the meanings ascribed to such terms in the Regulations.
“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Loan Party directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
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“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30 day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower (including as a result of an affiliation with an ERISA Affiliate) of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower (including as a result of an affiliation with an ERISA Affiliate) of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent, within the meaning of Title IV of ERISA.
“Expense Support Agreement” has the meaning assigned to such term in the definition of Consolidated EBITDA.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate (excluding, for avoidance of doubt, any rate of interest determined by reference to clause (c) of the definition of “Alternative Base Rate”).
“Event of Default” has the meaning assigned to such term in Article VII.
“Exchange Beneficial Interest” means a beneficial interest in a Delaware statutory trust that owns Exchange Property.
“Exchange Debt Investments” means purchase money financing provided to an Exchange Property Investor in connection with the Exchange Program, secured by the Exchange Beneficial Interests of the Exchange Property Investor.
“Exchange Depositor” means each Subsidiary that is the depositor under a Delaware statutory trust that is part of the Exchange Program.
“Exchange Fee Titleholder” means the entity which is the owner of a Property pursuant to an exchange that qualifies, qualified, or is intended to qualify, as a reverse exchange under Section 1031 of the Code, which Property is master leased to a Subsidiary of Borrower during the period before the exchange is either completed or fails.
“Exchange Program” means the program whereby Affiliates of Borrower will cause (a)(i) the formation of a Delaware statutory trust which will receive contributions of Properties from the Borrower or an Affiliate of the Borrower or acquire Properties from third parties, in each case which Properties will become Exchange Properties upon addition to the Exchange Program, and (ii) the sale of beneficial ownership interests in such Delaware statutory trust to Exchange Property Investors, and in each case will
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master lease such Properties to an Affiliate of Borrower (which master leases may be guaranteed by Borrower or the Trust).
“Exchange Property” means a Property owned directly or indirectly by a Delaware statutory trust in connection with the Exchange Program, provided that any such Property shall constitute an Exchange Property only so long as it is master leased to an Affiliate of Borrower which master lease may be guaranteed by Borrower and/or the Trust.
“Exchange Property Investor” means any owner of an Exchange Beneficial Interest.
“Exchange Property Master Lease” means a Master Lease pursuant to which an Exchange Property is master leased to an Affiliate of Borrower.
“Exchange Property Owner” means the Delaware statutory trust owning directly or indirectly an Exchange Property.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. Federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.19(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.17, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan or Commitment or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.17(f) and (g), and (d) any U.S. Federal withholding Taxes imposed under FATCA.
“Facility” means the Commitments and the Loans and other extensions of credit hereunder.
“Facility Commitment Expiration Date” means the earliest of (a) the date upon which the aggregate Commitment is fully advanced pursuant to Section 2.01(a), (b) May 3, 2022, and (c) the date of termination of the Commitments in accordance with the terms hereof.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code.
“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions, as determined in such manner as shall be set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate; provided that if the Federal Funds Effective Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“Federal Reserve Board” means the Board of Governors of the Federal Reserve System of the United States of America.
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“Fee Letters” means, collectively, (i) that certain fee letter dated as of March 17, 2021, by and among the Borrower and JPMorgan Chase Bank, N.A., as amended, restated or replaced from time to time, and (ii) each other fee letter entered into from time to time by the Borrower and one or more Joint Lead Arrangers in connection herewith.
“Financeable Ground Lease” means, except as otherwise approved by the Required Lenders a ground lease that provides reasonable and customary protections for a potential leasehold mortgagee (“Mortgagee”) which include, among other things (a) a remaining term, including any optional extension terms exercisable unilaterally by the tenant, of no less than twenty-five (25) years from the Effective Date, provided that the remaining term can be less than twenty-five (25) years if there is an option to purchase on terms acceptable to the Administrative Agent and the amount of the option purchase price is deducted from the Unencumbered Property Value of the applicable Unencumbered Property, (b) that the ground lease will not be terminated until the Mortgagee has received notice of a default, has had a reasonable opportunity to cure or complete foreclosure, and has failed to do so, (c) provision for a new lease on the same terms to the Mortgagee as tenant if the ground lease is terminated for any reason or other protective provisions reasonably acceptable to Administrative Agent, (d) non-merger of the fee and leasehold estates, (e) transferability of the tenant’s interest under the ground lease without any requirement for consent of the ground lessor unless based on reasonable objective criteria as to the creditworthiness or line of business of the transferee or delivery of customary assignment and assumption agreements from the transferor and transferee, and (f) that insurance proceeds and condemnation awards (from leasehold interest) will be applied pursuant to the terms of the applicable leasehold mortgage. For purposes of this Agreement, the terms “own” and “owned” in relation to any Property shall be deemed to include the ownership of the leasehold estate in such Property pursuant to a Financeable Ground Lease.
“Financial Officer” means any of the following Persons: (a) Chief Financial Officer; the Managing Director, Head of Debt Capital Markets; the Senior Vice President, Debt Capital Markets; the Senior Vice President, Treasurer; the Chief Accounting Officer; or the Controller, in each case, of the Trust and (b) such other Persons proposed by the Trust and reasonably approved by Administrative Agent in writing.
“Financial Statements” has the meaning assigned to such term in Section 5.01.
“Fitch” means Fitch Ratings Inc.
“Fixed Charges” means, for any period, the sum of (i) Consolidated Debt Service and (ii) all dividends actually paid on account of preferred stock or preferred operating partnership units of the Borrower or any other Person in the Consolidated Group (including dividends actually paid to Unconsolidated Affiliates but excluding dividends paid to members of the Consolidated Group).
“FMV Option” means, for each Exchange Property, the option, but not the obligation, of the Borrower to, directly or indirectly, purchase such Exchange Property or the Exchange Beneficial Interests relating to such Exchange Property at fair market value at any time (i) beginning on the first to occur of (A) the last day of the 24th month following the final closing of the sale of Exchange Beneficial Interests, and (B) the last day of the 48th month following the date the Exchange Property Owner enters into the Exchange Property Master Lease (such earlier date is the “FMV Option Start Date”) and (ii) expiring on the last day of the 12th month following the FMV Option Start Date. The consideration for any such purchase shall be the issuance of units in the Borrower.
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to LIBO Rate. Borrower, Administrative Agent and Lenders acknowledge that, as of the date hereof, the Floor is zero percent (0%).
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“Foreign Assets Control Regulations” has the meaning assigned to such term in Section 3.13.
“Foreign Lender” means (a) if the Borrower is a U.S. Person, a Lender, with respect to such Borrower, that is not a U.S. Person and (b) if the Borrower is not a U.S. Person, a Lender, with respect to such Borrower, that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.
“GAAP” means generally accepted accounting principles in the United States of America, that are applicable as of the date of determination.
“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
“Guarantee” of or by any Person (the “guarantor”) means, without duplication, any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee shall be deemed to be the maximum stated amount of the primary obligation relating to such Guarantee (or, if less, the maximum stated liability set forth in the instrument embodying such Guarantee), provided, that in the absence of any such stated amount or stated liability the amount of such Guarantee shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.
“Guarantors” means, collectively, the Trust, all Subsidiary Guarantors and all Investor Guarantors.
“Guaranty” means collectively the Guaranty from the Trust and the Subsidiary Guaranty from the Subsidiary Guarantors made in favor of the Administrative Agent and the Lenders, substantially in the forms of Exhibits D-1 and D-2, and any Investor Guaranty, as the same may be amended, supplemented, reaffirmed or otherwise modified from time to time.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“Impacted Interest Period” has the meaning assigned to it in the definition of “LIBO Rate.”
“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred
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in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others (excluding in any calculation of consolidated Indebtedness of the Consolidated Group, Guarantee obligations of one member of the Consolidated Group in respect of primary obligations of any other member of the Consolidated Group), (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, other than any letter of credit or letter of guaranty to the extent secured by cash collateral, and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall (i) include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor and (ii) exclude (x) deferrals or accruals by the Borrower or the Trust pursuant to the Expense Support Agreement including any extensions of the term of such agreement or any similar amendments to such agreement or any similar replacement or successor agreements (similarity being determined as set forth in the definition of Consolidated EBITDA), provided that payment of such amount is subordinated to payment of the Obligations so that payment is not permitted if an Event of Default exists, and (y) customary limited exceptions for certain acts or types of liability such as environmental liability, fraud and other customary non-recourse carve-outs. Indebtedness for purposes of determining compliance with Sections 6.11 and 6.12 shall not include any Indebtedness of any Loan Party to any other Loan Party or any of their Subsidiaries so long as such Indebtedness is not secured by any pledge of equity in any Subsidiary Guarantor and any such Indebtedness owing to a Subsidiary that is not a Loan Party is expressly subordinated in writing to the Obligations on terms reasonably acceptable to the Administrative Agent (which terms shall permit payments in the ordinary course of business prior to an Event of Default but shall prohibit such payments and all claims in respect thereof while an Event of Default exists). Notwithstanding the foregoing, Indebtedness shall not include (a) any liability under an Exchange Property Master Lease (including any guaranty thereof by the Trust or the Borrower) that would otherwise constitute indebtedness for the purposes of GAAP, or (b) any Indebtedness associated with or attributed to an Exchange Property, other than the Consolidated Group’s pro rata share (corresponding to the pro rata share of the Exchange Beneficial Interests in the Exchange Property Owner that are owned by the Consolidated Group) of such Indebtedness.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” has the meaning assigned to it in Section 9.03(c).
“Ineligible Institution” has the meaning assigned to such term in Section 9.04(b).
“Information” has the meaning assigned to it in Section 9.12.
“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.08, which shall be substantially in the form of Exhibit E or any other form approved by the Administrative Agent..
“Interest Payment Date” means (a) with respect to any ABR Loan, the fifth (5th) day of each calendar month, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period.
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“Interest Period” means with respect to each Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made, or in the case of the continuation of a Eurodollar Loan the last day of the preceding Interest Period for such advance, and ending on the numerically corresponding day in the first, third or sixth calendar month thereafter, as the Borrower may select in an appropriate notice, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (a) if any Interest Period would otherwise end after the Maturity Date, such Interest Period shall end on the Maturity Date and (b) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the immediately following Business Day (or, if such immediately following Business Day falls in the next calendar month, on the immediately preceding Business Day).
“Interpolated Rate” means, at any time, for any Interest Period, the rate per annum determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period for which the LIBO Screen Rate is available for dollars) that is shorter than the Impacted Interest Period; and (b) the LIBO Screen Rate for the shortest period (for which that LIBO Screen Rate is available for dollars) that exceeds the Impacted Interest Period, in each case, at such time.
“Investment Grade Rating” means a credit rating (or Debt Rating with respect to the Borrower or Trust or the debt thereof) of BBB-/Baa3 (or the equivalent) or higher from Fitch, Inc., Moody’s or S&P.
“Investor Guarantor” means any shareholders, members, partners or Affiliates of Borrower or the Trust that are a party to the Investor Guaranty.
“Investor Guaranty” means a guaranty which may be executed and delivered by one or more Investor Guarantors in accordance with Section 5.12 in a form approved by Administrative Agent, which approval shall not be unreasonably withheld, delayed or conditioned, as the same may be amended, supplemented or otherwise modified from time to time.
“IRS” means the United States Internal Revenue Service.
“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.
“Joint Lead Arrangers” means JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., PNC Bank, National Association and Truist Bank, or their respective affiliates, each in its capacity as a joint lead arranger and, in the case of Wells Fargo Bank, N.A., Bank of America, N.A., PNC Bank, National Association and Truist Bank, as a co-syndication agent for the Facility.
“JPMorgan” means JPMorgan Chase Bank, N.A., and its successors and assigns.
“Land” means unimproved land on which no material improvements have been commenced.
“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, licenses, authorizations and permits of, and agreements with, any Governmental Authority.
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“Lease-Up Property” means any Property which was fifty percent (50%) or more leased while owned by Borrower or a Subsidiary but which subsequently lost one or more tenants resulting in such Property being less than fifty percent (50%) leased.
“Lender Parent” means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.
“Lender-Related Person” has the meaning assigned to it in Section 9.03(b).
“Lenders” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
“Liabilities” means any losses, claims (including intraparty claims), demands, damages or liabilities of any kind.
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, the LIBO Screen Rate at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; provided that if the LIBO Screen Rate shall not be available at such time for such Interest Period (an “Impacted Interest Period”) then the LIBO Rate shall be the Interpolated Rate.
“LIBO Screen Rate” means, for any day and time, with respect to any Eurodollar Borrowing for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for U.S. Dollars for a period equal in length to such Interest Period as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion); provided that if the LIBO Screen Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“LIBOR” has the meaning assigned to such term in Section 1.06.
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, monetary encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“Loan Documents” means this Agreement, including without limitation, schedules and exhibits thereto and any agreements entered into in connection herewith and designated as a Loan Document, including the Guaranty, each Note, each Fee Letter, and any subordination agreements entered into in connection herewith or required hereunder, and, in each case, amendments, modifications or supplements thereto or waivers thereof, other than any Swap Agreement.
“Loan Parties” means the Borrower and each Guarantor.
“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement.
“Master Lease Obligations” means, as of any date of determination, the sum of all remaining obligations of the Consolidated Group, determined on a consolidated basis, to pay rent under all Exchange Property Master Leases, which such obligations shall be determined with respect to each Exchange Property
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Master Lease (a) commencing on the date of the first sale of an Exchange Beneficial Interest in the applicable Exchange Property Owner to an Exchange Property Investor and (b) ending on (i) if the expiration of the FMV Option with respect to the Exchange Property that is the subject of such Exchange Property Master Lease is not yet known, the date that is five years after the date of the commencement of the applicable Exchange Property Master Lease with respect to such Exchange Property, or (ii) if the expiration of the FMV Option with respect to the Exchange Property that is the subject of such Exchange Property Master Lease is known, the date of the expiration of the applicable FMV Option with respect to such Exchange Property.
“Material Acquisition” mean an acquisition of assets with a total cost that is more than ten percent (10%) of the Total Asset Value based on the most recent Compliance Certificate submitted prior to such acquisition.
“Material Adverse Effect” means a material adverse effect on (a) the business property or financial condition of the Consolidated Group taken as a whole, (b) the ability of the Borrower or the Trust to perform any of its material obligations under the Loan Documents to which it is a party, (c) the ability of the Loan Parties collectively taken as a whole to perform their material obligations under the Loan Documents, or (d) the validity or enforceability of any of the material provisions of the Loan Documents and the material rights or material remedies available to the Administrative Agent and the Lenders under the Loan Documents.
“Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $25,000,000 with respect to Recourse Indebtedness and $125,000,000 with respect to any Indebtedness which is not Recourse Indebtedness provided, however, that prior to the time that the Total Asset Value is at least $500,000,000, the foregoing amounts shall be $10,000,000 with respect to Recourse Indebtedness and $50,000,000 with respect to any Indebtedness which is not Recourse Indebtedness. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.
“Material Transfer” has the meaning assigned to such term in Section 6.09.
“Maturity Date” means May 6, 2026.
“Maximum Rate” has the meaning assigned to it in Section 9.14.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“Net Operating Income” means, with respect to any Property for any period, (i) revenues therefrom (other than revenues constituting accrued base rent to the extent that a tenant at such Property is in monetary default with respect to the payment of such base rent) (including, without limitation, expense reimbursement, loss of rent income and lease termination fees appropriately amortized to the extent there is no new tenant in the space for which the lease termination fee was paid), calculated, in each case, in accordance with GAAP, minus (ii) the costs of maintaining such Property, including, without limitation, real estate taxes, insurance, repairs, maintenance, actual property management fees paid to third parties or charged internally at a market rate and bad debt expense, but excluding depreciation, amortization, interest expense, tenant improvements, leasing commissions, and capital expenditures, calculated, in each case, in accordance with GAAP. For any Property owned for less than one (1) full quarter, Net Operating Income
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for such full quarter shall be determined based on performance during such partial quarter, or if such information is not reasonably available, shall be determined on a proforma basis in the Borrower’s reasonable discretion taking into account any performance information provided by the prior owner of such Property.
“Note” has the meaning assigned to such term in Section 2.10(e).
“NYFRB” means the Federal Reserve Bank of New York.
“NYFRB’s Website” means the website of the NYFRB at http://www.newyorkfed.org, or any successor source.
“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m. on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“Obligations” means (a) the principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (b) other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower under this Agreement or any other Loan Document, other than contingent indemnity obligations for which no claim has been made.
“OFAC” means the Office of Foreign Assets Control of the U.S. Department of Treasury.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).
“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight Eurodollar borrowings by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate.
“Participant” has the meaning assigned to such term in Section 9.04.
“Participant Register” has the meaning assigned to such term in Section 9.04(c).
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“Parties” means the Borrower or any of its Affiliates.
“Patriot Act” has the meaning assigned to it in Section 9.17.
“Payment” has the meaning assigned to it in Section 8.06(c).
“Payment Notice” has the meaning assigned to it in Section 8.06(c).
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“Pension Funding Rules” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
“Performance Fees” means the Performance Component of the Advisory Fee described in Section 9(a) of that certain Amended and Restated Advisory Agreement (2019), dated as of June 12, 2019 and effective as of July 1, 2017, among the Advisor, the Borrower and the Trust.
“Permitted Encumbrances” means:
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“Permitted Investments” means
“Permitted Tax Incentive Transaction” means any transaction or series of related transactions relating to an issuance of all Indebtedness and other obligations (collectively, “Tax Incentive Indebtedness”) arising in connection with the issuance of bonds, notes or other obligations by a Governmental Authority located in the United States (each, a “Tax Incentive Issuer”) to mitigate real estate
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and/or ad valorem Taxes otherwise payable in connection with the ownership of any Property (each, a “Tax Incentive Property”), the fee title to which is owned (or leased) by a Tax Incentive Issuer, and subsequently leased (or subleased) by a Subsidiary from the Tax Incentive Issuer, such transaction or series of transactions being governed by, among other documents, any indenture or other agreement governing or evidencing the Tax Incentive Indebtedness, entered into by and between a Tax Incentive Issuer and the trustee of the bonds in connection with the issuance of such Tax Incentive Indebtedness, if applicable (each, an “Tax Incentive Indenture”), any lease agreement entered into by and between a Subsidiary and an Tax Incentive Issuer (or any affiliate thereof) in connection with the issuance by such Tax Incentive Issuer of Tax Incentive Indebtedness (each, a “Tax Incentive Lease Agreement”), any guaranty or similar agreement entered into by any Subsidiary to guaranty, for the benefit of the bondholder (which, pursuant to clause (iii) below, shall be the applicable Subsidiary, or an affiliate thereof), certain payments due in connection with the issuance of Tax Incentive Indebtedness, including, without limitation, the payment of principal and interest due under the bonds, notes, or other obligations evidencing the Tax Incentive Indebtedness, and Tax Incentive Issuer or trustees fees and expenses, if any, due under the trust indenture (each, an “Tax Incentive Guaranty”), PILOT agreements, tax incentive agreements, and any other certificate, agreement, document or instrument, in each case, executed and delivered by any Subsidiary, Tax Incentive Issuer, or the trustee of any bonds in connection with such issuance of Tax Incentive Indebtedness and related tax incentives (collectively, “Tax Incentive Documents”) which satisfy the following criteria: (i) any net cash proceeds of the Tax Incentive Indebtedness under such Tax Incentive Documents are used for the purpose of acquiring, constructing, developing, expanding, installing and/or upgrading an Tax Incentive Property, (ii) such Tax Incentive Indebtedness is non-recourse to the Loan Parties (other than as expressly provided in the applicable Tax Incentive Guaranty, if any), and any successors and/or assigns of such Loan Parties in the event of a transfer or assignment of the applicable Tax Incentive Lease Agreement and all of the rights and obligations of such Subsidiary under each other Tax Incentive Document (including any Tax Incentive Guaranty) to an assignee who is a Person that is not a Subsidiary, (iii) the applicable Subsidiary (or any affiliate thereof) is the purchaser of the taxable bonds, or holder of the applicable notes or other obligations issued or to be issued in connection with such Tax Incentive Indebtedness (and, so long as such Tax Incentive Property is an Unencumbered Property, at all times such Subsidiary (or any affiliate thereof) shall remain the owner or holder thereof), (iv) the base payments due under the Tax Incentive Lease Agreement are equivalent to the debt service due under any bonds, notes or other obligations evidencing the Tax Incentive Indebtedness (other than the payment of a nominal sum as additional annual base rent during the term of the Tax Incentive Lease Agreement), (v) the applicable Tax Incentive Lease Agreement or another Tax Incentive Document grants to the applicable Subsidiary the option to re-acquire title to all or any portion of such Tax Incentive Property for a nominal sum at any time without further consent of the Tax Incentive Issuer or any other party other than the Subsidiary (of affiliate thereof) in its capacity as the bondholder or holder of the note or other obligation, either directly or through the trustee of the applicable bonds evidencing the Tax Incentive Indebtedness, (vi) no Tax Incentive Document entered into in connection with such Tax Incentive Indebtedness shall limit in any material respect the use by any Subsidiary of its property or assets (including the applicable Tax Incentive Property), except as may be required by applicable law to maintain the designation of the Tax Incentive Property as a “project” pursuant to the applicable legislation governing such tax incentive structures, (vii) no Tax Incentive Document entered into in connection with such Tax Incentive Indebtedness shall limit the ability of the Subsidiary to finance its interest in the Tax Incentive Property, including mortgaging the leasehold estate created under the Tax Incentive Lease Agreement, (viii) no Tax Incentive Document entered into in connection with such Tax Incentive Indebtedness shall limit the ability of the Subsidiary to transfer its interest in the Tax Incentive Property, except for any requirement for a consent from the Tax Incentive Issuer that is considered administrative and which can reasonably expected to be obtained in the ordinary course of business, and (ix) no Tax Incentive Document shall contain a “clawback” provision pursuant to which there could be an obligation by the Borrower or the applicable Subsidiary to repay a material portion of prior tax benefits received other than due to material breach by the Borrower or the applicable Subsidiary.
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“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective.
“Property” means any real estate owned by the Borrower, any Guarantor, any Subsidiary, any Unconsolidated Affiliate, any Exchange Fee Titleholder, or any Exchange Property Owner, and operated or intended to be operated as an investment property.
“Property Investment Value” means, at any time with respect to any Property in which a person has a direct or indirect ownership interest, the undepreciated book value of such interest determined in accordance with GAAP.
“Property Value” means: (i) with respect to any Property owned (or (x) subject to the limitations on the value of ground leased properties that may be included in the Total Unencumbered Property Pool Value under Section 6.12(c)(vii) and (x), is ground leased pursuant to a Financeable Ground Lease, or (y) subject to the limitation on the value of leased properties that may be included in the Total Unencumbered Property Pool Value under Section 6.12(xi), is leased pursuant to a Tax Incentive Lease Agreement) directly or indirectly by the Borrower, any Guarantor, any Exchange Fee Titleholder or any Exchange Property Owner for less than eighteen (18) months, the current Property Investment Value of such Property; and (ii) with respect to any Property owned directly or indirectly by the Borrower, any Guarantor, any Exchange Fee Titleholder or any Exchange Property Owner for more than eighteen (18) months, the greater of (x) the Net Operating Income for such Property for the most recently completed calendar quarter annualized divided by the Capitalization Rate, and (y) zero. A Property contributed to a joint venture by the Borrower or Guarantor shall be deemed to have been owned by such joint venture from the date of such contribution. A Property acquired from a joint venture in which the Borrower or any Subsidiary or Affiliate is a member shall be deemed to have been owned from the date acquired from such joint venture.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public-Sider” means any representative of a Lender that does not want to receive material non-public information within the meaning of the federal and state securities laws.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
“QFC Credit Support” has the meaning assigned to such term in Section 9.21.
“Recipient” means (a) the Administrative Agent, and any Lender, as applicable.
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“Recourse Indebtedness” means any Indebtedness of the Borrower or any other member of the Consolidated Group with respect to which the liability of the obligor is not limited to the obligor’s interest in specified assets securing such Indebtedness, subject to customary limited exceptions for certain acts or types of liability.
“Recurring Interest Expense” means, for any period without duplication, the sum of (a) the amount of interest (without duplication, whether accrued, paid or capitalized) on Total Indebtedness actually payable by members of the Consolidated Group during such period, plus (b) the applicable Consolidated Group Pro Rata Share of any interest (without duplication, whether accrued, paid or capitalized) on Indebtedness actually payable by Unconsolidated Affiliates during such period, whether recourse or non-recourse, but excluding non-recurring amortized financing related expenses.
“Reference Time” with respect to any setting of the then-current Benchmark means (1) if such Benchmark is LIBO Rate, 11:00 a.m. (London time) on the day that is two London banking days preceding the date of such setting, and (2) if such Benchmark is not LIBO Rate, the time determined by the Administrative Agent in its reasonable discretion.
“Register” has the meaning assigned to such term in Section 9.04.
“Regulation D” means Regulation D of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective, directors, officers, employees, and trustees of such Person and such Person’s Affiliates.
“Relevant Governmental Body” means the Federal Reserve Board or the NYFRB, or a committee officially endorsed or convened by the Federal Reserve Board or the NYFRB, or any successor thereto.
“Required Lenders” means, at any time, Lenders having unused Commitments and outstanding Loans representing more than fifty percent (50%) of the sum of the total unused Commitments and outstanding Loans at such time; provided that, for the purpose of determining the Required Lenders needed for any waiver, amendment, modification or consent, (i) any Lender that is the Borrower, or any Affiliate of the Borrower shall be disregarded, (ii) in determining such percentage at any given time, all then existing Defaulting Lenders will be disregarded and excluded, and (iii) at all times when two (2) or more Lenders (excluding Defaulting Lenders) are party to this Agreement, the term “Required Lenders” shall in no event mean less than two (2) Lenders.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Restricted Payment” means any cash dividend, cash distribution or other cash payment with respect to any equity interests in the Borrower or any Subsidiary, excluding (i) any dividend, distribution or other payment by a member of the Consolidated Group to another member of the Consolidated Group (including in connection with the issuance of equity interests), (ii) any redemption of equity interests by a member of the Consolidated Group (including pursuant to a share buyback program); (iii) any distribution or other payment by an Unconsolidated Affiliate to a member of the Consolidated Group (including promote payments in connection with development joint ventures and regular distributions of cash flow from Unconsolidated Affiliates); and (iv) any distribution or other payment by any Subsidiary or Unconsolidated Affiliate which is a partnership, limited liability company or joint venture or mezzanine lender and operated in the ordinary course of business.
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“Sale-Leaseback Master Lease” means a master lease entered into by a buyer of a Property, as lessor, and the seller of such Property, as lessee, in connection with a transaction whereby such seller leases all or a portion of such Property after closing.
“S&P” means S&P Global Ratings, or any successor thereto.
“Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, Crimea, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury of the United Kingdom, or other relevant sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b), or (d) any Person otherwise the subject of any Sanctions.
“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by the U.S. government (including those administered by OFAC), the United Nations Security Council, the European Union, Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority.
“SEC” means the Securities and Exchange Commission of the United States of America.
“Similar Agreement/Amendment” has the meaning assigned to such term in the definition of “Consolidated EBITDA”.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding Business Day.
“SOFR Administrator” means the NYFRB (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the NYFRB’s Website, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Specified Excess Cash” means, as of any date of determination, all Unrestricted Cash and Cash Equivalents as of such date held by the Consolidated Group in excess of $25,000,000, not to exceed the outstanding principal balance of revolving loans outstanding under that certain Second Amended and Restated Credit Agreement, dated as of November 19, 2019, by and among Borrower, as Borrower, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent thereunder, as amended, restated or otherwise modified form time to time.
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D). Such reserve percentage shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to
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any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than fifty percent (50%) of the equity or more than fifty percent (50%) of the ordinary voting power or, in the case of a partnership, more than fifty percent (50%) of the general partnership interests are, as of such date, owned, controlled or held, by the parent or one or more subsidiaries of the parent provided that any joint venture in which any Loan Party is a majority owner but does not Control and which is not included in such Loan Party’s consolidated financial statements shall not be a subsidiary.
“Subsidiary” means any subsidiary of the Borrower.
“Subsidiary Guarantor” means each Subsidiary Owner, each Subsidiary that is master leasing an Unencumbered Property from an Exchange Fee Titleholder, each Exchange Depositor, and any other Subsidiary that elects to become a party to the Subsidiary Guaranty.
“Subsidiary Guaranty” means that certain Subsidiary Guaranty, dated as of the date hereof, executed by the Subsidiary Guarantors, in favor of the Administrative Agent for the benefit of the Lenders, as amended, supplemented, reaffirmed or otherwise modified from time to time.
“Subsidiary Owner” means the Subsidiary that is the owner of the applicable Unencumbered Property (or that is the lessee of the applicable Unencumbered Property pursuant to a Financeable Ground Lease, as applicable), and the Exchange Depositor under a Delaware statutory trust that owns any applicable Unencumbered Property and is part of the Exchange Program or, after the FMV Option has been exercised, an Affiliate of the Borrower that is also the owner of 100% of the Exchange Beneficial Interests.
“Supplemental Materials” means any business or financial-related disclosures or information supplementing the Financial Statements made available to the holders of the Parties’ securities issued pursuant to Rule 144A of the Securities Act.
“Supported QFC” has the meaning assigned to such term in Section 9.21.
“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.
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“Term SOFR Notice” means a notification by the Administrative Agent to the Lenders and the Borrower of the occurrence of a Term SOFR Transition Event.
“Term SOFR Transition Event” means the determination by the Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the Administrative Agent and (c) a Benchmark Transition Event or an Early Opt-in Election, as applicable, has previously occurred resulting in a Benchmark Replacement in accordance with Section 2.14 that is not Term SOFR.
“Total Asset Value” means, as of the date of calculation, the aggregate, without duplication, of: (i) the Property Value of all Properties (other than land assets and Assets Under Development) owned by any member of the Consolidated Group or any Exchange Property Owner; plus (ii) the Consolidated Group Pro Rata Share of the Property Value of Properties (other than Assets Under Development) owned by Unconsolidated Affiliates or any Exchange Fee Titleholder; plus (iii) an amount equal to the then current book value of each land asset and Asset Under Development owned by any member of the Consolidated Group or any Exchange Property Owner; plus (iv) an amount equal to the Consolidated Group Pro Rata Share of the then current book value of each land asset and Asset Under Development owned by an Unconsolidated Affiliate or any Exchange Fee Titleholder; plus (v) Unrestricted Cash and Cash Equivalents owned directly or indirectly by any member of the Consolidated Group or any Exchange Property Owner; plus (vi) the applicable Consolidated Group Pro Rata Share of Unrestricted Cash and Cash Equivalents owned directly or indirectly by any Exchange Fee Titleholder or by Borrower or any Guarantor through an Unconsolidated Affiliate; plus (vii) investments in Debt Instruments (based on current book value) of any member of the Consolidated Group and Exchange Debt Investments (based on current book value) of any member of the Consolidated Group; provided that no Exchange Debt Investment shall be included under this clause if it relates to an Exchange Property already included in the calculation of Total Asset Value; plus (viii) an amount equal to the Consolidated Group Pro Rata Share of investments in Debt Instruments (based on current book value) and Exchange Debt Investments (based on current book value) owned by Unconsolidated Affiliates, any Exchange Fee Titleholder or any Exchange Property Owner; plus (ix) proceeds due from transfer agent; plus (x) the amount of all Eligible Cash 1031 Proceeds resulting from the sale of Properties. Notwithstanding the foregoing, (A) Property Value for purposes of determining Total Asset Value for any Property becoming a Lease-Up Property during the first eighteen months of ownership shall be determined based on Property Investment Value until the later of (i) such Property has been owned by any member of the Consolidated Group, Exchange Fee Titleholder, or Exchange Property Owner for eighteen (18) or more months, and (ii) the date twelve (12) months after such Property began qualifying as a Lease-Up Property; and (B) Property Value for purposes of determining Total Asset Value for any Property becoming a Lease-Up Property after the first eighteen months of ownership shall be determined based on Property Investment Value until the date twelve (12) months after such Property began qualifying as a Lease-Up Property. Further, if the FMV Option for any Exchange Property owned by an Exchange Property Owner has expired, then for purposes of calculations under clauses (i), (iii) and (v) above with respect to such Exchange Property Owner, only the pro rata share of the Exchange Beneficial Interests owned by the Exchange Depositor in such Exchange Property Owner shall be counted; provided, however, that if the FMV Option is exercised, the pro rata share of the Exchange Beneficial Interests owned by a Subsidiary Owner shall be counted.
“Total Indebtedness” means, as of any date of determination, without duplication, the sum of: (a) all Indebtedness of the Consolidated Group outstanding at such date, determined on a consolidated basis; plus (b) the greater of (i) the applicable Consolidated Group Pro Rata Share of all Indebtedness of each Unconsolidated Affiliate (other than Indebtedness of such Unconsolidated Affiliate to a member of the Consolidated Group) and (ii) the amount of Indebtedness of such Unconsolidated Affiliate which is also Recourse Indebtedness of a member of the Consolidated Group.
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“Total Secured Indebtedness” means, as of any date of determination, that portion of Total Indebtedness (excluding (i) the Obligations under the Loan Documents, (ii) obligations under Swap Agreements not secured by a Lien on a Property, (iii) contingent liabilities under customary completion guarantees, non-recourse carveout guarantees and hazardous materials indemnity agreements (except to the extent that a claim for payment or performance has been made thereunder and such obligations are secured by a Lien on a Property) and (iv) contingent obligations relating to performance or surety bonds in the ordinary course of business (except to the extent that a claim for payment or performance has been made thereunder and such obligations are secured by a Lien on a Property)) which is secured by a Lien on a Property, any ownership interests in any Subsidiary or Unconsolidated Affiliate or any other assets which had, in each case, in the aggregate, a value in excess of the amount of the applicable Indebtedness at the time such Indebtedness was incurred. Such Indebtedness that is secured only with a pledge of ownership interests and is also recourse to the Borrower or any Guarantor shall not be treated as Total Secured Indebtedness.
“Total Secured Recourse Indebtedness” means, as of any date of determination, that portion of Total Secured Indebtedness with respect to which the liability of the obligor is not limited to the obligor’s interest in specified assets securing such Indebtedness (subject to customary limited exceptions for certain acts or types of liability such as environmental liability, fraud and other customary non-recourse carve-outs); provided that Indebtedness of a single-purpose entity (or any holding company or other entity which owns such single-purpose entity) which is secured by substantially all of the assets of such single-purpose entity (or any holding company or other entity which owns such single-purpose entity) but for which there is no recourse to another Person beyond the single-purpose entity or holding company or other entity which owns such single-purpose entity (other than with respect to customary limited exceptions for certain acts or types of liability such as environmental liability, fraud and other customary non-recourse carve-outs) shall not be considered a part of Total Secured Recourse Indebtedness even if such Indebtedness is fully recourse to such single-purpose entity (or any holding company or other entity which owns such single-purpose entity) and unsecured guarantees provided by Borrower or the Trust of mortgage loans to Subsidiaries or Unconsolidated Affiliates shall not be included in Total Secured Recourse Indebtedness.
“Total Unencumbered Property Pool Value” means, as of any date of calculation, the aggregate, without duplication, of: (a) the Unencumbered Property Values of all Unencumbered Properties (other than any that are Assets Under Development); plus (b) an amount equal to one hundred percent (100%) of the then-current book value of each Unencumbered Property that is an Asset Under Development or Land; plus (c) an amount equal to one hundred percent (100%) of the then current book value of each Exchange Debt Investment, provided that such Exchange Debt Investment is not subject to any Liens or encumbrances and so long as the Exchange Property Investor with respect to such Exchange Debt Investment is not delinquent thirty (30) days or more in any payment of interest or principal payments thereunder; plus (d) the amount in excess of $10,000,000 of the total of (i) all Unrestricted Cash and Cash Equivalents, plus (ii) the amount of Eligible Cash 1031 Proceeds resulting from the sale of Unencumbered Properties.
“Total Unsecured Indebtedness” means, as of any date of determination, that portion of Total Indebtedness which does not constitute Total Secured Indebtedness; provided that for purposes of calculating Total Unsecured Indebtedness, the amount of the Consolidated Group Pro Rata Share of all Indebtedness of each Unconsolidated Affiliate (other than Indebtedness of such Unconsolidated Affiliate to a member of the Consolidated Group) shall be excluded for all purposes of this definition. For the avoidance of doubt, the Obligations under the Loan Documents shall be included in Total Unsecured Indebtedness (and contingent liabilities under customary completion guarantees, non-recourse carveout guarantees and hazardous materials indemnity agreements shall not be included in Total Unsecured Indebtedness (except to the extent that a claim for payment or performance has been made thereunder and such obligations do not constitute Total Secured Indebtedness)).
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“Transactions” means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof.
“Trust” means Black Creek Industrial REIT IV Inc., the general partner of Borrower.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
“UK Financial Institutions” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Uniform Commercial Code” or “UCC” means the Uniform Commercial Code as in effect in the State of Delaware or any other applicable jurisdiction.
“Unconsolidated Affiliate” means, any Person in which the Consolidated Group, directly or indirectly, has any ownership interest of $1,000,000 or more (valued as of the most recent quarterly financial statement), whose financial results are not consolidated under GAAP with the financial results of the Consolidated Group.
“Unencumbered Property Pool Leverage Ratio” means, for any period, Total Unsecured Indebtedness to Total Unencumbered Property Pool Value.
“Unencumbered Interest Coverage Ratio” means, at any time, (a) Unencumbered Property NOI for the most recent quarter plus interest income from Exchange Debt Investments, annualized, divided by (b) Unsecured Interest Expense for the immediately preceding calendar quarter, annualized.
“Unencumbered Property” means, a Property (other than an Exchange Property, except as hereinafter provided) that is designated by the Borrower as an Unencumbered Property and: (i) is completed and located in the continental United States or, subject to the limitations on the value of Assets Under Development that may be included in the Total Unencumbered Property Pool Value under Section 6.12, is an Asset Under Development located in the continental United States; (ii) is one hundred percent (100%) owned in fee simple (or (x) subject to the limitations on the value of ground leased properties that may be included in the Total Unencumbered Property Pool Value under Section 6.12(c)(vii) and (x), is ground leased pursuant to a Financeable Ground Lease, or (y) subject to the limitation on the value of leased properties that may be included in the Total Unencumbered Property Pool Value under Section 6.12(c)(xi), is leased pursuant to a Tax Incentive Lease Agreement) by the Borrower, an Exchange Fee Titleholder or a Subsidiary Owner that is at least ninety-five percent (95%) owned directly or indirectly by Borrower, provided that no consent from any minority owner is required in order for the Borrower to cause a sale or refinancing of such Unencumbered Property, and so long as any such Subsidiary (whether or not wholly-owned) is a Guarantor (to the extent required pursuant to Section 5.11); (iii) is not subject to any Liens or encumbrances other than clauses (a), (b), (c), (d), (f), (j), (k) and (m) of the definition of Permitted Encumbrances or a Lien securing bonds, notes or other obligations issued pursuant to a Permitted Tax Incentive Transaction; (iv) is not subject to any agreement (including Borrower’s, or any applicable
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Subsidiary Owner’s organizational documents) which prohibits or limits the ability of the Borrower or any applicable Subsidiary Owner, as the case may be, to create, incur, assume or suffer to exist any Lien securing any monetary obligation upon any such Unencumbered Property (or the leasehold estate therein created by a Financeable Ground Lease or Tax Incentive Agreement, as applicable) or Equity Interests of such Subsidiary Owner that owns such Unencumbered Property, except for covenants that are not materially more restrictive than the covenants contained in this Agreement, in favor of holders of unsecured Indebtedness of the Borrower and such Subsidiary Owner not prohibited hereunder; (v) is not subject to any agreement (including (a) any agreement governing Indebtedness incurred in order to finance or refinance the acquisition of such Property, and (b) if applicable, the Borrower’s or Subsidiary Owner’s organizational documents) which entitles any Person to the benefit of any Lien on such Property (other than the Lien securing repayment of bonds, notes or other obligations issued pursuant to, or fees and expenses of the Tax Incentive Issuer or trustee in connection with, a Permitted Tax Incentive Transaction, or the Equity Interests in the Borrower or such Subsidiary Owner or Exchange Fee Titleholder that in each case owns such Unencumbered Property or would entitle any Person to the benefit of any Lien on such Property or Equity Interests upon the occurrence of any contingency (including, without limitation, pursuant to an “equal and ratable” clause) other than any agreement entered into in connection with the financing of such Property and the pledge of such Property as security for any financing pending the closing of such financing, provided that such Property shall cease to be an Unencumbered Property upon the closing of such financing; (vi) is not subject to any agreement (including (a) any agreement governing Indebtedness incurred in order to finance or refinance the acquisition of such Property, and (b) if applicable, the Borrower’s or Subsidiary Owner’s organizational documents) which prohibits or limits the ability of the Borrower or such Subsidiary Owner or Exchange Fee Titleholder, as the case may be, to make pro rata Restricted Payments to Borrower, or any applicable Subsidiary Owner of income arising out of such Property or prevents such Subsidiary Owner from transferring such Property (other than (x) any restriction with respect to a Property imposed pursuant to an agreement entered into for the sale or disposition of such Property pending the closing of such sale or disposition or in connection with a 1031 exchange or any restriction in connection with a Permitted Tax Incentive Transaction that complies with the condition set forth in clause (viii) of the criteria for such transactions, and (y) any restriction with respect to a Subsidiary Owner that owns such Property imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Equity Interests or assets of such Subsidiary Guarantor pending the closing of such sale or disposition or (z) other than restrictions which are not materially more restrictive than the restrictions contained herein, in favor of holders of unsecured Indebtedness of the Borrower not prohibited hereunder or which terminate at the time that such property ceases to be an Unencumbered Property in connection with any other facility; and (vii) is not the subject of any material issues which would impact the operation of such Property. No Property owned by a Subsidiary Owner shall be deemed to be an Unencumbered Property unless (a) both such Property and all Equity Interests of the Subsidiary Owner held directly or indirectly by the Borrower are not subject to any Lien, except as otherwise expressly permitted herein, including, without limitation, in connection with a Permitted Tax Incentive Transaction, (b) each intervening entity between the Borrower and such Subsidiary Owner does not have any Indebtedness for borrowed money or, if such entity has any Indebtedness, such Indebtedness is unsecured, and (c) neither such Subsidiary Owner nor any intervening entity between the entity immediately below the Borrower and such Subsidiary Owner is subject to insolvency proceedings, unable to pay debts or subject to any writ or warrant of attachment. A Property that is subject to an option to purchase shall not be disqualified by the requirement in clause (vi) from being an Unencumbered Property so long as the Property can be transferred subject to the rights of the optionee provided that if the option to purchase is for a fixed price as distinguished from a market price, the Unencumbered Property Value for such Property shall be equal to the lesser of (x) the amount determined in accordance with the definition of Unencumbered Property Value, or (y) the option price for such Property. Notwithstanding the foregoing, Exchange Properties that are part of the Exchange Program may be included as Unencumbered Properties (1) during the period of time that the Exchange Beneficial Interests are being marketed, such marketing period not to exceed 24 months, and (2) if the FMV Option is exercised with respect to such Exchange Beneficial Interests, at all times after such exercise of the FMV Option, if all of the requirements set forth in this definition for an Unencumbered Property are met other than (A) the
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ownership percentage requirement (including without limitation the requirement set forth in clause (ii) of this definition), (B) the requirement that they not be Exchange Properties, (C) any requirement that the owner of such Property become a Subsidiary Guarantor (so long as the applicable Exchange Depositor (or, after the exercise of the FMV Option with respect to such Exchange Beneficial Interests, the Subsidiary Owner with respect thereto) is a Subsidiary Guarantor), (D) any requirement that the Unencumbered Property not be subject to any agreement which prohibits or limits the ability of the Borrower or any applicable Subsidiary Owner, as the case may be, to create, incur, assume or suffer to exist any Lien upon any Unencumbered Property; provided that (for the avoidance of doubt), with respect to Exchange Properties, the Equity Interests of the Subsidiary Owner shall not be subject to any agreement that prohibits or limits the ability of the Borrower or such Subsidiary Owner, as the case may be, to create, incur, assume or suffer to exist any Lien on such Equity Interests, or (E) any requirement set forth in clauses (a), (b) or (c) immediately above, except that for purposes of calculating unencumbered pool financial covenants, only the pro rata share of value and income (corresponding to the pro rata share of the Exchange Beneficial Interests in the Exchange Property Owner that are owned by the Consolidated Group) shall be counted. Nothing herein shall prohibit an Unencumbered Property hereunder from constituting an Unencumbered Property in connection with any other indebtedness, provided that such indebtedness is not prohibited pursuant to the terms of this Agreement.
“Unencumbered Property NOI” means, with respect to any Unencumbered Property for any period, the Net Operating Income for such Unencumbered Property for such period, less the Capital Expenditure Reserve. For purposes of calculating Unencumbered Property NOI for any Exchange Property that constitutes an Unencumbered Property, only the pro rata share of Unencumbered Property NOI (corresponding to the pro rata share of the Exchange Beneficial Interests in the Exchange Property Owner that are still owned by the Consolidated Group) shall be counted. For purposes of calculating Unencumbered Property NOI for any other Unencumbered Property that is owned by a Subsidiary Owner that is not wholly owned directly or indirectly by the Borrower, only the pro rata share of Unencumbered Property NOI (corresponding to the pro rata share of such Subsidiary Owner that is owned by the Borrower) shall be counted.
“Unencumbered Property Value” means for an Unencumbered Property (a) with respect to any Unencumbered Property owned by the Borrower, any Subsidiary Owner, any Exchange Fee Titleholder or any Exchange Property Owner (subject to the pro rata limitations applicable to Properties owned by Exchange Fee Titleholders and Exchange Properties set forth below) for less than eighteen (18) months, and for any Asset Under Development, the current Property Investment Value for such Unencumbered Property; and (b) with respect to any Unencumbered Property owned by the Borrower, any Subsidiary Owner, any Exchange Fee Titleholder or any Exchange Property Owner (subject to the pro rata limitations applicable to Properties owned by Exchange Fee Titleholders and Exchange Properties set forth below) for more than eighteen (18) months (other than an Asset Under Development), the greater of (i) Unencumbered Property NOI for such Unencumbered Property for the most recently completed calendar quarter annualized divided by the Capitalization Rate and (ii) zero. Notwithstanding the foregoing, (A) Unencumbered Property Value for any Property becoming a Lease-Up Property during the first eighteen months of ownership shall be determined based on Property Investment Value until the later of (i) such Property has been owned by a member of the Consolidated Group for eighteen or more months, and (ii) the date twelve (12) months after such Property began qualifying as a Lease-Up Property; and (B) Unencumbered Property Value for any Property becoming a Lease-Up Property after the first eighteen months of ownership shall be determined based on Property Investment Value until the date twelve (12) months after such Property began qualifying as a Lease-Up Property. For purposes of calculating Unencumbered Property Value for any Exchange Property that constitutes an Unencumbered Property, only the pro rata share of Unencumbered Property Value (corresponding to the pro rata share of the Exchange Beneficial Interests in the Exchange Property Owner that are owned by the Consolidated Group) shall be counted. For purposes of calculating Unencumbered Property Value for any Property owned by an Exchange Fee Titleholder that constitutes an Unencumbered Property, only the Consolidated Group Pro Rata Share of Unencumbered
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Property Value of such Property shall be counted. For purposes of calculating Unencumbered Property Value for any other Unencumbered Property that is owned by a Subsidiary Owner that is not wholly owned directly or indirectly by the Borrower, only the pro rata share of Unencumbered Property Value (corresponding to the pro rata share of such Subsidiary Owner that is owned by the Borrower) shall be counted.
“Unrestricted Cash and Cash Equivalents” means, in the aggregate, all cash and Cash Equivalents which are not pledged for the benefit of any party (whether a creditor, seller or otherwise) having a claim (whether liquidated or not) against a member of the Consolidated Group, to be valued for purposes of this Agreement at one hundred percent (100%) of its then-current book value, as determined under GAAP.
“Unsecured Interest Expense” means for any period, the amount of interest (without duplication, whether accrued, paid or capitalized), on Total Unsecured Indebtedness, but excluding amortized financial related expenses.
“U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.
“U.S. Special Resolution Regime” has the meaning assigned to such term in Section 9.21.
“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3).
“Wholly-Owned Subsidiary” means, as to the Trust, any Subsidiary of the Trust that is directly or indirectly owned at least ninety percent (90%) by the Trust; provided that if such Subsidiary is not one hundred percent (100%) owned by the Trust, no consent of any minority owner is required for the Trust to cause a pledge, sale or refinancing of such Subsidiary that has not been obtained.
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
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(i)the aggregate amount of the requested Borrowing;
(ii)the date of such Borrowing, which shall be a Business Day;
(iii)whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv)in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
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(v)the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
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If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
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then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or electronic mail as promptly as practicable thereafter and, until the
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Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (A) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (B) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted.
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and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing, converting or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender or such other Recipient hereunder (whether of principal, interest or otherwise), then, upon the request of such Lender or Recipient, the Borrower will pay to such Lender or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered (provided that the determination of such additional amounts shall be made in good faith (and not on an arbitrary or capricious basis), and provided, that for the avoidance of doubt, that this Section 2.15 shall not apply with respect to any Taxes for which a Loan Party has an indemnification obligation under Section 2.17.
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Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
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In the event that the Administrative Agent and the Borrower each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.
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The Borrower represents and warrants to the Lenders that:
(b)Since the date of the most recent audited Financial Statements delivered by Borrower, there has been no event or circumstance, that has had a Material Adverse Effect.
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(b)Each of the Trust, Borrower and any Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such failure to own or license or such infringements that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
(b)Except for the Disclosed Matters and except with respect to any matter or events described in (i) through (iii) below that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, neither the Trust, Borrower nor any of their Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, or (iii) has received notice of any claim with respect to any Environmental Liability.
(c)Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in a Material Adverse Effect.
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follows except to the extent disclosed in writing to the Lenders and approved by the Required Lenders (which approval shall not be unreasonably withheld):
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A breach of any of the representations and warranties contained in this Section 3.13 with respect to a Property shall disqualify such Property from being an Unencumbered Property for so long as such breach continues (unless otherwise approved by the Required Lenders) but shall not constitute a Default or an Event of Default (unless the elimination of such Property as an Unencumbered Property results in a Default or Event of Default under one of the other provisions of this Agreement).
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The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on June 30, 2021 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).
Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that:
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Documents required to be delivered pursuant to Section 5.01(a) or (b) or Section 5.01(g) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address provided to Administrative Agent; or (ii) on which such documents are publicly filed or are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender upon its request to the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Subject to Section 9.12, the Borrower further agrees to clearly label the financial statements described in clauses (a) and (b) (collectively, “Financial Statements”) with a notice stating: “Confidential Financial Statements to be Provided to All Lenders, Including Public-Siders” before delivering them to the Administrative Agent, but only if such Financial Statements are not publicly filed.
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Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
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an Exchange Property Owner to be included as an Unencumbered Property during the period of time that the Exchange Beneficial Interests are being marketed, then the Exchange Depositor shall execute a joinder to the Subsidiary Guaranty and shall be a Subsidiary Guarantor during the period of time (not to exceed 24 months) during which the sale of Exchange Beneficial Interests is pending, but only for so long as such Property remains an Unencumbered Property. If Borrower designates a Property that is owned by an Exchange Property Owner to be included as an Unencumbered Property following the exercise of the FMV Option, then the Subsidiary Owner of the Exchange Beneficial Interests shall execute a joinder to the Subsidiary Guaranty and shall be a Subsidiary Guarantor, but only for so long as such Property remains an Unencumbered Property. For Unencumbered Properties owned by an Exchange Fee Titleholder, upon completion or termination of the reverse exchange, if Borrower desires the applicable Property to remain an Unencumbered Property, Borrower, or a Subsidiary of Borrower shall acquire all of the ownership interests of the Exchange Fee Titleholder or title to such Unencumbered Property and at such time the entity that was previously the Exchange Fee Titleholder, but has become a Subsidiary of the Borrower, or if fee title is acquired, the Subsidiary acquiring fee title will execute a joinder to the Subsidiary Guaranty and become a Subsidiary Guarantor, and the entity that had previously been master leasing such Property shall be automatically released from the Subsidiary Guaranty.
A Subsidiary shall be automatically released from its obligations under the Subsidiary Guaranty if (i) there is no Event of Default (or event which, upon expiration of an applicable cure period, will become an Event of Default), and (ii) Borrower delivers an updated Compliance Certificate to Administrative Agent demonstrating compliance (based on information as of the end of the prior quarter) with all financial covenants contained in Section 6.12(a), (b) and (c) of this Agreement without such Subsidiary being included as a Subsidiary Guarantor and without any Property owned by such Subsidiary (or Exchange Fee Titleholder if the Subsidiary Guarantor is the master lessee) being included as an Unencumbered Property in the calculation of Borrower’s compliance with any of the foregoing covenants pertaining to Unencumbered Properties, and representing and warranting that based on the information as of the end of the prior quarter, but without counting any Unencumbered Property owned by the Subsidiary Guarantor being released (or owned by the Exchange Fee Titleholder if the Subsidiary Guarantor being released is the master lessee) as an Unencumbered Property, Borrower will continue to comply with all of the financial covenants in this Agreement upon release of such Subsidiary Guarantor. A Subsidiary that became a party to the Subsidiary Guaranty because it was master leasing a Property owned by an Exchange Fee Titleholder shall be released upon delivery of a joinder to the Subsidiary Guaranty by the Exchange Fee Titleholder once it becomes a Subsidiary of the Borrower, or an election by Borrower to cause such Property to cease to be an Unencumbered Property in accordance with the terms of this Agreement. A Subsidiary that became a party to the Subsidiary Guaranty because it was an Exchange Depositor shall be released in accordance with Section 6.12 upon the earlier of the end of the marketing period described therein or 24 months, at which point such Property shall cease to be an Unencumbered Property or an election by Borrower to cause such Property to cease to be an Unencumbered Property in accordance with the terms of this Agreement. In addition, each Subsidiary Guarantor may be released at the request of the Borrower (and the Property owned by it may continue to be an Unencumbered Property) once the Borrower or the Trust receives Investment Grade Ratings from two of S&P, Moody’s or Fitch, provided that such Subsidiary Guarantor and each intervening entity between the Borrower and such Subsidiary Guarantor is also released from any other unsecured debt or guaranties of Indebtedness other than trade payables and other obligations incurred in the ordinary course of business, provided that the Property owned by it may no longer be considered an Unencumbered Property if such Subsidiary or any intervening entity between the Borrower and such Subsidiary Guarantor subsequently incurs unsecured debt or enters into a guaranty of Indebtedness of another Person (unless such Subsidiary executes a new Subsidiary Guaranty). In addition, at such time as the Borrower or the Trust receives Investment Grade Ratings from two of S&P, Moody’s or Fitch, the Subsidiary owning an Unencumbered Property shall not be required to be a Subsidiary Guarantor in order for such Property to qualify as an Unencumbered Property so long as none of the Subsidiary owning such Unencumbered Property or any intervening entity between the Borrower and such Subsidiary Guarantor has any other outstanding unsecured debt (other than trade payables and other obligations incurred in the
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ordinary course of business) or guarantees of Indebtedness. Subject to the foregoing, the Administrative Agent shall, from time to time, upon request from the Borrower, execute and deliver to the Borrower a written acknowledgement that a Subsidiary has been released from its obligations under the Subsidiary Guaranty and the Lenders and the Issuing Bank hereby authorize the Administrative Agent to deliver such acknowledgement.
Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that:
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In the event that any Investments exceed the maximum amounts set forth above (including the thirty percent (30%) limitation for the investments described in clauses (a) through (f) above), such excess Investments shall not constitute an Event of Default but shall be excluded (without duplication) from the calculation of the financial covenants in Section 6.11.
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The Borrower shall not:
The Borrower shall:
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For the avoidance of doubt, (a) any applicable amounts pursuant to subsections (i) and (ii) of the definition of Net Operating Income related to a third-party lease affecting any Tax Incentive Property shall be included in the calculation of Net Operating Income for such Tax Incentive Property, but interest income of any Subsidiary from bonds issued in connection with any Permitted Tax Incentive Transaction and related rent expense under any Tax Incentive Lease Agreement with respect to the applicable Tax Incentive Property shall be disregarded for purposes of calculating Net Operating Income for such Tax Incentive Property; (b) interest payable by any Subsidiary under Tax Incentive Indebtedness in connection with any
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Permitted Tax Incentive Transaction (to the extent such Subsidiary is also the owner or holder of the bonds issued in connection with such Permitted Tax Incentive Transaction) shall be excluded from the calculation of Recurring Interest Expense; (c) the calculation of Total Asset Value shall include the Property Value, Property Investment Value, unrestricted cash and Cash Equivalents and any other amounts which would otherwise be included in the calculation of Total Asset Value with respect to any other Property, of any Tax Incentive Property, but the investment of any Subsidiary in bonds issued in connection with any Permitted Tax Incentive Transaction shall be excluded from any calculation of Total Asset Value; (d) the term Indebtedness shall not include any Tax Incentive Indebtedness (including pursuant to an Tax Incentive Guaranty) under any Permitted Tax Incentive Transaction; and (e) no Tax Incentive Indebtedness (including pursuant to a Tax Incentive Lease Agreement or a Tax Incentive Guaranty) shall constitute a “liability” for purposes of determining Consolidated Tangible Net Worth (but other liabilities that are current and payable to a party other than Borrower or a Subsidiary in connection with the Tax Incentive Property such as indemnification obligations shall constitute a “liability”).
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then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, with the consent of the Required Lenders, and shall, at the request of the Required Lenders by notice to the Borrower, take any of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent) then due and payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) then due and payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including fees and time charges for attorneys who may be employees of any Lender)), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans, and other Obligations then due and payable, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and
Last, the balance, if any, after all of the Obligations then due and payable have been paid in full, to the Borrower or as otherwise required by Law.
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due to it, in its capacity as the Administrative Agent, under the Loan Documents (including under Section 9.03). Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
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“THIS COMMUNICATION REQUIRES IMMEDIATE RESPONSE. FAILURE TO RESPOND WITHIN TEN (10) BUSINESS DAYS AFTER THE DELIVERY OF THIS COMMUNICATION SHALL CONSTITUTE A DEEMED APPROVAL BY THE ADDRESSEE OF THE MATTER DESCRIBED ABOVE.”
and (iv) shall include Administrative Agent’s recommended course of action or determination in respect thereof. Each Lender shall reply promptly to any such request, but in any event within ten (10) Business Days after the delivery of such request by Administrative Agent (the “Lender Reply Period”). Unless a Lender shall give written notice to Administrative Agent that it objects to the recommendation or determination of Administrative Agent within the Lender Reply Period, such Lender shall be deemed to have approved of or consented to such recommendation or determination. With respect to decisions requiring the approval of the Required Lenders or all Lenders, Administrative Agent shall timely submit any required written notices to all Lenders and upon receiving the required approval or consent shall follow the course of action or determination recommended by Administrative Agent or such other course of action recommended by the Required Lenders or all of the Lenders, as the case may be, and each non-responding Lender shall be deemed to have concurred with such recommended course of action. Nothing in this provision shall restrict the Administrative Agent from requesting a reply to a request for an approval in less than ten (10) Business Days but the deemed approval provided in this provision shall not apply until the expiration of a ten Business Day period.
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(ii)Each Lender hereby further agrees that if it receives a Payment from the Administrative Agent or any of its Affiliates (x) that is in a different amount than, or on a different date from, that specified in a notice of payment sent by the Administrative Agent (or any of its Affiliates) with respect to such Payment (a “Payment Notice”) or (y) that was not preceded or accompanied by a Payment Notice, it shall be on notice, in each such case, that an error has been made with respect to such Payment. Each Lender agrees that, in each such case, or if it otherwise becomes aware a Payment (or portion thereof) may have been sent in error, such Lender shall promptly notify the Administrative Agent of such occurrence and, upon demand from the Administrative Agent, it shall promptly, but in no event later than one Business Day thereafter, return to the Administrative Agent the amount of any such Payment (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Payment (or portion thereof) was received by such Lender to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
(iii)The Borrower and each other Loan Party hereby agrees that (x) in the event an erroneous Payment (or portion thereof) are not recovered from any Lender that has received such Payment (or portion thereof) for any reason, the Administrative Agent shall be subrogated to all the rights of such Lender with respect to such amount and (y) an erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or any other Loan Party.
(iv)Each party’s obligations under this Section 8.06(c) shall survive the resignation or replacement of the Administrative Agent or any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Commitments or the repayment, satisfaction or discharge of all Obligations under any Loan Document.
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(i)if to the Borrower, to it at c/o Black Creek Group, 518 Seventeenth Street, Suite 1700, Denver, CO 80202, Attention: Scott Seager, Chief Financial Officer (Telecopy No. (303) 869-4602, Email: scott.seager@blackcreekgroup.com), with a copy to: c/o Black Creek Group, 518 Seventeenth Street, Suite 1700, Denver, CO 80202, Attention of General Counsel (Email: josh.widoff@blackcreekgroup.com);
(ii)if to the Administrative Agent, to JPMorgan Chase Bank, N.A., JPMorgan Loan Services, 500 Stanton Christiana Road, Ops 2, 3rd Floor Newark, DE 19713, Attention of Loan and Agency Services Group (Telecopy No. 1 (302) 634-3301);
(iii)if to any other Lender, to it at its address (or telecopy number or email address) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile or email shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through Approved Electronic Platforms (other than email), to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
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(A)the Borrower, provided that, the Borrower shall be deemed to have consented to an assignment unless it shall have objected thereto by written notice to the Administrative Agent within ten (10) Business Days after having received notice thereof; provided further that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing at the time of such assignment, any other assignee; and
(B)the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment of any Commitment or Loans to an assignee that is a Lender (other than a Defaulting Lender) with a Commitment or Loans immediately prior to giving effect to such assignment.
(ii) Assignments shall be subject to the following additional conditions:
(A)except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing;
(B)each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;
(C)the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to a an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants), together with a processing and recordation fee of $4,500;
(D)the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more Credit Contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower, the Loan Parties and their related parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws;
(E)Borrower’s failure to consent to an assignment shall be deemed reasonable if such assignment is to a competitor of Borrower and no Event of Default exists;
(F)each assignment by a Lender prior to the Facility Commitment Expiration Date shall be a proportionate amount of its outstanding Loans and undisbursed Commitment; and
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(G)after giving effect to such assignment, the amount of the Commitment held by such assigning Lender or the outstanding principal balance of the Loans of such assigning Lender, as applicable, would be less than $5,000,000, then such assigning Lender shall assign the entire amount of its Commitment and the Loans at the time owing to it.
For the purposes of this Section 9.04(b), the term “Approved Fund” and “Ineligible Institution” have the following meanings:
“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Ineligible Institution” means (a) a natural person, (b) a Defaulting Lender or its Lender Parent, (c) the Borrower or any of its Affiliates, or (d) a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof; provided that, such holding company, investment vehicle or trust shall not constitute an Ineligible Institution if it (x) has not been established for the primary purpose of making or acquiring any Loans or Commitments, (y) is managed by a professional advisor, who is not such natural person or a relative thereof, having significant experience in the business of making or purchasing commercial loans, and (z) has assets greater than $25,000,000 and a significant part of its activities consist of making or purchasing commercial loans and similar extensions of credit in the ordinary course of its business.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv)The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
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(v)Upon its receipt of (x) a duly completed Assignment and Assumption executed by an assigning Lender and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to a an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants), the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05(c), 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(d), the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
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In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective authorized officers as of the day and year first above written.
BCI IV Operating Partnership LP,
a Delaware limited partnership
By:Black Creek Industrial REIT IV Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: | Scott Seager |
Title: | Senior Vice President, Chief Financial Officer & Treasurer |
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent and as a Lender
By:_/s/ RYAN DEMPSEY
Name:Ryan Dempsey
Title:Authorized Signatory
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as a Lender
By:/s/ CRAIG V. KOSHKARIAN
Name: Craig V. Koshkarian
Title: Director
BANK OF AMERICA, N.A.,
as a Lender
By:_/s/ KYLE PEARSON
Name: Kyle Pearson
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
as a Lender
By:_/s/ JAMES A. HARMANN
Name: James A. Harmann
Title: Senior Vice President
TRUIST BANK,
as a Lender
By:_/s/ ALEXANDER ROWND
Name: Alexander Rownd
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION,
as a Lender
By:_/s/ TRAVIS MYERS
Name: Travis Myers
Title: Vice President
CAPITAL ONE, N.A.,
as a Lender
By:/s/ ANDREW D. MOORE
Name: Andrew D. Moore
Title: Duly Authorized Signatory
REGIONS BANK,
as a Lender
By: /s/ GHI S. GAVIN
Name: Ghi S. Gavin
Title: Senior Vice President
ZIONS BANCORPORATION, N.A.,
d/b/a Vectra Bank Colorado,
as a Lender
By:/s/ H. SHAW THOMAS
Name: H. Shaw Thomas
Title: Senior Vice President
MUFG UNION BANK, N.A.,
as a Lender
By:_/s/ KATHERINE DAVIDSON
Name: Katherine Davidson
Title: Director
EASTERN BANK,
as a Lender
By: /s/ JARED H. WARD
Name: Jared H. Ward
Title: Senior Vice President
ASSOCIATED BANK, NATIONAL ASSOCIATION,
as a Lender
By:_/s/ MITCHELL VEGA
Name: Mitchell Vega
Title: Vice President
SCHEDULE 1.01(g)
EXISTING LIENS
NONE
Schedule 1.01(g)
SCHEDULE 2.01
COMMITMENTS
Name | Commitment and Percentage | |
JPMorgan Chase Bank, N.A. | $104,500,000.00 | 17.416666667% |
Wells Fargo Bank, National Association | $75,000,000.00 | 12.500000000% |
Bank of America, N.A. | $75,000,000.00 | 12.500000000% |
PNC Bank, National Association | $75,000,000.00 | 12.500000000% |
Truist Bank | $75,000,000.00 | 12.500000000% |
U.S. Bank National Association | $50,000,000.00 | 8.333333333% |
Capital One, N.A. | $45,000,000.00 | 7.500000000% |
Regions Bank | $30,000,000.00 | 5.000000000% |
Zions Bancorporation, N.A. | $25,000,000.00 | 4.166666667% |
MUFG Union Bank, N.A. | $25,000,000.00 | 4.166666667% |
Eastern Bank | $12,500,000.00 | 2.083333333% |
Associated Bank, National Association | $8,000,000.00 | 1.333333333% |
Total | $600,000,000.00 | 100.000000000% |
Schedule 2.01
SCHEDULE 3.06
DISCLOSED MATTERS
NONE
Schedule 3.06
SCHEDULE 3.13
UNENCUMBERED PROPERTIES
# | Asset Name | Entity Name | Date Acquired / Completed | Date Added As Unencumbered Property |
---|---|---|---|---|
1. | Medley IC | BCI IV Medley IC LLC | 4/11/2018 | 4/11/2018 |
2. | Ontario DC | BCI IV Ontario DC LP | 5/17/2018 | 5/17/2018 |
3. | Midway IC | BCI IV Midway IC LLC | 10/22/2018 | 10/22/2018 |
4. | Iron Run DC | BCI IV Iron Run DC LLC | 12/4/2018 | 12/4/2018 |
5. | 7A DC | BCI IV 7A DC LLC | 2/11/2019 | 2/11/2019 |
6. | Airport IC | BCI IV Airport IC LP | 1/8/2019 | 1/8/2019 |
7. | Fontana DC | BCI IV Fontana DC LP | 12/28/2018 | 12/28/2018 |
8. | Addison DC II | BCI IV Addison DC II LLC | 12/21/2018 | 12/27/2018 |
9. | Kelly Trade Center | BCI IV Kelly Trade Center LP | 1/31/2019 | 1/31/2019 |
10. | Quakerbridge DC | BCI IV Quakerbridge DC LLC | 3/11/2019 | 3/11/2019 |
11. | Hebron Airpark Logistics Center | BCI IV Hebron Airpark Logistics Center LLC | 5/30/2019 | 5/30/2019 |
12. | Monte Vista IC | BCI IV Monte Vista IC LP | 6/7/2019 | 6/7/2019 |
13. | Eldorado BP I | BCI IV Eldorado BP LLC | 5/30/2019 | 5/30/2019 |
14. | Eldorado BP II | BCI IV Eldorado BP LLC | 5/30/2019 | 5/30/2019 |
15. | Eldorado BP III | BCI IV Eldorado BP LLC | 5/30/2019 | 5/30/2019 |
16. | Cameron BC | BCI IV Cameron BC LLC | 5/30/2019 | 5/30/2019 |
17. | Avenue B Industrial Center | BCI IV Avenue B Industrial Center LLC | 9/11/2019 | 9/16/2019 |
18. | King of Prussia IC I | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
19. | King of Prussia IC II | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
20. | King of Prussia IC III | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
21. | King of Prussia IC IV | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
22. | King of Prussia IC V | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
23. | Edison DC | BCI IV Edison DC LLC | 6/28/2019 | 6/28/2019 |
24. | 395 DC I | BCI IV 395 DC LLC | 8/5/2019 | 8/13/2019 |
25. | 395 DC II | BCI IV 395 DC LLC | 8/5/2019 | 8/13/2019 |
26. | 485 DC | BCI IV 485 DC LLC | 9/13/2019 | 9/16/2019 |
27. | Bishops Gate DC | BCI IV Weston BC LLC | 12/31/2019 | 12/10/2019 |
28. | Weston BC | BCI IV Marigold DC LP | 12/10/2019 | 12/20/2019 |
29. | Marigold DC | BCI IV Bishops Gate DC LLC | 12/20/2019 | 12/31/2019 |
30. | 7A DC II | BCI IV 7A DC II LLC | 5/27/2020 | 6/1/2020 |
31. | Valwood Crossroads A | BCI IV Valwood Crossroads DC LP | 5/11/2020 | 5/13/2020 |
32. | Valwood Crossroads B | BCI IV Valwood Crossroads DC LP | 5/11/2020 | 5/13/2020 |
33. | Logistics Center at 33 | BCI IV Logistics Center at 33 LLC | 6/4/2020 | 6/8/2020 |
Schedule 3.13-1
# | Asset Name | Entity Name | Date Acquired / Completed | Date Added As Unencumbered Property |
---|---|---|---|---|
34. | Lima DC | BCI IV Lima DC LLC | 4/15/2020 | 4/21/2020 |
35. | Eaglepoint LC | BCI IV EaglePoint LC LLC | 5/26/2020 | 6/1/2020 |
36. | Intermodal Logistics Center | BCI IV Intermodal Logistics Center LP | 6/29/2020 | 6/30/2020 |
37. | Airpark International Logistics Center I | BCI IV Airpark International Logistics Center LLC | 10/9/2020 | 10/15/2020 |
38. | Airpark International Logistics Center II | BCI IV Airpark International Logistics Center LLC | 10/9/2020 | 10/16/2020 |
39. | Carlstadt IC I | BCI IV Carlstadt IC LLC | 11/10/2020 | 11/11/2020 |
40. | Carlstadt IC II | BCI IV Carlstadt IC LLC | 11/10/2020 | 11/11/2020 |
41. | Nelson Industrial Center | BCI IV Nelson Industrial Center LP | 12/7/2020 | 3/5/2021 |
42. | Miraloma IC | BCI IV Miraloma IC LP | 12/10/2020 | 3/5/2021 |
43. | Pennsy Logistics Center I | BCI IV Pennsy Logistics Center LLC | 12/18/2020 | 3/5/2021 |
44. | Pennsy Logistics Center II | BCI IV Pennsy Logistics Center LLC | 12/18/2020 | 3/5/2021 |
45. | Harvill Business Center | BCI IV Harvill Business Center LP | 3/10/2021 | 3/11/2021 |
46. | Princess Logistics Center | BCI IV Princess Logistics Center LLC | 4/12/2021 | 4/14/2021 |
Schedule 3.13-2
SCHEDULE 3.14
SUBSIDIARIES
Subsidiary Guarantor | Direct Owner |
BCI IV Medley IC LLC | BCI IV Operating Partnership LP |
BCI IV Ontario DC LP | BCI IV Ontario DC GP LLC / BCI IV Operating Partnership LP |
BCI IV Midway IC LLC | BCI IV Operating Partnership LP |
BCI IV Iron Run DC LLC | BCI IV Operating Partnership LP |
BCI IV 7A DC LLC | BCI IV Operating Partnership LP |
BCI IV Airport IC LP | BCI IV Airport IC GP LLC / BCI IV Operating Partnership LP |
BCI IV Fontana DC LP | BCI IV Fontana DC GP LLC / BCI IV Operating Partnership LP |
BCI IV Addison DC II LLC | BCI IV Operating Partnership LP |
BCI IV Kelly Trade Center LP | BCI IV Kelly Trade Center GP LLC / BCI IV Operating Partnership LP |
BCI IV Quakerbridge DC LLC | BCI IV Operating Partnership LP |
BCI IV Hebron Airpark Logistics Center LLC | BCI IV Operating Partnership LP |
BCI IV Monte Vista IC LP | BCI IV Monte Vista IC GP LLC / BCI IV Operating Partnership LP |
BCI IV Eldorado BP LLC | BCI IV Operating Partnership LP |
BCI IV Cameron BC LLC | BCI IV Operating Partnership LP |
BCI IV Avenue B Industrial Center LLC | BCI IV Operating Partnership LP |
BCI IV King of Prussia Industrial Center LLC | BCI IV Operating Partnership LP |
BCI IV Edison DC LLC | BCI IV Operating Partnership LP |
BCI IV 395 DC LLC | BCI IV Operating Partnership LP |
BCI IV 485 DC LLC | BCI IV Operating Partnership LP |
BCI IV Bishops Gate DC LLC | BCI IV Operating Partnership LP |
BCI IV Weston BC LLC | BCI IV Operating Partnership LP |
BCI IV Marigold DC LP | BCI IV Marigold DC GP LLC / BCI IV Operating Partnership LP |
BCI IV 7A DC II LLC | BCI IV Operating Partnership LP |
BCI IV Valwood Crossroads DC LP | BCI IV Valwood Crossroads DC GP LLC / BCI IV Operating Partnership LP |
BCI IV Logistics Center at 33 LLC | BCI IV LC 33 Holdco LLC / BCI IV Operating Partnership LP |
BCI IV Lima DC LLC | BCI IV Operating Partnership LP |
Schedule 3.14-1
BCI IV EaglePoint LC LLC | BCI IV Operating Partnership LP |
BCI IV Intermodal Logistics Center LP | BCI IV Intermodal Logistics Center GP LLC / BCI IV Operating Partnership LP |
BCI IV Airpark International Logistics Center LLC | BCI IV Operating Partnership LP |
BCI IV Carlstadt IC LLC | BCI IV Operating Partnership LP |
BCI IV Nelson Industrial Center LP | BCI IV Nelson Industrial Center GP LLC / BCI IV Operating Partnership LP |
BCI IV Miraloma IC LP | BCI IV Miraloma IC GP LLC / BCI IV Operating Partnership LP |
BCI IV Pennsy Logistics Center LLC | BCI IV Operating Partnership LP |
BCI IV Harvill Business Center LP | BCI IV Harvill Business Center GP LLC / BCI IV Operating Partnership LP |
BCI IV Princess Logistics Center LLC | BCI IV Operating Partnership LP |
Schedule 3.14-2
SCHEDULE 6.01
RESTRICTIONS AND CONDITIONS
NONE
Schedule 6.01
SCHEDULE 6.07
AGREEMENTS WITH AFFILIATES
Exhibit 10.18
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of May 9, 2022 (this “Agreement”), is among AIREIT OPERATING PARTNERSHIP LP (f/k/a BCI IV OPERATING PARTNERSHIP LP), a Delaware limited partnership (the “Borrower”), the other Loan Parties (as defined in the Amended Credit Agreement (defined below)) solely for purpose of Section IV hereof, JPMORGAN CHASE BANK, N.A., as Administrative Agent (in such capacity, the “Agent”), and the Lenders (constituting Required Lenders) party hereto.
RECITALS
WHEREAS, the Borrower, the lenders from time to time party thereto (the “Lenders”) and the Agent are parties to the Credit Agreement, dated as of May 6, 2021 (as amended, restated, modified or supplemented prior to the date hereof, the “Credit Agreement”; the Credit Agreement, as modified hereby and as further amended from time to time in accordance with the terms thereof, the “Amended Credit Agreement”). Terms used but not defined herein shall have the respective meanings ascribed thereto in the Amended Credit Agreement.
WHEREAS, the Borrower has requested that the Agent and the Lenders agree to amend the Credit Agreement on the terms, and subject to the conditions, set forth herein.
WHEREAS, the Borrower, the Agent, and the Lenders party hereto (constituting Required Lenders) have agreed to amend the Credit Agreement in accordance with and subject to the terms and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
E. | All covenant requirements and related calculations pursuant to Section 6.11 and Section |
6.12 of the Credit Agreement for the reporting period ended March 31, 2022 shall be as set forth in and calculated in accordance with the Amended Credit Agreement as if such covenant requirements were in place effective as of March 31, 2022.
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The Agent will promptly notify the Borrower in writing of the occurrence of the First Amendment Effective Date.
V. | MISCELLANEOUS. |
-3-
mutatis mutandis.
[Remainder of page intentionally blank]
-4-
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written.
By: | | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: | | /s/ SCOTT SEAGER |
Name: | | Scott Seager |
Title: | | Principal, Chief Financial Officer and Treasurer |
By: | | /s/ SCOTT SEAGER |
Name: | | Scott Seager |
Title: | | Principal, Chief Financial Officer and Treasurer |
SUBSIDIARY GUARANTORS:
BCI IV MEDLEY IC LLC
BCI IV MIDWAY IC LLC
BCI IV IRON RUN DC LLC
BCI IV 7A DC LLC
BCI IV ADDISON DC II LLC
BCI IV QUAKERBRIDGE DC LLC
BCI IV HEBRON AIRPARK LOGISTICS CENTER LLC
BCI IV AVENUE B INDUSTRIAL CENTER LLC
BCI IV KING OF PRUSSIA INDUSTRIAL CENTER LLC
BCI IV EDISON DC LLC
BCI IV BISHOPS GATE DC LLC
BCI IV NORCROSS INDUSTRIAL CENTER LLC
BCI IV 7A DC II LLC
BCI IV CARLSTADT IC LLC BCI IV LIMA DC LLC
BCI IV EAGLEPOINT LC LLC
BCI IV AIRPARK INTERNATIONAL LOGISTICS CENTER LLC
BCI IV PENNSY LOGISTICS CENTER LLC
BCI IV RICHMOND LOGISTICS CENTER LLC
BCI IV SILICON VALLEY IC LLC
BCI IV MADISON DC LLC
BCI IV 355 LOGISTICS CENTER LLC
BCI IV CALIFORNIA BUSINESS CENTER LLC
BCI IV COMMERCE FARMS LOGISTICS CENTER LLC
BCI IV AIR COMMERCE CENTER LLC
BCI IV AURORA CORPORATE CENTER LLC
BCI IV I-24 IC LLC
BCI IV HEBRON LC LLC
BCI IV WALKER MILL IC LLC
BCI IV GREATER BOSTON IC I LLC
BCI IV GREATER BOSTON IC II LLC
BCI IV WESTLAKE LC LLC
BCI IV SOUTHPARK CC I LLC
BCI IV SOUTHPARK CC II LLC
BCI IV WINDWARD RIDGE BC LLC
By: | AIREIT Operating Partnership LP, a Delaware limited partnership, |
the sole member of each of the foregoing entities
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV PALM BEACH CC LLC
BCI IV POMPANO IC LLC
BCI IV LANHAM DC LLC
BCI IV PARK 100 DC LLC
BCI IV TRADE ZONE IC LLC
BCI IV TOTOWA CC LLC
BCI IV DEMAREST DC LLC
BCI IV CHICAGO IC LLC
BCI IV UPLAND DC LLC
BCI IV SALT LAKE CITY DC LLC
BCI IV SALT LAKE CITY DC II LLC
BCI IV KENT IP LLC
BCI IV RENTON DC LLC
BCI IV WEST VALLEY DC II LLC
BCI IV AUBURN 167 IC LLC
BCI IV TACOMA CC LLC
By: | AIREIT Portfolio Real Estate Holdco LLC, a Delaware limited liability company, |
the sole member of each of the foregoing entities
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV AIRPORT IC LP,
a Delaware limited partnership
By:BCI IV Airport IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV KELLY TRADE CENTER LP,
a Delaware limited partnership
By:BCI IV Kelly Trade Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV MONTE VISTA IC LP,
a Delaware limited partnership
By:BCI IV Monte Vista IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV EXECUTIVE AIRPORT DC II LLC,
a Delaware limited liability company
By:BCI IV BR LLC,
a Delaware limited liability company, its sole member
By:BCI IV Executive Airport DC II Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV MARIGOLD DC LP,
a Delaware limited partnership
By:BCI IV Marigold DC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV INTERMODAL LOGISTICS CENTER LP,
a Delaware limited partnership
By:BCI IV Intermodal Logistics Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV MIRALOMA IC LP,
a Delaware limited partnership
By:BCI IV Miraloma IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV NELSON INDUSTRIAL CENTER LP,
a Delaware limited partnership
By:BCI IV Nelson Industrial Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV RANCHO CUCAMONGA BC LP,
a Delaware limited partnership
By:BCI IV Rancho Cucamonga BC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV BRODHEAD DC LLC,
a Delaware limited liability company
By:BCI IV Brodhead DC Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV LAPORTE DC LP,
a Delaware limited partnership
By:BCI IV LaPorte DC GP LLC,
a Delaware limited liability company, its general partner
By:BTC I REIT B LLC,
a Delaware limited liability company, its sole member
By:IPT BTC I GP LLC,
a Delaware limited liability company, its manager
By:IPT Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV IRON RUN DC II LLC,
a Delaware limited liability company
By:BCI IV Iron Run DC II Holdco LLC,
a Delaware limited liability company, its managing member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV MECHANICSBURG DC LLC,
a Delaware limited liability company
By:BCI IV Mechanicsburg DC Holdco LLC,
a Delaware limited liability company, its managing member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV DREW COURT CC LLC,
a Delaware limited liability company
By:BCI IV Drew Court CC Holdco LLC,
a Delaware limited liability company, its managing member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV STOCKTON DC II LP,
a Delaware limited partnership
By:BCI IV Stockton DC II GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV STOCKTON INDUSTRIAL CENTER LP,
a Delaware limited partnership
By:BCI IV Stockton Industrial Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV TRACY DC LP,
a Delaware limited partnership
By:BCI IV Tracy DC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV TRACY DC II LP,
a Delaware limited partnership
By:BCI IV Tracy DC II GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV ETIWANDA IC LP,
a Delaware limited partnership
By:BCI IV Etiwanda IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV VALENCIA IC LP,
a Delaware limited partnership
By:BCI IV Valencia IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV STONEWOOD LOGISTICS CENTER LLC,
a Delaware limited liability company
By:BCI IV Stonewood LC Holdco LLC,
a Delaware limited liability company, its sole and managing member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
BCI IV COLONY CROSSING LP,
a Delaware limited partnership
By:BCI IV Colony Crossing GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV MONUMENT BP LP,
a Delaware limited partnership
By:BCI IV Monument BP GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
HAINESPORT COMMERCE CENTER URBAN RENEWAL LLC,
a New Jersey limited liability company
By:BCI IV Hainesport CC LLC,
a Delaware limited liability company, its sole member
By:MPLD II REIT B,
a Texas real estate investment trust, its sole equity member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole common stockholder
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By: | Ares Industrial Real Estate Income Trust Inc., a Maryland corporation, its general partner |
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title:Principal, Chief Financial Officer & Treasurer
By: | | /s/ RYAN DEMPSEY |
Name: | | Ryan Dempsey |
Title: | | Authorized Signatory |
By: | | /s/ CRAIG V. KOSHKARIAN |
Name: | | Craig V. Koshkarian |
Title: | | Director |
By: | | /s/ WILL BOWERS |
Name: | | Will Bowers |
Title: | | Senior Vice President |
By: | | /s/ JAMES A. HARMANN |
Name: | | James A. Harmann |
Title: | | Senior Vice President |
By: | | /s/ TRAVIS H. MYERS |
Name: | | Travis H. Myers |
Title: | | Vice President |
By: | | /s/ GHI S. GAVIN |
Name: | | Ghi S. Gavin |
Title: | | Senior Vice President |
By: | | /s/ JARED H. WARD |
Name: | | Jared H. Ward |
Title: | | Senior Vice President |
By: | | /s/ MITCHELL VEGA |
Name: | | Mitchell Vega |
Title: | | Senior Vice President |
SCHEDULE A
SCHEDULE 3.13 TO AMENDED CREDIT AGREEMENT
UNENCUMBERED PROPERTIES
# | Asset Name | Entity Name | Date Acquired / Completed | Date Added As Unencumbered Property |
1 | Medley IC | BCI IV Medley IC LLC | 4/11/2018 | 4/11/2018 |
2 | Midway IC | BCI IV Midway IC LLC | 10/22/2018 | 10/22/2018 |
3 | Iron Run DC | BCI IV Iron Run DC LLC | 12/4/2018 | 12/4/2018 |
4 | 7A DC | BCI IV 7A DC LLC | 2/11/2019 | 2/11/2019 |
5 | Airport IC | BCI IV Airport IC LP | 1/8/2019 | 1/8/2019 |
6 | Addison DC II | BCI IV Addison DC II LLC | 12/21/2018 | 12/27/2018 |
7 | Kelly Trade Center | BCI IV Kelly Trade Center LP | 1/31/2019 | 1/31/2019 |
8 | Quakerbridge DC | BCI IV Quakerbridge DC LLC | 3/11/2019 | 3/11/2019 |
9 | Hebron Airpark Logistics Center | BCI IV Hebron Airpark Logistics Center LLC | 5/30/2019 | 5/30/2019 |
10 | Monte Vista IC | BCI IV Monte Vista IC LP | 6/7/2019 | 6/7/2019 |
11 | Avenue B Industrial Center | BCI IV Avenue B Industrial Center LLC | 9/11/2019 | 9/16/2019 |
12 | King of Prussia IC I | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
13 | King of Prussia IC II | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
14 | King of Prussia IC III | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
15 | King of Prussia IC IV | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
16 | King of Prussia IC V | BCI IV King of Prussia Industrial Center LLC | 6/21/2019 | 6/21/2019 |
17 | Edison DC | BCI IV Edison DC LLC | 6/28/2019 | 6/28/2019 |
18 | Executive Airport DC II | BCI IV Executive Airport DC II LLC | 9/3/2020 | 8/17/2021 |
19 | Bishops Gate DC | BCI IV Bishops Gate DC LLC | 12/31/2019 | 12/10/2019 |
20 | Marigold DC | BCI IV Marigold DC LP | 12/20/2019 | 12/31/2019 |
21 | Norcross Industrial Center | BCI IV Norcross Industrial Center LLC | 3/23/2020 | 8/17/2021 |
22 | 7A DC II | BCI IV 7A DC II LLC | 5/27/2020 | 6/1/2020 |
23 | Carlstadt IC I | BCI IV Carlstadt IC LLC | 11/10/2020 | 11/11/2020 |
# | Asset Name | Entity Name | Date Acquired / Completed | Date Added As Unencumbered Property |
24 | Carlstadt IC II | BCI IV Carlstadt IC LLC | 11/10/2020 | 11/11/2020 |
25 | Lima DC | BCI IV Lima DC LLC | 4/15/2020 | 4/21/2020 |
26 | Eaglepoint Logistics Center | BCI IV Eaglepoint LC LLC | 5/26/2020 | 6/1/2020 |
27 | Intermodal Logistics Center | BCI IV Intermodal Logistics Center LP | 6/29/2020 | 6/30/2020 |
28 | Airpark International Logistics Center I | BCI IV Airpark International Logistics Center LLC | 10/9/2020 | 10/15/2020 |
29 | Airpark International Logistics Center II | BCI IV Airpark International Logistics Center LLC | 10/9/2020 | 10/16/2020 |
30 | Miraloma IC | BCI IV Miraloma IC LP | 12/10/2020 | 3/5/2021 |
31 | Nelson Industrial Center | BCI IV Nelson Industrial Center LP | 12/7/2020 | 3/5/2021 |
32 | Pennsy Logistics Center I | BCI IV Pennsy Logistics Center LLC | 12/18/2020 | 3/5/2021 |
33 | Pennsy Logistics Center II | BCI IV Pennsy Logistics Center LLC | 12/18/2020 | 3/5/2021 |
34 | Rancho Cucamonga BC | BCI IV Rancho Cucamonga BC LP | 5/28/2021 | 6/3/2021 |
35 | Richmond Logistics Center | BCI IV Richmond Logistics Center LLC | 6/15/2021 | 6/29/2021 |
36 | Silicon Valley IC | BCI IV Silicon Valley IC LLC | 6/15/2021 | 6/29/2021 |
37 | Brodhead DC | BCI IV Brodhead DC LLC | 6/15/2021 | 6/29/2021 |
38 | LaPorte DC | BCI IV LaPorte DC LP | 6/15/2021 | 6/29/2021 |
39 | Palm Beach CC | BCI IV Palm Beach CC LLC | 7/14/2021 | 7/14/2021 |
40 | Pompano IC I | BCI IV Pompano IC LLC | 7/14/2021 | 7/14/2021 |
41 | Pompano IC II | BCI IV Pompano IC LLC | 7/14/2021 | 7/14/2021 |
42 | Lanham DC | BCI IV Lanham DC LLC | 7/14/2021 | 7/14/2021 |
43 | Park 100 DC | BCI IV Park 100 DC LLC | 7/14/2021 | 7/14/2021 |
44 | Trade Zone IC | BCI IV Trade Zone IC LLC | 7/14/2021 | 7/14/2021 |
45 | Totowa CC | BCI IV Totowa CC LLC | 7/14/2021 | 7/14/2021 |
46 | Demarest DC | BCI IV Demarest DC LLC | 7/14/2021 | 7/14/2021 |
47 | Iron Run DC II | BCI IV Iron Run DC II LLC | 7/14/2021 | 7/14/2021 |
48 | Mechanicsburg DC | BCI IV Mechanicsburg DC LLC | 7/14/2021 | 7/14/2021 |
49 | Drew Court CC I | BCI IV Drew Court CC LLC | 7/14/2021 | 7/14/2021 |
# | Asset Name | Entity Name | Date Acquired / Completed | Date Added As Unencumbered Property |
78 | 355 Logistics Center II | BCI IV 355 Logistics Center LLC | 10/1/2021 | 12/9/2021 |
79 | California Business Center I | BCI IV California Business Center LLC | 10/21/2021 | 12/9/2021 |
80 | California Business Center II | BCI IV California Business Center LLC | 10/21/2021 | 12/9/2021 |
81 | Commerce Farms Logistics Center | BCI IV Commerce Farms Logistics Center LLC | 8/25/2021 | 12/31/2021 |
82 | Monument BP I | BCI IV Monument BP LP | 11/17/2021 | 12/31/2021 |
83 | Monument BP II | BCI IV Monument BP LP | 11/17/2021 | 12/31/2021 |
84 | Air Commerce Center | BCI IV Air Commerce Center LLC | 11/17/2021 | 12/31/2021 |
85 | Aurora Corporate Center | BCI IV Aurora Corporate Center LLC | 11/17/2021 | 12/31/2021 |
86 | I-24 IC | BCI IV I-24 IC LLC | 11/17/2021 | 12/31/2021 |
87 | Hebron LC | BCI IV Hebron LC LLC | 11/17/2021 | 12/31/2021 |
88 | Walker Mill IC | BCI IV Walker Mill IC LLC | 11/18/2021 | 12/31/2021 |
89 | Greater Boston IC I | BCI IV Greater Boston IC I LLC | 11/22/2021 | 12/31/2021 |
90 | Greater Boston IC II | BCI IV Greater Boston IC II LLC | 11/22/2021 | 12/31/2021 |
91 | Hainesport Commerce Center | Hainesport Commerce Center Urban Renewal LLC | 12/21/2021 | 12/31/2021 |
92 | Westlake LC I | BCI IV Westlake LC LLC | 12/16/2021 | 12/31/2021 |
93 | Westlake LC II | BCI IV Westlake LC LLC | 12/16/2021 | 12/31/2021 |
94 | Westlake LC III | BCI IV Westlake LC LLC | 12/16/2021 | 12/31/2021 |
95 | Westlake LC IV | BCI IV Westlake LC LLC | 12/16/2021 | 12/31/2021 |
96 | Southpark CC I | BCI IV Southpark CC I LLC | 12/16/2021 | 12/31/2021 |
97 | Southpark CC II | BCI IV Southpark CC II LLC | 12/16/2021 | 12/31/2021 |
98 | Windward Ridge BC I | BCI IV Windward Ridge BC LLC | 12/16/2021 | 12/31/2021 |
99 | Windward Ridge BC II | BCI IV Windward Ridge BC LLC | 12/16/2021 | 12/31/2021 |
100 | Windward Ridge BC III | BCI IV Windward Ridge BC LLC | 12/16/2021 | 12/31/2021 |
101 | Windward Ridge BC IV | BCI IV Windward Ridge BC LLC | 12/16/2021 | 12/31/2021 |
SCHEDULE B
SCHEDULE 3.14 TO AMENDED CREDIT AGREEMENT
SUBSIDIARIES
# | Subsidiary Guarantor | Direct Owner |
1 | BCI IV Medley IC LLC | AIREIT Operating Partnership LP |
2 | BCI IV Midway IC LLC | AIREIT Operating Partnership LP |
3 | BCI IV Iron Run DC LLC | AIREIT Operating Partnership LP |
4 | BCI IV 7A DC LLC | AIREIT Operating Partnership LP |
5 | BCI IV Airport IC LP | BCI IV Airport IC GP LLC / AIREIT Operating Partnership LP |
6 | BCI IV Addison DC II LLC | AIREIT Operating Partnership LP |
7 | BCI IV Kelly Trade Center LP | BCI IV Kelly Trade Center GP LLC / AIREIT Operating Partnership LP |
8 | BCI IV Quakerbridge DC LLC | AIREIT Operating Partnership LP |
9 | BCI IV Hebron Airpark Logistics Center LLC | AIREIT Operating Partnership LP |
10 | BCI IV Monte Vista IC LP | BCI IV Monte Vista IC GP LLC / AIREIT Operating Partnership LP |
11 | BCI IV Avenue B Industrial Center LLC | AIREIT Operating Partnership LP |
12 | BCI IV King of Prussia Industrial Center LLC | AIREIT Operating Partnership LP |
13 | BCI IV Edison DC LLC | AIREIT Operating Partnership LP |
14 | BCI IV Executive Airport DC II LLC | BCI IV BR LLC |
15 | BCI IV Marigold DC LP | BCI IV Marigold DC GP LLC / AIREIT Operating Partnership LP |
16 | BCI IV Bishops Gate DC LLC | AIREIT Operating Partnership LP |
17 | BCI IV Norcross Industrial Center LLC | AIREIT Operating Partnership LP |
18 | BCI IV 7A DC II LLC | AIREIT Operating Partnership LP |
19 | BCI IV Carlstadt IC LLC | AIREIT Operating Partnership LP |
20 | BCI IV Lima DC LLC | AIREIT Operating Partnership LP |
21 | BCI IV Eaglepoint LC LLC | AIREIT Operating Partnership LP |
22 | BCI IV Intermodal Logistics Center LP | BCI IV Intermodal Logistics Center GP LLC / AIREIT Operating Partnership LP |
# | Subsidiary Guarantor | Direct Owner |
23 | BCI IV Airpark International Logistics Center LLC | AIREIT Operating Partnership LP |
24 | BCI IV Miraloma IC LP | BCI IV Miraloma IC GP LLC / AIREIT Operating Partnership LP |
25 | BCI IV Nelson Industrial Center LP | BCI IV Nelson Industrial Center GP LLC / AIREIT Operating Partnership LP |
26 | BCI IV Pennsy Logistics Center LLC | AIREIT Operating Partnership LP |
27 | BCI IV Rancho Cucamonga BC LP | BCI IV Rancho Cucamonga BC GP LLC / AIREIT Operating Partnership LP |
28 | BCI IV Richmond Logistics Center LLC | AIREIT Operating Partnership LP |
29 | BCI IV Silicon Valley IC LLC | AIREIT Operating Partnership LP |
30 | BCI IV Brodhead DC LLC | BCI IV Brodhead DC Holdco LLC |
31 | BCI IV LaPorte DC LP | BCI IV La Porte DC GP LLC |
32 | BCI IV Palm Beach CC LLC | AIREIT Portfolio Real Estate Holdco LLC |
33 | BCI IV Pompano IC LLC | AIREIT Portfolio Real Estate Holdco LLC |
34 | BCI IV Lanham DC LLC | AIREIT Portfolio Real Estate Holdco LLC |
35 | BCI IV Park 100 DC LLC | AIREIT Portfolio Real Estate Holdco LLC |
36 | BCI IV Trade Zone IC LLC | AIREIT Portfolio Real Estate Holdco LLC |
37 | BCI IV Totowa CC LLC | AIREIT Portfolio Real Estate Holdco LLC |
38 | BCI IV Demarest DC LLC | AIREIT Portfolio Real Estate Holdco LLC |
39 | BCI IV Iron Run DC II LLC | BCI IV Iron Run DC II Holdco LLC / BCI IV Iron Run DC II Holdco II LLC |
40 | BCI IV Mechanicsburg DC LLC | BCI IV Mechanicsburg DC Holdco II LLC / BCI IV Mechanicsburg DC Holdco LLC |
41 | BCI IV Drew Court CC LLC | BCI IV Drew Court CC Holdco LLC / BCI IV Drew Court CC Holdco II LLC |
42 | BCI IV Chicago IC LLC | AIREIT Portfolio Real Estate Holdco LLC |
# | Subsidiary Guarantor | Direct Owner |
43 | BCI IV Upland DC LLC | AIREIT Portfolio Real Estate Holdco LLC |
44 | BCI IV Stockton DC II LP | BCI IV Stockton DC II GP LLC / AIREIT Portfolio Real Estate Holdco LLC |
45 | BCI IV Stockton Industrial Center LP | BCI IV Stockton Industrial Center GP LLC / AIREIT Portfolio Real Estate Holdco LLC |
46 | BCI IV Tracy DC LP | BCI IV Tracy DC GP LLC / AIREIT Portfolio Real Estate Holdco LLC |
47 | BCI IV Tracy DC II LP | BCI IV Tracy DC II GP LLC / AIREIT Portfolio Real Estate Holdco LLC |
48 | BCI IV Etiwanda IC LP | BCI IV Etiwanda IC GP LLC / AIREIT Portfolio Real Estate Holdco LLC |
49 | BCI IV Valencia IC LP | BCI IV Valencia IC GP LLC / AIREIT Portfolio Real Estate Holdco LLC |
50 | BCI IV Salt Lake City DC LLC | AIREIT Portfolio Real Estate Holdco LLC |
51 | BCI IV Salt Lake City DC II LLC | AIREIT Portfolio Real Estate Holdco LLC |
52 | BCI IV Kent IP LLC | AIREIT Portfolio Real Estate Holdco LLC |
53 | BCI IV Renton DC LLC | AIREIT Portfolio Real Estate Holdco LLC |
54 | BCI IV West Valley DC II LLC | AIREIT Portfolio Real Estate Holdco LLC |
55 | BCI IV Auburn 167 IC LLC | AIREIT Portfolio Real Estate Holdco LLC |
56 | BCI IV Tacoma CC LLC | AIREIT Portfolio Real Estate Holdco LLC |
57 | BCI IV Stonewood Logistics Center LLC | BCI IV Stonewood LC Holdco LLC |
58 | BCI IV Colony Crossing LP | BCI IV Colony Crossing GP LLC / AIREIT Operating Partnership LP |
59 | BCI IV Madison DC LLC | AIREIT Operating Partnership LP |
60 | BCI IV 355 Logistics Center LLC | AIREIT Operating Partnership LP |
61 | BCI IV California Business Center LLC | AIREIT Operating Partnership LP |
62 | BCI IV Commerce Farms Logistics Center LLC | AIREIT Operating Partnership LP |
# | Subsidiary Guarantor | Direct Owner |
63 | BCI IV Monument BP LP | BCI IV Monument BP GP LLC / AIREIT Operating Partnership LP |
64 | BCI IV Air Commerce Center LLC | AIREIT Operating Partnership LP |
65 | BCI IV Aurora Corporate Center LLC | AIREIT Operating Partnership LP |
66 | BCI IV I-24 IC LLC | AIREIT Operating Partnership LP |
67 | BCI IV Hebron LC LLC | AIREIT Operating Partnership LP |
68 | BCI IV Walker Mill IC LLC | AIREIT Operating Partnership LP |
69 | BCI IV Greater Boston IC I LLC | AIREIT Operating Partnership LP |
70 | BCI IV Greater Boston IC II LLC | AIREIT Operating Partnership LP |
71 | Hainesport Commerce Center Urban Renewal LLC | BCI IV Hainesport CC LLC |
72 | BCI IV Westlake LC LLC | AIREIT Operating Partnership LP |
73 | BCI IV Southpark CC I LLC | AIREIT Operating Partnership LP |
74 | BCI IV Southpark CC II LLC | AIREIT Operating Partnership LP |
75 | BCI IV Windward Ridge BC LLC | AIREIT Operating Partnership LP |
Exhibit 10.19
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of November 9, 2022 (this “Agreement”), is among AIREIT OPERATING PARTNERSHIP LP (f/k/a BCI IV OPERATING PARTNERSHIP LP), a Delaware limited partnership (the “Borrower”), the other Loan Parties (as defined in the Amended Credit Agreement (defined below)) solely for purpose of Section IV hereof, JPMorgan Chase Bank, N.A., as Administrative Agent (in such capacity, the “Agent”), and the Lenders (constituting Required Lenders) party hereto.
RECITALS
WHEREAS, the Borrower, the lenders from time to time party thereto (the “Lenders”) and the Agent are parties to the Credit Agreement, dated as of May 6, 2021, as amended by that certain First Amendment to Credit Agreement dated as of May 9, 2022 (as amended, restated, modified or supplemented prior to the date hereof, the “Credit Agreement”; the Credit Agreement, as modified hereby and as further amended from time to time in accordance with the terms thereof, the “Amended Credit Agreement”). Terms used but not defined herein shall have the respective meanings ascribed thereto in the Amended Credit Agreement.
WHEREAS, the Borrower has requested that the Agent and the Lenders agree to amend the Credit Agreement on the terms, and subject to the conditions, set forth herein.
WHEREAS, the Borrower, the Agent, and the Lenders party hereto (constituting Required Lenders) have agreed to amend the Credit Agreement in accordance with and subject to the terms and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
“Mortgage” means a mortgage, deed of trust, deed to secure debt or similar security instrument made by a Person owning an interest in real estate granting a first-priority Lien on such interest in real estate as security for the payment of Indebtedness.
“Mortgage Backed Securities” means direct or indirect participations in, or direct or indirect participations or investments that are collateralized by and payable from, mortgage loans secured by real property, including, without limitation, mortgage loans utilizing a single asset, single borrower (SASB) structure, commercial mortgage backed securities (CMBS) structure, or commercial real estate collateralized loan obligations (CRE CLOs). Mortgage Backed Securities as used in this Agreement may or may not be issued or guaranteed by the full faith and credit of the U.S. government.
“Mortgage Receivable” means a loan or advance in respect of which any member of the Consolidated Group is the lender and that is secured by a Mortgage in favor of such lender.
“Debt Instrument” means any instrument evidencing a debt, including Mortgage Receivables, mezzanine notes, second lien loans, preferred equity investments and B notes, but excluding Exchange Debt Investments, Mortgage Backed Securities, REIT preferred securities and REIT debt securities.
“Total Asset Value” means, as of the date of calculation, the aggregate, without duplication, of: (i) the Property Value of all Properties owned by any member of the Consolidated Group or any Exchange Property Owner; plus (ii) the Consolidated Group Pro Rata Share of the Property Value of Properties owned by Unconsolidated Affiliates or any Exchange Fee Titleholder; plus (iii) Unrestricted Cash and Cash Equivalents owned directly or indirectly by any member of the Consolidated Group or any Exchange Property Owner; plus (iv) the applicable Consolidated Group Pro Rata Share of Unrestricted Cash and Cash Equivalents owned directly or indirectly by any Exchange Fee Titleholder or by Borrower or any Guarantor through an Unconsolidated Affiliate; plus “(v) investments in Debt Instruments (based on current book value) of any member of the Consolidated Group, Exchange Debt Investments (based on current book value) of any member of the Consolidated Group and REIT stocks, REIT preferred securities, REIT debt securities or Mortgage Backed Securities (in each case based on current market value) of any member of the Consolidated Group; provided that no Exchange Debt Investment shall be included under this clause if it relates to an Exchange Property already included in the calculation of Total Asset Value; plus (vi) an amount equal to the Consolidated Group Pro Rata Share of investments in Debt Instruments, Exchange Debt Investments, REIT stocks, REIT preferred securities, REIT debt securities and Mortgage Backed Securities (in each case based on values described in clause (v) above) owned by Unconsolidated Affiliates, any Exchange Fee Titleholder or any Exchange Property Owner; plus (vii) proceeds due from transfer agent; plus (viii) the amount of all Eligible Cash 1031 Proceeds resulting from the sale of Properties. Further, if the FMV Option for any Exchange Property owned by an Exchange Property Owner has expired, then for purposes of calculations under clauses (i) and (iii) above with respect to such Exchange Property Owner, only the pro rata share of the Exchange Beneficial Interests owned by the Exchange Depositor in such Exchange Property Owner shall be counted; provided, however, that if the FMV Option is exercised, the pro rata share of the Exchange Beneficial Interests owned by a Subsidiary Owner shall be counted.
“Total Secured Indebtedness” means, as of any date of determination, that portion of Total Indebtedness (excluding (i) the Obligations under the Loan Documents, (ii) obligations under Swap Agreements not secured by a Lien on a Property, (iii) contingent liabilities under customary completion guarantees, non-recourse carveout guarantees and hazardous materials indemnity agreements (except to the extent that a claim for payment or performance has been made thereunder and such obligations are secured by a Lien on a Property) and (iv) contingent obligations relating to performance or surety bonds in the ordinary course of business (except to the extent that a claim for payment or performance has been made thereunder and such obligations are secured by a Lien on a Property)) which is secured by a Lien on a Property, any ownership interests in any Subsidiary or Unconsolidated Affiliate or any other assets which had, in each case, in the aggregate, a value in excess of the amount of the applicable Indebtedness at the time such Indebtedness
was incurred. Such Indebtedness that is secured only with a pledge of ownership interests and is also recourse to the Borrower or any Guarantor shall not be treated as Total Secured Indebtedness. For the avoidance of doubt, repurchase obligations (relating to debt or equity investments) shall be included in Total Secured Indebtedness.
“Total Unencumbered Property Pool Value” means, as of any date of calculation, the aggregate, without duplication, of: (a) the Unencumbered Property Values of all Unencumbered Properties; plus (b) an amount equal to one hundred percent (100%) of the then current book value of each Exchange Debt Investment, provided that such Exchange Debt Investment is not subject to any Liens or encumbrances and so long as the Exchange Property Investor with respect to such Exchange Debt Investment is not delinquent thirty (30) days or more in any payment of interest or principal payments thereunder; plus (c) the amount in excess of $10,000,000 of the total of (i) all Unrestricted Cash and Cash Equivalents, plus (ii) the amount of Eligible Cash 1031 Proceeds resulting from the sale of Unencumbered Properties; plus (d) an amount equal to one hundred percent (100%) of the then current book value of each Debt Instrument owned by a member of the Consolidated Group, provided that such Debt Instrument is not subject to any Liens or encumbrances and so long as the borrower with respect to such Debt Instrument is not delinquent thirty (30) days or more in any payment of interest or principal payments thereunder.
“Unencumbered Interest Coverage Ratio” means, at any time, (a) Unencumbered Property NOI for the most recent quarter plus interest income from Exchange Debt Investments and Debt Instruments (including without limitation Mortgage Receivables), annualized, divided by (b) Unsecured Interest Expense for the immediately preceding calendar quarter, annualized.
“SECTION 6.04 Investments, Loans, Advances, Guarantees and Acquisitions.Except as permitted in Section 6.03, the Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a Wholly-Owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except for industrial properties (including Subsidiaries that own only industrial properties), Cash and Permitted Investments and except that investments shall be permitted in the following categories of assets provided that investments described in clauses (a) through (g) below shall not exceed an aggregate thirty percent (30%) (determined after giving effect to any deductions for any amounts which exceed the thresholds described in clauses (a) through (g) below) of Total Asset Value, and shall be subject to individual limits set forth below:
In the event that any Investments exceed the maximum amounts set forth above (including the thirty percent (30%) limitation for the investments described in clauses (a) through (g) above), such excess Investments shall not constitute an Event of Default but shall be excluded (without duplication) from the calculation of the financial covenants in Section 6.11.”
“(a)Minimum Unencumbered Interest Coverage Ratio. Not permit the Unencumbered Interest Coverage Ratio to be less than 1.75:1.00.”
“(c)Unencumbered Property Pool Criteria. Comply with the following requirements regarding Unencumbered Properties:
The Agent will promptly notify the Borrower in writing of the occurrence of the First Amendment Effective Date.
[Remainder of page intentionally blank]
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written.
AIREIT OPERATING PARTNERSHIP LP,
a Delaware limited partnership
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
Ares Industrial Real Estate Income Trust Inc., a Maryland corporation
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS:
AIREIT 101 CORPORATE IC LLC
AIREIT 1201 LOGISTICS WAY LLC
AIREIT Bolingbrook lc i llc
AIREIT Bolingbrook lc ii llc
aireit chicago industrial center llc
aireit crossroads dc i llc
aireit crossroads dc ii llc
AIREIT ELGIN INDUSTRIAL CENTER LLC
AIREIT ENTERPRISE IC LLC
aireit hoagland dc llc
aireit i-465 east lc llc
aireit i-80 logistics center llc
aireit innovation corporate park llc
aireit medley 104 ic llc
aireit remington IC llc
AIREIT TECHNOLOGY IC LLC
AIREIT TRADEPORT LC LLC
BCI IV 355 LOGISTICS CENTER LLC
BCI IV 7A DC II LLC
BCI IV 7A DC LLC
BCI IV AIR COMMERCE CENTER LLC
BCI IV AIRPARK INTERNATIONAL LOGISTICS CENTER LLC
bci iv aurora corporate center llc
bci iv avenue b industrial center llc
BCI iv california business center llc
BCI IV CARLSTADT IC LLC
BCI IV COMMERCE FARMS LOGISTICS CENTER LLC
BCI IV EAGLEPOINT LC LLC
BCI IV EXECUTIVE AIRPORT DC III LLC
BCI IV GREATER BOSTON IC I LLC
BCI IV GREATER BOSTON IC II LLC
BCI IV HEBRON LC LLC
BCI IV I-24 IC LLC
bci iv lAKEWOOD LOGISTICS CENTER I LLC
BCI IV LAKEWOOD LOGISTICS CENTER V LLC
BCI IV LIMA DC LLC
BCI IV MADISON DC LLC
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
the sole member of each of the foregoing entities
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV RICHMOND LOGISTICS CENTER LLC
BCI IV RIGGS HILL INDUSTRIAL CENTER LLC
bci iv san antonio logistics center llc
bci iv silicon valley ic llc
bci iv southpark cc i llc
bci iv southpark cc ii llc
BCI IV WESTLAKE LC LLC
bci iv windward ridge bc llc
IPT AVENEL DC URBAN RENEWAL LLC
By:AIREIT Operating Partnership LP,
a Delaware limited partnership,
the sole member of each of the foregoing entities
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
AIREIT 350 Logistics Center LLC
AIREIT BLUFF ROAD LC LLC
AIREIT DECATUR DC LLC
AIREIT STATELINE DC LLC
AIREIT THOMPSON MILL IC LLC
By: AIREIT TRS Holdco LLC,
a Delaware limited liability company,
its sole member
By: AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
AIREIT 4 Studebaker CC LP,
a Delaware limited partnership
By: AIREIT 4 Studebaker CC GP LLC,
a Delaware limited liability company,
its general partner
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
AIREIT FORT WORTH DC LP,
a Delaware limited partnership
By: AIREIT Fort Worth DC GP LLC,
a Delaware limited liability company,
its general partner
By: AIREIT TRS Holdco LLC,
a Delaware limited liability company,
its sole member
By: AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
AIREIT GARLAND DC LP,
a Delaware limited partnership
By: AIREIT Garland DC GP LLC,
a Delaware limited liability company,
its general partner
By: AIREIT TRS Holdco LLC,
a Delaware limited liability company,
its sole member
By: AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
AIREIT INDUSTRY CC LP,
a Delaware limited partnership
By: AIREIT Industry CC GP LLC,
a Delaware limited liability company,
its general partner
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
AIREIT SKYLINE DC LP,
a Delaware limited partnership
By: AIREIT Skyline DC GP LLC,
a Delaware limited liability company,
its general partner
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
AIREX PORTFOLIO V TRS LLC,
a Delaware limited liability company
By: Ares Industrial Real Estate Exchange LLC,
a Delaware limited liability company,
its sole member
By: AIREIT TRS Corp.,
a Delaware corporation,
its sole member
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV PORT 146 DC LP,
a Delaware limited partnership
By:BCI IV Port 146 DC GP LLC,
a Delaware limited liability company,
its general partner
By: AIREIT Operating Partnership LP,
a Delaware limited partnership,
its sole shareholder
By: Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation,
its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Palm Beach CC LLC
BCI IV Pompano IC LLC
BCI IV Trade Zone IC LLC
BCI IV Chicago IC LLC
BCI IV Upland DC LLC
BCI IV Salt Lake City DC LLC
BCI IV Salt Lake City DC II LLC
BCI IV Kent IP LLC
BCI IV Renton DC LLC
BCI IV West Valley DC II LLC
BCI IV Auburn 167 IC LLC
BCI IV Tacoma CC LLC
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company,
the sole member of each of the foregoing entities
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Airport IC LP,
a Delaware limited partnership
By:BCI IV Airport IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Monte Vista IC LP,
a Delaware limited partnership
By:BCI IV Monte Vista IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Executive Airport DC II LLC,
a Delaware limited liability company
By:BCI IV BR LLC,
a Delaware limited liability company, its sole member
By:BCI IV Executive Airport DC II Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Marigold DC LP,
a Delaware limited partnership
By:BCI IV Marigold DC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Intermodal Logistics Center LP,
a Delaware limited partnership
By:BCI IV Intermodal Logistics Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Miraloma IC LP,
a Delaware limited partnership
By:BCI IV Miraloma IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Nelson Industrial Center LP,
a Delaware limited partnership
By:BCI IV Nelson Industrial Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Rancho Cucamonga BC LP,
a Delaware limited partnership
By:BCI IV Rancho Cucamonga BC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Brodhead DC LLC,
a Delaware limited liability company
By:BCI IV Brodhead DC Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV LaPorte DC LP,
a Delaware limited partnership
By:BCI IV LaPorte DC GP LLC,
a Delaware limited liability company, its general partner
By:BTC I REIT B LLC,
a Delaware limited liability company, its sole member
By:IPT BTC I GP LLC,
a Delaware limited liability company, its manager
By:AIREIT Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Iron Run DC II LLC,
a Delaware limited liability company
By:BCI IV Iron Run DC II Holdco LLC,
a Delaware limited liability company, its managing member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Mechanicsburg DC LLC,
a Delaware limited liability company
By:BCI IV Mechanicsburg DC Holdco LLC,
a Delaware limited liability company, its managing member
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Stockton DC II LP,
a Delaware limited partnership
By:BCI IV Stockton DC II GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Stockton Industrial Center LP,
a Delaware limited partnership
By:BCI IV Stockton Industrial Center GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Tracy DC LP,
a Delaware limited partnership
By:BCI IV Tracy DC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Tracy DC II LP,
a Delaware limited partnership
By:BCI IV Tracy DC II GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Etiwanda IC LP,
a Delaware limited partnership
By:BCI IV Etiwanda IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Valencia IC LP,
a Delaware limited partnership
By:BCI IV Valencia IC GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Portfolio Real Estate Holdco LLC,
a Delaware limited liability company, its sole member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Stonewood Logistics Center LLC,
a Delaware limited liability company
By:BCI IV Stonewood LC Holdco LLC,
a Delaware limited liability company, its sole and managing member
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
BCI IV Colony Crossing LP,
a Delaware limited partnership
By:BCI IV Colony Crossing GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
SUBSIDIARY GUARANTORS CONT.:
BCI IV Monument BP LP,
a Delaware limited partnership
By:BCI IV Monument BP GP LLC,
a Delaware limited liability company, its general partner
By:AIREIT Operating Partnership LP,
a Delaware limited partnership, its sole member
By:Ares Industrial Real Estate Income Trust Inc.,
a Maryland corporation, its general partner
By: /s/ SCOTT SEAGER
Name: Scott Seager
Title: Principal, Chief Financial Officer and Treasurer
| | JPMORGAN CHASE BANK, N.A., as Administrative Agent and as a Lender |
By: | | /s/ RYAN DEMPSEY |
Name: | | Ryan Dempsey |
Title: | | Authorized Officer |
| | WELLS FARGO BANK, N.A., as a Lender |
By: | | /s/ CRAIG V. KOSHKARIAN |
Name: | | Craig V. Koshkarian |
Title: | | Director |
| | Bank of America, N.A., as a Lender |
By: | | /s/ KYLE PEARSON |
Name: | | Kyle Pearson |
Title: | | Vice President |
| | Truist Bank, as a Lender |
By: | | /s/ CHRISTOPHER D. DANIELS |
Name: | | Christopher D. Daniels |
Title: | | Director |
| | U.S. BANK NATIONAL ASSOCIATION., as a Lender |
By: | | /s/ TRAVIS MYERS |
Name: | | Travis Myers |
Title: | | Vice President |
| | REGIONS BANK, as a Lender |
By: | | /s/ GHI S. GAVIN |
Name: | | Ghi S. Gavin |
Title: | | Senior Vice President |
| | EASTERN BANK, as a Lender |
By: | | /s/ JARED H. WARD |
Name: | | Jared H. Ward |
Title: | | Senior Vice President |
| | ASSOCIATED BANK, NATIONAL ASSOCIATION, as a Lender |
By: | | /s/ MITCHELL VEGA |
Name: | | Mitchell Vega |
Title: | | Senior Vice President |
| | Zions Bancorporation, N.A. dba Vectra Bank Colorado, as a Lender |
By: | | /s/ H. SHAW THOMAS |
Name: | | H. Shaw Thomas |
Title: | | Senior Vice President |
| | MUFG Union Bank, N.A., as a Lender |
By: | | /s/ JOHN FEENEY |
Name: | | John Feeney |
Title: | | Director |
SCHEDULE A
Schedule 3.13 to Amended Credit Agreement
UNENCUMBERED PROPERTIES
| Asset Name | Subsidiary Guarantor |
---|---|---|
1. | 101 Corporate IC I | AIREIT 101 Corporate IC LLC |
2. | 101 Corporate IC II | AIREIT 101 Corporate IC LLC |
3. | 1201 Logistics Way | AIREIT 1201 Logistics Way LLC |
4. | 350 Logistics Center | AIREIT 350 Logistics Center LLC |
5. | 4 Studebaker CC | AIREIT 4 Studebaker CC LP |
6. | Bluff Road LC | AIREIT Bluff Road LC LLC |
7. | Bolingbrook LC I | AIREIT Bolingbrook LC I LLC |
8. | Bolingbrook LC II | AIREIT Bolingbrook LC II LLC |
9. | Chicago Industrial Center | AIREIT Chicago Industrial Center LLC |
10. | Crossroads DC I | AIREIT Crossroads DC I LLC |
11. | Crossroads DC II | AIREIT Crossroads DC II LLC |
12. | Decatur DC | AIREIT Decatur DC LLC |
13. | Elgin Industrial Center I | AIREIT Elgin Industrial Center LLC |
14. | Elgin Industrial Center II | AIREIT Elgin Industrial Center LLC |
15. | Elgin Industrial Center III | AIREIT Elgin Industrial Center LLC |
16. | Elgin Industrial Center IV | AIREIT Elgin Industrial Center LLC |
17. | Enterprise IC | AIREIT Enterprise IC LLC |
18. | Fort Worth DC | AIREIT Fort Worth DC LP |
19. | Garland DC | AIREIT Garland DC LP |
| Asset Name | Subsidiary Guarantor |
---|---|---|
43. | Hebron Airpark Logistics Center | AIREX PORTFOLIO V TRS LLC |
44. | Norcross Industrial Center | AIREX PORTFOLIO V TRS LLC |
45. | Tualatin DC | AIREX PORTFOLIO V TRS LLC |
46. | Aurora DC II | AIREX PORTFOLIO V TRS LLC |
47. | Naperville DC | AIREX PORTFOLIO V TRS LLC |
48. | O'Hare DC III | AIREX PORTFOLIO V TRS LLC |
49. | Lakewood Logistics Center II | AIREX PORTFOLIO V TRS LLC |
50. | 355 Logistics Center I | BCI IV 355 Logistics Center LLC |
51. | 355 Logistics Center II | BCI IV 355 Logistics Center LLC |
52. | 7A DC II | BCI IV 7A DC II LLC |
53. | 7A DC | BCI IV 7A DC LLC |
54. | Air Commerce Center | BCI IV Air Commerce Center LLC |
55. | Airpark International Logistics Center I | BCI IV Airpark International Logistics Center LLC |
56. | Airpark International Logistics Center II | BCI IV Airpark International Logistics Center LLC |
57. | Airport IC | BCI IV Airport IC LP |
58. | Auburn 167 IC Bldg 1 | BCI IV Auburn 167 IC LLC |
59. | Auburn 167 IC Bldg 3B | BCI IV Auburn 167 IC LLC |
60. | Auburn 167 IC Bldg 4 | BCI IV Auburn 167 IC LLC |
61. | Aurora Corporate Center | BCI IV Aurora Corporate Center LLC |
62. | Avenue B Industrial Center | BCI IV Avenue B Industrial Center LLC |
63. | Brodhead DC | BCI IV Brodhead DC LLC |
64. | California Business Center I | BCI IV California Business Center LLC |
| Asset Name | Subsidiary Guarantor |
---|---|---|
65. | California Business Center II | BCI IV California Business Center LLC |
66. | Carlstadt IC I | BCI IV Carlstadt IC LLC |
67. | Carlstadt IC II | BCI IV Carlstadt IC LLC |
68. | Chicago IC | BCI IV Chicago IC LLC |
69. | Colony Crossing I | BCI IV Colony Crossing LP |
70. | Colony Crossing II | BCI IV Colony Crossing LP |
71. | Commerce Farms Logistics Center | BCI IV Commerce Farms Logistics Center LLC |
72. | Eaglepoint Logistics Center | BCI IV EaglePoint LC LLC |
73. | Etiwanda IC Bldg A | BCI IV Etiwanda IC LP |
74. | Etiwanda IC Bldg B | BCI IV Etiwanda IC LP |
75. | Etiwanda IC Bldg C | BCI IV Etiwanda IC LP |
76. | Executive Airport DC II | BCI IV Executive Airport DC II LLC |
77. | Executive Airport DC III | BCI IV Executive Airport DC III LLC |
78. | Greater Boston IC I | BCI IV Greater Boston IC I LLC |
79. | Greater Boston IC II | BCI IV Greater Boston IC II LLC |
80. | Hebron LC | BCI IV Hebron LC LLC |
81. | I-24 IC | BCI IV I-24 IC LLC |
82. | Intermodal Logistics Center | BCI IV Intermodal Logistics Center LP |
83. | Iron Run DC II | BCI IV Iron Run DC II LLC |
84. | Kent IP Bldg 3 | BCI IV Kent IP LLC |
85. | Kent IP Bldg 4 | BCI IV Kent IP LLC |
| Asset Name | Subsidiary Guarantor |
---|---|---|
86. | Lakewood Logistics Center I | BCI IV Lakewood Logistics Center I LLC |
87. | Lakewood Logistics Center V | BCI IV Lakewood Logistics Center V LLC |
88. | LaPorte DC | BCI IV LaPorte DC LP |
89. | Lima DC | BCI IV Lima DC LLC |
90. | Madison DC | BCI IV Madison DC LLC |
91. | Marigold DC | BCI IV Marigold DC LP |
92. | Mechanicsburg DC | BCI IV Mechanicsburg DC LLC |
93. | Miraloma IC | BCI IV Miraloma IC LP |
94. | Monte Vista IC | BCI IV Monte Vista IC LP |
95. | Monument BP I | BCI IV Monument BP LP |
96. | Monument BP II | BCI IV Monument BP LP |
97. | Nelson Industrial Center | BCI IV Nelson Industrial Center LP |
98. | Palm Beach CC | BCI IV Palm Beach CC LLC |
99. | Pompano IC I | BCI IV Pompano IC LLC |
100. | Pompano IC II | BCI IV Pompano IC LLC |
101. | Port 146 DC | BCI IV Port 146 DC LP |
102. | Rancho Cucamonga BC | BCI IV Rancho Cucamonga BC LP |
103. | Renton DC | BCI IV Renton DC LLC |
104. | Richmond Logistics Center | BCI IV Richmond Logistics Center LLC |
105. | Riggs Hill IC | BCI IV Riggs Hill Industrial Center LLC |
106. | Salt Lake City DC II | BCI IV Salt Lake City DC II LLC |
107. | Salt Lake City DC | BCI IV Salt Lake City DC LLC |
| Asset Name | Subsidiary Guarantor |
---|---|---|
108. | San Antonio Logistics Portfolio V | BCI IV San Antonio Logistics Center LLC |
109. | Silicon Valley IC | BCI IV Silicon Valley IC LLC |
110. | Southpark CC I | BCI IV Southpark CC I LLC |
111. | Southpark CC II | BCI IV Southpark CC II LLC |
112. | Stockton DC II | BCI IV Stockton DC II LP |
113. | Stockton IC Bldg 1 | BCI IV Stockton Industrial Center LP |
114. | Stockton IC Bldg 2 | BCI IV Stockton Industrial Center LP |
115. | Stonewood Logistics Center | BCI IV Stonewood Logistics Center LLC |
116. | Tacoma CC | BCI IV Tacoma CC LLC |
117. | Tracy DC II | BCI IV Tracy DC II LP |
118. | Tracy DC I | BCI IV Tracy DC LP |
119. | Trade Zone IC | BCI IV Trade Zone IC LLC |
120. | Upland DC | BCI IV Upland DC LLC |
121. | Valencia IC | BCI IV Valencia IC LP |
122. | West Valley DC II Bldg 1 | BCI IV West Valley DC II LLC |
123. | West Valley DC II Bldg 2 | BCI IV West Valley DC II LLC |
124. | Westlake LC I | BCI IV Westlake LC LLC |
125. | Westlake LC II | BCI IV Westlake LC LLC |
126. | Westlake LC III | BCI IV Westlake LC LLC |
127. | Westlake LC IV | BCI IV Westlake LC LLC |
128. | Windward Ridge BC I | BCI IV Windward Ridge BC LLC |
129. | Windward Ridge BC II | BCI IV Windward Ridge BC LLC |
130. | Windward Ridge BC III | BCI IV Windward Ridge BC LLC |
| Asset Name | Subsidiary Guarantor |
---|---|---|
131. | Windward Ridge BC IV | BCI IV Windward Ridge BC LLC |
132. | Avenel DC | IPT Avenel DC Urban Renewal LLC |
SCHEDULE B
Schedule 3.14 to Amended Credit Agreement
SUBSIDIARIES
| Subsidiary Guarantor | Direct Owner |
---|---|---|
1. | AIREIT 101 Corporate IC LLC | AIREIT Operating Partnership LP |
2. | AIREIT 1201 Logistics Way LLC | AIREIT Operating Partnership LP |
3. | AIREIT 350 Logistics Center LLC | AIREIT TRS Holdco LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
4. | AIREIT 4 Studebaker CC LP | AIREIT 4 Studebaker CC GP LLC / AIREIT Operating Partnership LP |
5. | AIREIT Bluff Road LC LLC | AIREIT TRS Holdco LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
6. | AIREIT Bolingbrook LC I LLC | AIREIT Operating Partnership LP |
7. | AIREIT Bolingbrook LC II LLC | AIREIT Operating Partnership LP |
8. | AIREIT Chicago Industrial Center LLC | AIREIT Operating Partnership LP |
9. | AIREIT Crossroads DC I LLC | AIREIT Operating Partnership LP |
10. | AIREIT Crossroads DC II LLC | AIREIT Operating Partnership LP |
11. | AIREIT Decatur DC LLC | AIREIT TRS Holdco LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
12. | AIREIT Elgin Industrial Center LLC | AIREIT Operating Partnership LP |
| Subsidiary Guarantor | Direct Owner |
---|---|---|
13. | AIREIT Enterprise IC LLC | AIREIT Operating Partnership LP |
14. | AIREIT Fort Worth DC LP | AIREIT Fort Worth DC GP LLC / AIREIT TRS Holdco LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
15. | AIREIT Garland DC LP | AIREIT Garland DC GP LLC / AIREIT TRS Holdco LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
16. | AIREIT Hoagland DC LLC | AIREIT Operating Partnership LP |
17. | AIREIT I-465 East LC LLC | AIREIT Operating Partnership LP |
18. | AIREIT I-80 Logistics Center LLC | AIREIT Operating Partnership LP |
19. | AIREIT Industry CC LP | AIREIT Industry CC GP LLC / AIREIT Operating Partnership LP |
20. | AIREIT Innovation Corporate Park LLC | AIREIT Operating Partnership LP |
21. | AIREIT Medley 104 IC LLC | AIREIT Operating Partnership LP |
22. | AIREIT Remington IC LLC | AIREIT Operating Partnership LP |
23. | AIREIT Skyline DC LP | AIREIT Skyline DC GP LLC / AIREIT Operating Partnership LP |
24. | AIREIT Stateline DC LLC | AIREIT TRS Holdco LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
| Subsidiary Guarantor | Direct Owner |
---|---|---|
25. | AIREIT Technology IC LLC | AIREIT Operating Partnership LP |
26. | AIREIT Thompson Mill IC LLC | AIREIT TRS Holdco LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
27. | AIREIT Tradeport LC LLC | AIREIT Operating Partnership LP |
28. | AIREX PORTFOLIO V TRS LLC | Ares Industrial Real Estate Exchange LLC / AIREIT TRS Corp / AIREIT Operating Partnership LP |
29. | BCI IV 355 Logistics Center LLC | AIREIT Operating Partnership LP |
30. | BCI IV 7A DC II LLC | AIREIT Operating Partnership LP |
31. | BCI IV 7A DC LLC | AIREIT Operating Partnership LP |
32. | BCI IV Air Commerce Center LLC | AIREIT Operating Partnership LP |
33. | BCI IV Airpark International Logistics Center LLC | AIREIT Operating Partnership LP |
34. | BCI IV Airport IC LP | BCI IV Airport IC GP LLC / AIREIT Operating Partnership LP |
35. | BCI IV Auburn 167 IC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
36. | BCI IV Aurora Corporate Center LLC | AIREIT Operating Partnership LP |
37. | BCI IV Avenue B Industrial Center LLC | AIREIT Operating Partnership LP |
| Subsidiary Guarantor | Direct Owner |
---|---|---|
38. | BCI IV Brodhead DC LLC | BCI IV Brodhead DC Holdco LLC / AIREIT Operating Partnership LP |
39. | BCI IV California Business Center LLC | AIREIT Operating Partnership LP |
40. | BCI IV Carlstadt IC LLC | AIREIT Operating Partnership LP |
41. | BCI IV Chicago IC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
42. | BCI IV Colony Crossing LP | BCI IV Colony Crossing GP LLC / AIREIT Operating Partnership LP |
43. | BCI IV Commerce Farms Logistics Center LLC | AIREIT Operating Partnership LP |
44. | BCI IV EaglePoint LC LLC | AIREIT Operating Partnership LP |
45. | BCI IV Etiwanda IC LP | BCI IV Etiwanda IC GP LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
46. | BCI IV Executive Airport DC II LLC | BCI IV BR LLC / BCI IV Executive Airport DC II Holdco LLC / AIREIT Operating Partnership LP |
47. | BCI IV Executive Airport DC III LLC | AIREIT Operating Partnership LP |
48. | BCI IV Greater Boston IC I LLC | AIREIT Operating Partnership LP |
49. | BCI IV Greater Boston IC II LLC | AIREIT Operating Partnership LP |
50. | BCI IV Hebron LC LLC | AIREIT Operating Partnership LP |
| Subsidiary Guarantor | Direct Owner |
---|---|---|
51. | BCI IV I-24 IC LLC | AIREIT Operating Partnership LP |
52. | BCI IV Intermodal Logistics Center LP | BCI IV Intermodal Logistics Center GP LLC / AIREIT Operating Partnership LP |
53. | BCI IV Iron Run DC II LLC | BCI IV Iron Run DC II Holdco LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
54. | BCI IV Kent IP LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
55. | BCI IV Lakewood Logistics Center I LLC | AIREIT Operating Partnership LP |
56. | BCI IV Lakewood Logistics Center V LLC | AIREIT Operating Partnership LP |
57. | BCI IV LaPorte DC LP | BCI IV LaPorte DC GP LLC / BTC I REIT B LLC / IPT BTC I GP LLC / AIREIT Real Estate Holdco LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
58. | BCI IV Lima DC LLC | AIREIT Operating Partnership LP |
59. | BCI IV Madison DC LLC | AIREIT Operating Partnership LP |
60. | BCI IV Marigold DC LP | BCI IV Marigold DC GP LLC / AIREIT Operating Partnership LP |
| Subsidiary Guarantor | Direct Owner |
---|---|---|
61. | BCI IV Mechanicsburg DC LLC | BCI IV Mechanicsburg DC Holdco LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
62. | BCI IV Miraloma IC LP | BCI IV Miraloma IC GP LLC / AIREIT Operating Partnership LP |
63. | BCI IV Monte Vista IC LP | BCI IV Monte Vista IC GP LLC / AIREIT Operating Partnership LP |
64. | BCI IV Monument BP LP | BCI IV Monument BP GP LLC / AIREIT Operating Partnership LP |
65. | BCI IV Nelson Industrial Center LP | BCI IV Nelson Industrial Center GP LLC / AIREIT Operating Partnership LP |
66. | BCI IV Palm Beach CC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
67. | BCI IV Pompano IC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
68. | BCI IV Port 146 DC LP | BCI IV Port 146 DC GP LLC / AIREIT Operating Partnership LP |
69. | BCI IV Rancho Cucamonga BC LP | BCI IV Rancho Cucamonga BC GP LLC / AIREIT Operating Partnership LP |
70. | BCI IV Renton DC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
71. | BCI IV Richmond Logistics Center LLC | AIREIT Operating Partnership LP |
| Subsidiary Guarantor | Direct Owner |
---|---|---|
72. | BCI IV Riggs Hill Industrial Center LLC | AIREIT Operating Partnership LP |
73. | BCI IV Salt Lake City DC II LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
74. | BCI IV Salt Lake City DC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
75. | BCI IV San Antonio Logistics Center LLC | AIREIT Operating Partnership LP |
76. | BCI IV Silicon Valley IC LLC | AIREIT Operating Partnership LP |
77. | BCI IV Southpark CC I LLC | AIREIT Operating Partnership LP |
78. | BCI IV Southpark CC II LLC | AIREIT Operating Partnership LP |
79. | BCI IV Stockton DC II LP | BCI IV Stockton DC II GP LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
80. | BCI IV Stockton Industrial Center LP | BCI IV Stockton Industrial Center GP LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
81. | BCI IV Stonewood Logistics Center LLC | BCI IV Stonewood LC Holdco LLC / AIREIT Operating Partnership LP |
82. | BCI IV Tacoma CC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
| Subsidiary Guarantor | Direct Owner |
---|---|---|
83. | BCI IV Tracy DC II LP | BCI IV Tracy DC II GP LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
84. | BCI IV Tracy DC LP | BCI IV Tracy DC GP LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
85. | BCI IV Trade Zone IC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
86. | BCI IV Upland DC LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
87. | BCI IV Valencia IC LP | BCI IV Valencia IC GP LLC / AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
88. | BCI IV West Valley DC II LLC | AIREIT Portfolio Real Estate Holdco LLC / AIREIT Operating Partnership LP |
89. | BCI IV Westlake LC LLC | AIREIT Operating Partnership LP |
90. | BCI IV Windward Ridge BC LLC | AIREIT Operating Partnership LP |
91. | IPT Avenel DC Urban Renewal LLC | AIREIT Operating Partnership LP |
Exhibit 21.1
ARES INDUSTRIAL REAL ESTATE INCOME TRUST INC.
SUBSIDIARY LIST AS OF DECEMBER 31, 2022
NAME | JURISDICTION |
---|---|
AIREIT 101 Corporate IC LLC | Delaware |
AIREIT 1201 Logistics Way LLC | Delaware |
AIREIT 4 Studebaker CC GP LLC | Delaware |
AIREIT 4 Studebaker CC LP | Delaware |
AIREIT Acquisitions LLC | Delaware |
AIREIT Big Eddy CC LLC | Delaware |
AIREIT Bolingbrook LC I LLC | Delaware |
AIREIT Bolingbrook LC II LLC | Delaware |
AIREIT Brittmoore IC GP LLC | Delaware |
AIREIT Brittmoore IC LP | Delaware |
AIREIT Chicago Industrial Center LLC | Delaware |
AIREIT Commonwealth Logistics Center LLC | Delaware |
AIREIT County Line Corporate Park II LLC | Delaware |
AIREIT County Line Corporate Park LLC | Delaware |
AIREIT Crossroads DC I LLC | Delaware |
AIREIT Crossroads DC II LLC | Delaware |
AIREIT Debt Securities Holdco LLC | Delaware |
AIREIT Elgin Industrial Center LLC | Delaware |
AIREIT Enterprise IC LLC | Delaware |
AIREIT Fort Worth DC GP LLC | Delaware |
AIREIT Fort Worth DC LP | Delaware |
AIREIT Garland DC GP LLC | Delaware |
AIREIT Garland DC LP | Delaware |
AIREIT Hoagland DC LLC | Delaware |
AIREIT I-465 East LC LLC | Delaware |
AIREIT I-80 Logistics Center LLC | Delaware |
AIREIT Industry CC GP LLC | Delaware |
AIREIT Industry CC LP | Delaware |
AIREIT Innovation Corporate Park LLC | Delaware |
AIREIT JFK Logistics Center LLC | Delaware |
AIREIT LOC Lender LLC | Delaware |
AIREIT Medley 104 IC LLC | Delaware |
AIREIT Operating Partnership LP | Delaware |
AIREIT Portfolio Real Estate Holdco LLC | Delaware |
AIREIT Property Management LLC | Delaware |
AIREIT Real Estate Holdco LLC | Delaware |
AIREIT Robbinsville DC I Urban Renewal LLC | Delaware |
AIREIT Robbinsville DC II Urban Renewal LLC | Delaware |
AIREIT Runway DC GP LLC | Delaware |
NAME | JURISDICTION |
---|---|
AIREIT Services LLC | Delaware |
AIREIT Skyline DC GP LLC | Delaware |
AIREIT Skyline DC LP | Delaware |
AIREIT Stateline DC LLC | Delaware |
AIREIT Tampa CC LLC | Delaware |
AIREIT Tradeport LC LLC | Delaware |
AIREIT TRS Corp. | Delaware |
AIREIT TRS Holdco I LLC | Delaware |
AIREIT TRS Holdco LLC | Delaware |
AIREX 1031 Lender LLC | Delaware |
AIREX 1031 Lender Portfolio IV LLC | Delaware |
AIREX 1031 Lender Portfolio V LLC | Delaware |
AIREX 1031 Lender Portfolio VI LLC | Delaware |
AIREX Manager LLC | Delaware |
AIREX Master Tenant LLC | Delaware |
AIREX Portfolio IV DST | Delaware |
AIREX Portfolio IV Manager LLC | Delaware |
AIREX Portfolio IV Master Tenant LLC | Delaware |
AIREX Portfolio IV TRS LLC | Delaware |
AIREX Portfolio V DST | Delaware |
AIREX Portfolio V Manager LLC | Delaware |
AIREX Portfolio V Master Tenant LLC | Delaware |
AIREX Portfolio V TRS LLC | Delaware |
AIREX Portfolio VI DST | Delaware |
AIREX Portfolio VI Manager LLC | Delaware |
AIREX Portfolio VI Master Tenant LLC | Delaware |
AIREX Portfolio VI TRS LLC | Delaware |
Ares Industrial Real Estate Exchange LLC | Delaware |
AREX 1031 Lender LLC | Delaware |
BC Industrial Exchange Portfolio I DST | Delaware |
BC Industrial Exchange Portfolio I Manager LLC | Delaware |
BC Industrial Exchange Portfolio I Master Tenant LLC | Delaware |
BC Industrial Exchange Portfolio I TRS LLC | Delaware |
BC Industrial Exchange Portfolio II DST | Delaware |
BC Industrial Exchange Portfolio II Manager LLC | Delaware |
BC Industrial Exchange Portfolio II Master Tenant LLC | Delaware |
BC Industrial Exchange Portfolio II TRS LLC | Delaware |
BC Industrial Exchange Portfolio III DST | Delaware |
BC Industrial Exchange Portfolio III Manager LLC | Delaware |
BC Industrial Exchange Portfolio III Master Tenant LLC | Delaware |
BC Industrial Exchange Portfolio III TRS LLC | Delaware |
NAME | JURISDICTION |
---|---|
BCI IV 1 Stanley Drive Holdco I LLC | Delaware |
BCI IV 1 Stanley Drive Holdco II LLC | Delaware |
BCI IV 1 Stanley Drive Holdco LLC | Delaware |
BCI IV 1 Stanley Drive LLC | Delaware |
BCI IV 355 Logistics Center LLC | Delaware |
BCI IV 395 DC LLC | Delaware |
BCI IV 485 DC LLC | Delaware |
BCI IV 7A DC II LLC | Delaware |
BCI IV 7A DC LLC | Delaware |
BCI IV Air Commerce Center LLC | Delaware |
BCI IV Airpark International Logistics Center LLC | Delaware |
BCI IV Airport IC GP LLC | Delaware |
BCI IV Airport IC LP | Delaware |
BCI IV Arrow Route DC LLC | Delaware |
BCI IV Auburn 167 IC LLC | Delaware |
BCI IV Aurora Corporate Center LLC | Delaware |
BCI IV Avenue B Industrial Center LLC | Delaware |
BCI IV Bishops Gate DC LLC | Delaware |
BCI IV BR LLC | Delaware |
BCI IV Brodhead DC Holdco I LLC | Delaware |
BCI IV Brodhead DC Holdco II LLC | Delaware |
BCI IV Brodhead DC Holdco LLC | Delaware |
BCI IV Brodhead DC LLC | Delaware |
BCI IV BTC II Tranche B GP LLC | Delaware |
BCI IV BTC II Tranche B LP LLC | Delaware |
BCI IV California Business Center LLC | Delaware |
BCI IV Cameron BC LLC | Delaware |
BCI IV Carlstadt IC LLC | Delaware |
BCI IV Chicago IC LLC | Delaware |
BCI IV Colony Crossing GP LLC | Delaware |
BCI IV Colony Crossing LP | Delaware |
BCI IV Commerce Farms Logistics Center LLC | Delaware |
BCI IV Connection Park GP LLC | Delaware |
BCI IV Connection Park LP | Delaware |
BCI IV Demarest DC LLC | Delaware |
BCI IV Drew Court CC Holdco I LLC | Delaware |
BCI IV Drew Court CC Holdco II LLC | Delaware |
BCI IV Drew Court CC Holdco LLC | Delaware |
BCI IV Drew Court CC LLC | Delaware |
BCI IV Edison DC LLC | Delaware |
BCI IV Etiwanda DC GP LLC | Delaware |
NAME | JURISDICTION |
---|---|
BCI IV Etiwanda DC LP | Delaware |
BCI IV Executive Airport DC II Holdco LLC | Delaware |
BCI IV Executive Airport DC II LLC | Delaware |
BCI IV Executive Airport DC III LLC | Delaware |
BCI IV Fontana DC GP LLC | Delaware |
BCI IV Fontana DC LP | Delaware |
BCI IV Gilbert Commerce Park LLC | Delaware |
BCI IV Gothard IC GP LLC | Delaware |
BCI IV Gothard IC LP | Delaware |
BCI IV Greater Boston IC I LLC | Delaware |
BCI IV Greater Boston IC II LLC | Delaware |
BCI IV Hainesport CC LLC | Delaware |
BCI IV Hainesport CC Master Tenant LLC | Delaware |
BCI IV Harvill Business Center GP LLC | Delaware |
BCI IV Harvill Business Center LP | Delaware |
BCI IV Harvill Industrial Center GP LLC | Delaware |
BCI IV Harvill Industrial Center LP | Delaware |
BCI IV Hayward Logistics Center LLC | Delaware |
BCI IV Hebron LC LLC | Delaware |
BCI IV I-24 IC LLC | Delaware |
BCI IV I-80 DC LLC | Delaware |
BCI IV Intermodal Logistics Center GP LLC | Delaware |
BCI IV Intermodal Logistics Center LP | Delaware |
BCI IV Iron Run DC II Holdco I LLC | Delaware |
BCI IV Iron Run DC II Holdco II LLC | Delaware |
BCI IV Iron Run DC II Holdco LLC | Delaware |
BCI IV Iron Run DC II LLC | Delaware |
BCI IV Iron Run DC LLC | Delaware |
BCI IV Kent IP LLC | Delaware |
BCI IV King of Prussia Industrial Center LLC | Delaware |
BCI IV Lanham DC LLC | Delaware |
BCI IV LaPorte DC GP LLC | Delaware |
BCI IV LaPorte DC LP | Delaware |
BCI IV LC 33 Holdco 1 LLC | Delaware |
BCI IV LC 33 Holdco 2 LLC | Delaware |
BCI IV LC 33 Holdco LLC | Delaware |
BCI IV Lakewood Logistics Center I LLC | Delaware |
BCI IV Lakewood Logistics Center III LLC | Delaware |
BCI IV Lakewood Logistics Center IV LLC | Delaware |
BCI IV Lakewood Logistics Center V LLC | Delaware |
BCI IV Legacy Logistics Center LLC | Delaware |
NAME | JURISDICTION |
---|---|
BCI IV Lima DC LLC | Delaware |
BCI IV Lodi DC LLC | Delaware |
BCI IV Logistics Center at 33 LLC | Delaware |
BCI IV Madison DC LLC | Delaware |
BCI IV Marigold DC GP LLC | Delaware |
BCI IV Marigold DC LP | Delaware |
BCI IV Mechanicsburg DC Holdco I LLC | Delaware |
BCI IV Mechanicsburg DC Holdco II LLC | Delaware |
BCI IV Mechanicsburg DC Holdco LLC | Delaware |
BCI IV Mechanicsburg DC LLC | Delaware |
BCI IV Midway IC LLC | Delaware |
BCI IV Miraloma IC GP LLC | Delaware |
BCI IV Miraloma IC LP | Delaware |
BCI IV Monte Vista IC GP LLC | Delaware |
BCI IV Monte Vista IC LP | Delaware |
BCI IV Monument BP GP LLC | Delaware |
BCI IV Monument BP LP | Delaware |
BCI IV Nelson Industrial Center GP LLC | Delaware |
BCI IV Nelson Industrial Center LP | Delaware |
BCI IV North County Commerce Center GP LLC | Delaware |
BCI IV North County Commerce Center LP | Delaware |
BCI IV Northgate DC Holdco LLC | Delaware |
BCI IV Northgate DC LLC | Delaware |
BCI IV Northlake Logistics Crossings GP LLC | Delaware |
BCI IV Northlake Logistics Crossings LP | Delaware |
BCI IV Ontario DC GP LLC | Delaware |
BCI IV Ontario DC LP | Delaware |
BCI IV Ontario IC GP LLC | Delaware |
BCI IV Ontario IC LP | Delaware |
BCI IV Otay Logistics Center LLC | Delaware |
BCI IV Palm Beach CC LLC | Delaware |
BCI IV Park 100 DC LLC | Delaware |
BCI IV Peachtree DC LLC | Delaware |
BCI IV Pennsy Logistics Center LLC | Delaware |
BCI IV Performance DC GP LLC | Delaware |
BCI IV Performance DC LP | Delaware |
BCI IV Pescadero DC GP LLC | Delaware |
BCI IV Pescadero DC LP | Delaware |
BCI IV Pioneer DC LLC | Delaware |
BCI IV Pioneer Parking Lot DC LLC | Delaware |
BCI IV Pompano IC LLC | Delaware |
NAME | JURISDICTION |
---|---|
BCI IV Port 146 DC GP LLC | Delaware |
BCI IV Port 146 DC LP | Delaware |
BCI IV Princess Logistics Center LLC | Delaware |
BCI IV Quakerbridge DC LLC | Delaware |
BCI IV Rancho Cucamonga BC GP LLC | Delaware |
BCI IV Rancho Cucamonga BC LP | Delaware |
BCI IV Renton DC LLC | Delaware |
BCI IV Richmond Logistics Center LLC | Delaware |
BCI IV Riggs Hill Industrial Center LLC | Delaware |
BCI IV Robbinsville DC LLC | Delaware |
BCI IV Salt Lake City DC II LLC | Delaware |
BCI IV Salt Lake City DC LLC | Delaware |
BCI IV San Antonio Logistics Center LLC | Delaware |
BCI IV Silicon Valley IC LLC | Delaware |
BCI IV Southpark CC I LLC | Delaware |
BCI IV Southpark CC II LLC | Delaware |
BCI IV Stockton DC GP LLC | Delaware |
BCI IV Stockton DC II GP LLC | Delaware |
BCI IV Stockton DC II LP | Delaware |
BCI IV Stockton DC LP | Delaware |
BCI IV Stockton Industrial Center GP LLC | Delaware |
BCI IV Stockton Industrial Center LP | Delaware |
BCI IV Stonewood Logistics Center LLC | Delaware |
BCI IV Stonewood Logistics LC Holdco 1 LLC | Delaware |
BCI IV Stonewood Logistics LC Holdco 2 LLC | Delaware |
BCI IV Stonewood Logistics LC Holdco LLC | Delaware |
BCI IV Tacoma CC LLC | Delaware |
BCI IV Tacoma Logistics Center LLC | Delaware |
BCI IV Totowa CC LLC | Delaware |
BCI IV Tracy DC GP LLC | Delaware |
BCI IV Tracy DC II GP LLC | Delaware |
BCI IV Tracy DC II LP | Delaware |
BCI IV Tracy DC III LLC | Delaware |
BCI IV Tracy DC LP LLC | Delaware |
BCI IV Trade Zone IC LLC | Delaware |
BCI IV Tuscany IC II GP LLC | Delaware |
BCI IV Tuscany IC II LP | Delaware |
BCI IV Upland DC LLC | Delaware |
BCI IV Valencia IP GP LLC | Delaware |
BCI IV Valencia IP LP | Delaware |
BCI IV Valwood Crossroads DC GP LLC | Delaware |
NAME | JURISDICTION |
---|---|
BCI IV Valwood Crossroads DC LP | Delaware |
BCI IV Walker Mill IC LLC | Delaware |
BCI IV West Valley DC II LLC | Delaware |
BCI IV Westlake IC LLC | Delaware |
BCI IV Weston BC LLC | Delaware |
BCI IV Windward Ridge BC LLC | Delaware |
BCI IV York DC Holdco I LLC | Delaware |
BCI IV York DC Holdco II LLC | Delaware |
BCI IV York DC Holdco LLC | Delaware |
BCI IV York DC LLC | Delaware |
BCIX 1031 Lender LLC | Delaware |
BCIX 1031 Lender Portfolio I LLC | Delaware |
BCIX 1031 Lender Portfolio II LLC | Delaware |
BCIX 1031 Lender Portfolio III LLC | Delaware |
BTC I REIT B LLC | Delaware |
BTC II Holdco LLC | Delaware |
Build-To-Core Industrial Partnership Tranche B LP | Delaware |
Hainesport Commerce Center Urban Renewal LLC | New Jersey |
Industrial Property Advisors Sub II LLC | Delaware |
Industrial Property Advisors Sub III LLC | Delaware |
Industrial Property Advisors Sub IV LLC | Delaware |
IPT Avenel DC Urban Renewal LLC | Delaware |
IPT BTC I GP LLC | Delaware |
IPT BTC I LP LLC | Delaware |
IPT BTC II GP LLC | Delaware |
IPT BTC II LP LLC | Delaware |
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Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statement (No. 333-228818) on Form S-8 of our report dated March 20, 2023, with respect to the consolidated financial statements of Ares Industrial Real Estate Income Trust Inc.
/s/KPMG LLP
Denver, Colorado
March 20, 2023
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey W. Taylor, certify that:
1. | I have reviewed this Annual Report on Form 10-K of Ares Industrial Real Estate Income Trust Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Scott A. Seager, certify that:
1. | I have reviewed this Annual Report on Form 10-K of Ares Industrial Real Estate Income Trust Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Principal Executive Officer
In connection with the Annual Report on Form 10-K of Ares Industrial Real Estate Income Trust Inc. (the “Company”) for the period ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey W. Taylor, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Certification of Principal Financial Officer
In connection with the Annual Report on Form 10-K of Ares Industrial Real Estate Income Trust Inc. (the “Company”) for the period ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott A. Seager, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
CONSENT OF INDEPENDENT VALUATION FIRM
We hereby consent to the reference to our name and the description of our role in the valuation process described under the heading “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Net Asset Value Calculation” in Part II, Item 5 of the Annual Report on Form 10-K for the period ended December 31, 2022 of Ares Industrial Real Estate Income Trust Inc. (the “Company”), filed by the Company with the Securities and Exchange Commission on the date hereof, being included or incorporated by reference in the Company’s Registration Statement on Form S-8 (File No. 333-228818). We also hereby consent to the same information and the reference to our name under the caption “Experts” being included or incorporated by reference in the Company’s Registration Statement on Form S-11 (File No. 333-255376) and the related prospectus and prospectus supplements that are a part thereof. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933.