Sanders served from 2000 to 2004 as a Managing Director with AIG Global Real Estate Investment Corp. in New York where he managed product development and capital formation for four “opportunistic” international real estate funds totaling $1 billion for large institutional investors and investing in Europe, Southeast Asia, Japan and Mexico. Previously, from 1997 to 2000, Mr. Sanders was an Executive Managing Director for CB Richard Ellis Investors where he was involved in creating separate accounts with large institutional investors to invest in U.S. publicly traded REITs in partnership with Alliance Capital Management. From 1991 to 1996, Mr. Sanders served as the Director of Real Estate Investments for Ameritech Pension Trust in Chicago, a $1.5 billion portion of the $13.5 billion defined benefit plan. In addition to negotiating and tracking separate accounts with at least ten managers of institutional grade real estate, he served for two years as chairman of a special investors committee including CalPers and others, formed to work out issues with a troubled fund investing in Canadian regional malls. Between 1972 to 1990, Mr. Sanders’ primary focus as Co-Founder and Executive Vice President, was creating and growing The Landsing Corporation in Menlo Park, California, a firm that formed and funded 20 private partnerships and five SEC registered non-traded REITs to acquire and manage diversified portfolios of commercial and multi-family properties. In the 1990s, Mr. Sanders served multiple terms on the operationsBoard of Directors and financial conditionExecutive Committee of usthe Pension Real Estate Association (PREA) and also on the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT) where he was Co-Chairman of its Institutional Investor Committee. Mr. Sanders received a B.A. in History from the University of Virginia and an M.B.A. from the Stanford Graduate School of Business where he served for multiple years on the Alumni Association, including serving as President in 1984. In 1985, he also taught the real estate industries in which we operate.
While forward-looking statements reflect our good faith beliefs, assumptionsinvestment class at Stanford Graduate School of Business. After college and expectations, they are not guarantees of future performance. The forward-looking statements speak only as of the date of this Annual Report on Form 10-K. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Moreover, because we operate in a very competitivebefore business school, Mr. Sanders attended Officer Candidate School and rapidly changing environment, new risk factors are likely to emerge from time to time. We caution investors not to place undue reliance on these forward-looking statements and urge you to carefully review the disclosures we make concerning risks in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report. Readers of this Annual Report should also read our other periodic filings made with the Securities and Exchange Commission and other publicly filed documentsserved for further discussion regarding such factors.
Summary of Risk Factors
•The COVID-19 pandemic, and the future outbreak of other highly infectious or contagious diseases, could have a material adverse effect on us (as defined below).
•There is currently no public trading market for shares of our common stock and there may never be one; therefore, it will be difficult for our stockholders to sell their shares. Our stockholders may be unable to sell their shares of our common stock because our share redemption program (“SRP”) is suspended and is subject to significant restrictions and limitations and even if our stockholders are able to sell their shares under our SRP, they may not be able to recover the amount of their investment in shares of our common stock. Furthermore, the ownership limits imposed by our charter on us as a REIT could impose further impediments to a stockholder’s ability to sell shares of our common stock.
•Our published NAV amounts may change materially if the appraised values of our properties materially change from prior appraisals or actual operating results differ from our historical and/or anticipated results. Additionally, the NAV per share that we publish will not reflect changes in our NAV, including potentially material changes, that are not immediately quantifiable.
•Our calculation of NAV is not a measure based on generally accepted accounting principlesover four years in the United States ("GAAP") and may be different fromNavy during the NAV calculations used by other publicVietnam War, attaining the rank of Lieutenant.
We believe that Mr. Sanders’ 49 years of experience in real estate investment trusts, which could mean that our NAV is not comparable to NAV reported by other publicmanagement as well as his broad scope of experience with traded REITs, non-traded REITs and no rule or regulation requires that we calculate our NAV in a certain way,private funds and our Board may adopt changesmatching investment fund structures support his appointment to our valuation procedures.Board.
•Samuel TangOur stockholders are subject is one of our independent directors and is the Chairperson of our Audit Committee and a member of our Compensation Committee and Capital Committee. He has been one of our independent directors since March 2016. Mr. Tang has over 25 years of experience in private equity and real estate investing. From 2004 to the riskpresent, Mr. Tang has been a Managing Partner of TriGuard Management LLCand its affiliates, an entity which he co-founded and which acquires private equity secondary funds in the secondary market. He is responsible for capital raising, sourcing, analyzing, structuring, and closing the acquisition of investments. From 1999 to 2004, Mr. Tang was Managing Director, Equities, of Pacific Life Insurance Company, where he co-chaired the workout committee to maximize recovery on bond investments and worked on various strategic and direct equity investments. Before joining Pacific Life Insurance Company, from 1989 to 1999, he was a Managing Partner at The Shidler Group, a specialized private equity firm focused on finance, insurance and real estate companies. Mr. Tang was also previously a Manager in Real Estate Consulting with KPMG Peat Marwick Main and a Senior, CPA with Arthur Young. Mr. Tang has an M.B.A. in Finance from the University of California, Los Angeles and a B.S. in Accounting from the University of Southern California. Mr. Tang also currently serves in leadership positions, including as a member of both fiduciary and advisory boards with several real estate firms, corporate and non-profit entities.
We believe that our businessMr. Tang’s extensive experience in the private equity and operating plans may change, including that we may pursue a Strategic Transaction (defined below).
•If we engage in a Strategic Transaction, the value ascribedreal estate industries support his appointment to our shares of common stock in connection with the Strategic Transaction may be lower than our most recent published NAV and our stockholders could suffer a loss in the event that they seek liquidity at a Strategic Transaction price per share that is lower than the then-most recent published NAV per share. Furthermore, significant pent-up demand to sell shares of our common stock may cause the market price of our common stock to decline significantly.Board.
•Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interest of holders of GRT OP Units, which may impede business decisions that could benefit our stockholders as a result of the relationships between us and our affiliates, on the one hand, and the GRT OP or any partner thereof, on other hand.Additionally, the chairman of our Board is a controlling person of entities that have received GRT OP Units, and therefore may face conflicts with regard to his fiduciary duties to the Company and those entities.
•We have issued convertible preferred shares (the "Series A Preferred Shares") that we may be required to redeem for cash in the future under certain circumstances, which could require us to allocate cash to such redemption on limited notice, or which may be converted into common shares in the future at the option of the holder of the Series A Preferred Shares, which would dilute the interests of our other shareholders. If any of the foregoing risks were to materialize, it could have a material adverse effect on us.
•Most of our properties are occupied by a single tenant; therefore, income generated by nearly all of our properties is dependent on the financial stability of these tenants. The bankruptcy, insolvency or downturn in the business of, or a lease termination or election not to renew by one of these tenants could have a material adverse effect on us.
•Our operating results will be affected by economic and regulatory changes, such as inflation and rising interest rates that have an adverse impact on the real estate market and could have a material adverse effect on us.
•If we breach covenants under our unsecured credit agreement with KeyBank and other syndication partners, we could be held in default under such agreement, which could accelerate our repayment date and could have a material adverse effect on us.
•We have broad authority to incur debt, and high debt levels could have a material adverse effect on us.
•We have incurred, and intend to continue to incur, indebtedness secured by our properties, which may result in foreclosure, which could have a material adverse effect on us.
•Failure to continue to qualify as a REIT would adversely affect our operations and our ability to make distributions because we would incur additional tax liabilities, which could have a material adverse effect on us.
PART I
ITEM 1. BUSINESS
The use herein of the words “GRT,” “the Company,” “we,” “us,” and “our” refer to Griffin Realty Trust, Inc, a Maryland corporation, and its subsidiaries, including GRT OP L.P., our operating partnership (the “GRT OP”), except where the context otherwise requires.
Business Overview
We are an internally managed, publicly-registered,publicly registered, non-traded real estate investment trust (“REIT”). We are a multi-billion-dollar enterprise committed to creating exceptional value for all of our stakeholders through the ownership and operation of a diversified portfolio of strategically-located,strategically located, high-quality, business-essential office and industrial properties that are primarily leased to nationally-recognizednationally recognized single tenants we have determined to be creditworthy.
The GRT platform was founded in 2009 and has since grown to become one of the largest office and industrial-focused, net-lease REITs in the United States. Since our founding, our mission has been consistent – to generate long-term returns for our stockholders by combining the durability of high-quality corporate tenants, the stability of our revenue and the power of proactive management. To achieve this mission, we leverage the skills and expertise of our employees who have expertise across a range of disciplines including acquisitions, dispositions, asset management, property management, development, finance, law and accounting. They are led by an experienced senior management team with commercial real estate experience averaging approximately 30 years.
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On July 1, 2021, we changed our name from Griffin Capital Essential Asset REIT, Inc. to Griffin Realty Trust, Inc. and our operating partnership changed its name from Griffin Capital Essential Asset Operating Partnership L.P. to GRT OP, L.P.
On March 1, 2021, we completed our acquisition of Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”) for approximately $1.3 billion, including transaction costs, in a stock-for-stock transaction (the “CCIT II Merger”). At the effective time of the CCIT II Merger, each issued and outstanding share of CCIT II Class A common stock and each issued and outstanding share of CCIT II Class T common stock was converted into the right to receive 1.392 shares of our Class E common stock.
As of December 31, 2021, we owned 121 properties (including one land parcel held for future development) in 26 states. Our contractual base rent before abatements and deducting base year operating expenses for gross modified leases (“Annualized Base Rent”) as of December 31, 2021 is approximately $361.9 million. As of December 31, 2021, our portfolio was approximately 94.5% leased (based on square footage), with a weighted average remaining lease term of 6.25 years and weighted average annual rent increases of approximately 2.0%. Approximately 67.0% of our Annualized Base Rent as of December 31, 2021 is generated by properties leased and/or guaranteed, directly or indirectly, by companies that have investment grade credit ratings or what management believes are generally equivalent ratings. Management can provide no assurance as to the comparability of these ratings methodologies or that any particular rating for a company is indicative of the rating that a single Nationally Recognized Statistical Rating Organization (“NRSRO”) would provide in the event that it rated all companies for which the Company provides credit ratings; to the extent such companies are rated only by non-NRSRO ratings providers, such ratings providers may use methodologies that are different and less rigorous than those applied by NRSROs; moreover, because GRT provides credit ratings for some companies that are non-guarantor parents of Company's tenants, such credit ratings may not be indicative of the creditworthiness of the relevant tenants.
History and Structure
The GRT platform was founded in 2009 with the launch of Griffin Capital Essential Asset REIT, Inc. (“EA-1”), a publicly-registered, non-traded REIT that acquired a geographically diversified portfolio of strategically-located, high-quality corporate office and industrial properties primarily leased to single tenants. By the end of 2014, EA-1 had reached its maximum primary offering amount in its follow-on offering, having raised approximately $1.3 billion in gross equity proceeds in its public and private offerings. By the end of 2018, the EA-1 portfolio had grown to 74 properties encompassing 19.9 million square feet with an acquisition value of approximately $3.0 billion. This growth was supported by significant strategic transactions, including a $521.5 million portfolio acquisition of 18 office properties from Columbia Property Trust, Inc. and an
approximately $624.8 million stock-for-stock merger pursuant to which EA-1 acquired all of the ownership interests in Signature Office REIT, Inc.
As EA-1 completed its primary offering, Griffin Capital Essential Asset REIT II, Inc. (“EA-2”) was launched with the same focus and strategy as EA-1. By the end of 2018, EA-2 had raised approximately $734.0 million in gross equity proceeds and had a portfolio of 27 properties with an acquisition value of approximately $1.1 billion.
On December 14, 2018, EA-1 further aligned management with investors by internalizing managementCorporate Responsibility - Environmental, Social, and Governance
We are committed to conducting our business in a transaction whereby the former sponsor of EA-1 and EA-2, Griffin Capital Company, LLC (“GCC”), and Griffin Capital, LLC sold the advisory, asset management and property management business of Griffin Capital Real Estate Company, LLC to EA-1 for common limited partnership units of the GRT OP ("GRT OP Units"). Also, on December 14, 2018, EA-1, EA-2 and certain other related entities entered into a merger agreement pursuant tomanner which on April 30, 2019, EA-1 and EA-2 combined operations (the “EA Merger”). Following the EA Merger, the surviving company was renamed Griffin Capital Essential Asset, REIT, Inc.
We utilize a structure known as an “UPREIT” structure, pursuant to which we conductbenefits all of our business through the GRT OP, with the GRT OP, directly or indirectly through subsidiaries, owning all of our assetsstakeholders and liabilities. As of December 31, 2021, GRT, as the sole general partner, controlled the GRT OPensures a lasting and owned approximately 91.0% of the GRT OP Units. The remaining 9.0% of GRT OP Units are owned by GCC and other affiliates of the Company, as well as unaffiliated, third-party limited partners.
Our Competitive Strengths
We believe the following competitive strengths distinguish us from other owners and operators of office and industrial properties:
•Diverse, High-Quality Property Portfolio: As of December 31, 2021, our portfolio was comprised of 121 properties (including one land parcel) located in 26 states with 131 tenants throughout the United States. As of December 31, 2021, our portfolio was approximately 94.5% leased (based on square footage). Our properties offer strong geographic distribution, with no state accounting for more than approximately 11.4% of our portfolio, measured by percentage of our Annualized Base Rent as of December 31, 2021.
•Diverse Portfolio of Creditworthy Tenants: We have a diverse tenant base, with no single tenant accounting for more than approximately 4.5% of our Annualized Base Rent as of December 31, 2021 and our ten largest tenants accounting for approximately 27.3% of our Annualized Base Rent as of December 31, 2021. Further, no single industry represents more than approximately 12.5% of our Annualized Base Rent as of December 31, 2021. As of December 31, 2021, our portfolio had a weighted average remaining lease term of 6.25 years, with weighted average annual rent increases of approximately 2.0% through the remainder of the lease terms. Our Annualized Base Rent as of December 31, 2021 is expected to be approximately $361.9 million, with approximately 67.0% to be generated by properties leased and/or guaranteed, directly or indirectly, by companies we have determined to be creditworthy.
•Proactive, Hands-On Portfolio and Asset Management: We employ a proactive and diligent approach to managing our assets in order to mitigate risks and identify opportunities to maintain and/or add value to our portfolio. We believe this focus allows us to generate superior risk-adjusted returnspositive impact from our assets when compared to the typical passive net-lease strategy.
•Proven and Experienced Management Team: Our senior management team has an average of approximately 30 years of commercial real estate experience and a proven ability to acquire and proactively manage properties in order to maximize their value.
Our Business Strategy
Our primary business objectives are to provide regular cash distributions to our stockholders and maximize stockholder value. We seek to achieve these objectives by pursuing the following business strategies:
•Own and Operate Well-Located, Business-Essential, Single-Tenant Assets Leased to High-Quality Tenants: We seek to own properties that are essential to our tenants’ business operations and are leased to tenants that we have determined to be creditworthy, as we believe such assets offer greater relative default protection. Our properties are generally new or recent Class A construction quality and condition and are located in primary, secondary and select tertiary metropolitan statistical areas. They are typically subject to long-term leases with defined rental rate increases,
offering a consistent and predictable income stream across market cycles, or short-term leases that we have determined have a high probability of renewal and potential for increasing rent, offering income appreciation upon renewal.
•Achieve Stable and Predictable Cash Flows: We focus on generating durable cash flows for our investors. We seek to achieve this by focusing on high-quality properties and tenants that are subject to “net” leases with primarily annual contractual rental rate increases. We generally seek “net” leases, which mitigate cash flow volatility arising from fluctuations in property operating expenses and capital expenditure requirements. Under a “net” lease, the tenant pays certain operating expenses of the property in addition to “base rent,” which may include real estate taxes, special assessments, sales and use taxes, utilities, insurance, common area maintenance charges and building repairs. Additionally, in many of our leases, tenants are responsible for all or a portion of the costs of capital repairs and replacements. However, in some instances, we are responsible for some or all of these costs, which may include replacement and repair of the roof, structure, parking lots, and certain other major repairs and replacements with respect to the property. Our leases typically provide contractual rent increases, providing a potential hedge against inflation, insulation from short-term economic cycles resulting from the long-term nature of the underlying leases, enhanced stability resulting from diversified credit characteristics of corporate credits and portfolio stability promoted through geographic and product type investment diversification.
•Provide Proactive Portfolio and Asset Management Services: Our management team believes that a proactive approach to portfolio and asset management is essential for maximizing risk-adjusted returns for our stockholders. This focus often allows us to pre-identify risks in our portfolio and take appropriate steps to mitigate them. Examples of ways in which we proactively manage risks include engaging in stringent property and lease compliance oversight, making regular on-site visits, developing deep tenant relationships and continuously monitoring tenant credit. We also proactively seek to add value to our portfolio through strategic property improvements, dynamic re-leasing strategies and other value-add strategies.
•Utilize Highly Selective Acquisition Criteria for Income-Producing Properties with Potential for Future Appreciation: We seek to make investments that satisfy the primary investment objective of providing regular cash distributions to our stockholders. However, because a significant factor in the valuation of income-producing real property is its potential for future appreciation, some properties we acquire may have the potential both for growth in value and for providing regular cash distributions to our stockholders.
•Prudent Use of Leverage: We may incur indebtedness in the form of bank borrowings, purchase money obligations to the sellers of properties and publicly or privately placed debt instruments or financing from institutional investors or other lenders. We have an existing credit facility (the “Credit Facility”), which we may amend, modify, or replace from time to time. We may borrow using our Credit Facility or other financings or obtain separate loans for each acquisition. Our indebtedness may be unsecured or may be secured by mortgages, other interests in our properties, guarantees and/or pledges of membership interests and may involve securitization vehicles. We may use borrowing proceeds to finance acquisitions of new properties, to pay for capital improvements, repairs or buildouts, to repay or refinance existing indebtedness, to pay distributions, to fund redemptions of our shares or to provide working capital.
We may re-evaluate and change our debt strategy and policies in the future. Factors that we may consider when re-evaluating or changing our debt strategy and policies include then-current economic and market conditions, the relative cost of debt and equity capital, any acquisition opportunities, the ability of our properties to generate sufficient cash flow to cover debt service requirements and other similar factors. Further, we may increase or decrease our ratio of debt to equity in connection with any change of our borrowing policies.
•Use of Joint Ventures: We have acquired and may continue to acquire some of our properties through joint ventures, including general partnerships, co-tenancies and other participations with real estate developers, owners and others. We may enter into joint ventures for a variety of reasons, including to own and lease real properties that would not otherwise be available to us, to diversify our sources of equity, to create income streams that would not otherwise be available to us, to facilitate strategic transactions with unaffiliated third parties, and/or to further diversify our portfolio by geographic region or property type. These joint ventures may be programmatic relationships with domestic or international institutional sources of capital. In determining whether to invest in a particular joint venture, we will
evaluate the interests in real property that such joint venture owns or is being formed to own under the same criteria that we use to evaluate other real estate investments.
•Value Creation Through Strategic Capital Recycling: We pursue an efficient capital allocation strategy that seeks to maximize the value of our portfolio. We may also seek to make improvements to our properties if we believe such investments will generate an attractive return on our capital. For example, from time to time we will have tenants that elect to vacate our properties. While we will typically seek to immediately re-lease the property to a new tenant, there may be times where physical investment is necessary to maximize potential tenant demand. In such instances, we may elect to make such investments, but only if we believe both market demand and the increase in prospective rental rates justifies our investment on a risk-adjusted basis. If they do not, then we may elect to sell the asset and redeploy the proceeds in a manner that is consistent with our qualification as a REIT. We determine whether a particular property should be sold or otherwise disposed of based on factors including prevailing economic conditions, other investment opportunities and considerations specific to the condition, value and financial performance of the property and our portfolio. As of December 31, 2021, we had sold 17 properties and one land parcel since our inception, including three properties during the year ended December 31, 2021.
Investment Policies and our Organizational Documents
Our charter currently requires that we invest our funds in the manner required by various provisions of the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association. The following is a summary of certain provisions of our charter and does not purport to be a complete description of each of the provisions and limitations contained therein. A complete copy of our charter can be found in the exhibit list to this Annual Report on Form 10-K.
Our charter requires that our independent directors review our investment policies at least annually to determine that our policies are in the best interests of our stockholders. Each determination and the basis therefor is required to be set forth in the applicable meeting minutes. The methods of implementing our investment policies may also vary as new investment techniques are developed.
A majority of the directors on our Board of Directors (the “Board”), including a majority of our independent directors, may alter the methods of implementing our investment objectives and policies, except as otherwise provided in our charter, without the approval of our stockholders. Certain investment policies and limitations specifically set forth in our charter, however, may only be amended by a vote of the stockholders holding a majority of our outstanding shares.
Our Board may change any and all such investment objectives or policies, including our focus on single-tenant, business-essential office and industrial properties, if it believes such changes are in the best interests of our stockholders. We intend to notify our stockholders of any change to our investment policies by disclosing such changes in a public filing.
Our organizational documents do not impose limitations on the number, size or type of properties that we may acquire or on the amount that may be invested in any particular property type or single property, though each acquisition is required to be approved by our Board.
Our organizational documents also do not impose limitations on the amount we can borrow for the purchase of any property. These documents provide that our aggregate borrowings, secured and unsecured, must be reasonable in relation to our net assets and must be reviewed by our Board at least quarterly. Our charter currently limits our borrowing to 300% of our net assets (equivalent to approximately 75% of the cost of our assets) unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders in our next quarterly report, along with the justification for such excess.
We do not expect to engage in any significant lending and have not engaged in significant lending over the past three years. Certain of our corporate governance policies limit our ability to make loans to directors, executive officers and certain other related persons. However, we do not otherwise have a policy limiting our ability to make loans to other persons, although our ability to do so may be limited by applicable law, such as the Sarbanes-Oxley Act.
Our charter restricts us from engaging in various types of transactions with affiliates. A majority of our directors (including the independent directors) must generally approve any such transactions, as detailed further in our charter.
Exchange Listing and Other Strategic Transactions
While we are currently operating as a perpetual-life REIT, we may consider from time to time potential liquidity events (each, a “Strategic Transaction”). We are not prohibited by our charter or otherwise from engaging in such Strategic Transactions at any time. Subject to certain significant transactions that require stockholder approval, such as dissolution, merger into another entity in which we are not the surviving entity, consolidation or the sale or other disposition of all or substantially all of our assets, our Board maintains sole discretion to change our current strategy to pursue Strategic Transactions or otherwise if it believes such a pursuit is in the best interest of our stockholders.
Competition
The commercial real estate markets in which we operate are highly competitive. The leasing of real estate is also often highly competitive, and we may experience competition for tenants from owners and managers of competing projects.operations. As a result, we may have to provide free rent, incur charges for tenant improvements, or offer other inducements, or we mightmeasure our success not be able to timely lease the space, all of which may have material adverse effect on us. Competition may also lead to an increase in tenants electing to not renew their lease, seeking to reduce the amount of space they lease with us and/or seeking shorter lease terms, which may also have a material effect on us. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers for our properties.
Overview
Our business is subject to many laws and governmental regulations. Changes in these laws and regulations, or their interpretationonly by agencies and courts, occur frequently. We and any of our operating subsidiaries that we may form may be subject to state and local tax in states and localities in which they or we do business or own property. The tax treatment of us, the GRT OP, any of our operating subsidiaries we may form and the holders of our shares in local jurisdictions may differ from our U.S. federal income tax treatment.
Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 (the “ADA”), all public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. Failing to comply could result in the imposition of fines by the federal government or an award of damages to private litigants. Although we diligence compliance with laws, including the ADA, when we acquire properties, we may incur additional costs to comply with the ADA or other regulations related to access by disabled persons. Although we believe that these costs will not have a material adverse effect on us, if required changes involve a greater amount of expenditures than we currently anticipate, our ability to make expected distributions could be adversely affected.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of removing or remediating hazardous or toxic substances. These laws often impose clean-up responsibility and liability without regard to whether the owner or operator was responsible for, or even knew of, the presence of the hazardous or toxic substances. The costs of investigating, removing or remediating these substances may be substantial, and the presence of these substances may adversely affectgenerate profits but also our ability to lease or sellreduce our impact on the property or to borrow using the property as collateralenvironment, affect positive social change in our community and may expose us to liability resulting from any release of or exposure to these substances. If we arrange for the disposal or treatment of hazardous or toxic substances at another location, we may be liable for the costs of removing or remediating these substances at the disposal or treatment facility, whether or not the facility is owned or operated by us. We may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site that we own or operate. Certain environmental laws also impose liabilityconduct our operations in connectionaccordance with the handlinghighest ethical standards.
Environmental Responsibility
We strive to consciously manage our operations in a way that minimizes our impact on the environment and promotes sustainability. At our headquarters, we leverage the latest technology to minimize our energy use, such as efficient and automated lighting systems, moderation and monitoring of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materialsheating and other hazardous or toxic substances. We maintain a pollution insurance policy forair conditioning, and recycling paper, plastics, metals and electronics. In addition, we encourage all of our propertiesemployees to insure againstadopt sustainable best practices. For example, we promote the potential liabilityuse of remediationelectronic communication over printing whenever possible and exposure risk.have implemented electronic approval systems. We also encourage our employees to use clean modes of transportation by providing safe bicycle storage areas as well as free electric vehicle charging stations.
Other Regulations
The propertiesWithin our portfolio, we own multiple LEED certified and operate generally are subjectEnergy Star certified properties and partner with our tenants to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failureimplement energy efficiency wherever possible in order to comply with these requirements could result inminimize the imposition of fines by governmental authorities or awards of damages to private litigants. Through our due diligence process and protections in our leases, we aim to own and operate properties that are in material compliance with all such regulatory requirements. However, we cannot assure our stockholders that these requirements will not be changed or that new
requirements will not be imposed which would require significant unanticipated expenditures by us and could have an adverse effect on our financial condition and results of operations.
We conduct our operations so that we and our subsidiaries are not required to register as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”) and monitor the structure and natureenvironmental impact of our assets sobuildings and emphasize the health and well-being of building occupants. We also ensure that we do not come withinall investment decisions receive thorough environmental screenings and impact assessments and strive to implement the definition of an "investment company" under the 1940 Act. If welatest in sustainable technology when developing or improving our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we may be required to, among other things, substantially change the manner in which we conduct our operations to avoid being required to register as an investment company under the 1940 Act or register as an investment company under the 1940 Act.properties.
Social Impact
Human Capital Management
GRT is internally managed by an experienced and proven team that specializes in office and industrial properties. As of December 31, 2021, we employed 41 people. We believe our employees are our greatest asset.Because of this perspective,asset, and we pride ourselves on the diversity they bring to our firm. We have implemented a number of programs to foster not only their professional growth andbut also their growth as global citizens.
We offer all of our employees a comprehensive benefits and wellness package, which includes paid time off and parental leave, high-quality medical, dental and vision insurance, disability, pet and life insurance, fitness programs, 401(k) contributions and long-term incentive plans. We also encourage internal mobility in our organization and provide career enhancement and education opportunities, as well as educational grants.
We believe that a wide range of opinions and experiences are key to our continued success, and we therefore value racial, gender,diversity and generational diversityinclusivity throughout our organization. As of December 31, 2021, approximately 51% of our employees were people of color/minoritiesfrom underrepresented groups and approximately 46% were women. In addition, as of December 31, 2021, half of our eight-member Board was composed of women and/were from underrepresented groups or minorities.
were women.
Our social policy extends beyond the individuals within our organization and encouragesincludes our employeesability to have a positive impact on the community around us. Throughout our organization, we have a shared passion and dedication to giving back and for this reason we offer gift matching and paid time off to volunteer as well as engage in various corporate-level charitable efforts and service work opportunities.
Corporate Governance
We believe maintaining a rigorous corporate governance framework is essential to the communities in whichsuccess of our organization and we livepride ourselves on diligently adhering to policies and work.
Available Information
We make available on the “SEC Filings” subpageprocedures that ensure transparency, accountability, oversight and risk minimization across all levels of the investor sectionCompany. This includes the committees of our website (www.grtreit.com) freeBoard of charge our annual reports on Form 10-K, including this Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, ownership reports on Forms 3, 4 and 5Directors, which oversee a wide range of matters such as investment activities, executive compensation and any amendmentsconflict of interest related matters.
We also adhere to those reports as soon as practicable afterwhat we electronically file such reports withbelieve to be industry leading policies to ensure our management and employees are acting in a manner which protects the SEC. Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov. Further, copiesbest interest of our stakeholders. This includes our Code of Ethics and Business Conduct, Whistleblower Policy, Insider Trading Policy and much more.
Risk Management Role of the chartersBoard
As part of its oversight role, our Board of Directors actively supervises the members of our management that are directly responsible for theour day-to-day risk management, including our Chief Financial Officer and Treasurer and General Counsel and Chief Administrative Officer. The Audit Compensation, and Nominating and Corporate Governance CommitteesCommittee of our Board are alsoof Directors, which consists solely of independent directors, annually reviews with management our policies with respect to risk assessment and risk management, particularly in the areas of insurance, regulatory compliance, financial risk management, investments and due diligence, and capital flow.
Audit Committee
Our Board has an Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act, which assists the Board in fulfilling its responsibilities to stockholders concerning our financial reporting and internal controls and facilitates open communication among the Audit Committee, the Board, outside auditors and management. A copy of the charter of our Audit Committee is available onin the “Governance Documents” subpage of our website.
ITEM 1A. RISK FACTORS
Stockholders should carefully consider the following risks in evaluating our company and our common shares. If any of the following risks were to occur, our business, prospects, financial condition, liquidity, NAV per share, results of operations, cash flow, ability to satisfy our debt obligations, returns to our stockholders, the value“Investors” section of our stockholders’ investment in us and/or our ability to make distributions to our stockholders could be materially and adversely affected, which we refer herein collectively as a “material adverse effect on us.” Some statements in this Annual Report on Form 10-K, including statements in the following risk factors, constitute forward-looking statements. Refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements" for additional information regarding these forward-looking statements.
Risks Related to COVID-19
website, www.grtreit.com. The COVID-19 pandemic, and the future outbreak of other highly infectious or contagious diseases, could have a material adverse effect on us.
The COVID-19 pandemic has had, and another outbreak in the future could have, repercussions across regional and global economies and financial markets. We cannot predict when pandemic-related restrictions currently in place will be lifted to some extent or entirely and whether and when any new restrictions could be imposed. The COVID-19 pandemic is negatively impacting many industries in the United States, directly or indirectly, including industries in which the Company and our
tenants operate, which could result in a general decline in rents, an increased incidence of defaults under existing leases and negatively impact our ability to achieve new leases as existing leases expire. The extent to which federal, state or local governmental authorities grant rent relief or other relief or enact amnesty programs applicable to our tenants in response to the COVID-19 pandemic may exacerbate the negative impacts that a slow down or recession could have on us.
Demand for office space nationwide has declined and is likely to continue to decline due to the current economic downturn, bankruptcies, downsizing, layoffs, government regulations and restrictions on travel and permitted businesses operations that may be extended in duration and become recurring, increased usage of remote working arrangements and cost cutting resulting from the COVID-19 pandemic, which could lead to our office tenants electing to not renew their leases, or to renew their leases for less space than they currently occupy, which could increase vacancy rates and decrease rental income. The increase in remote work practices is likely to continue in a post-pandemic environment. Changes to tenants’ space requirements and configurations may require us to spend increased amounts for property improvements. Additionally, if substantial office space reconfiguration is required, tenants may pursue relocating to other office space more attractive than renewing their leases and renovating the existing space, which could have a material adverse effect on us.
The significance, extent, and duration of the overall operational and financial impact of the COVID-19 pandemic on our business is highly uncertain and cannot be predicted with confidence, including the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States, the speed of the vaccine distribution, effectiveness and willingness of people to take COVID-19 vaccines, the duration of associated immunity and efficacy against emerging variants of COVID-19, the extent and effectiveness of other containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in areas in which we operate. If we cannot operate our properties so as to meet our financial expectations, because of these or other risks, we may be prevented from growing the values of our properties and it may have a material adverse effect on us.
Furthermore, we cannot predict the impact that the COVID-19 pandemic will have on our tenants and other business partners; however, any material effect on these parties could have a material adverse effect on us.
Risks Related to Our Common Stock
There is currently no public trading market for shares of our common stock and there may never be one; therefore, it will be difficult for our stockholders to sell their shares. Our stockholders may be unable to sell their shares of our common stock under our SRP, and even if our stockholders are able to sell their shares under our SRP, they may not be able to recover the amount of their investment in shares of our common stock.
There is currently no public market for shares of our common stock and there may never be one.
Our SRP includes numerous restrictions on a stockholder’s ability to sell their shares to us. These restrictions include a prohibition on the sale of shares to use until the conclusion of a holding period of one year. Further, our SRP generally imposes a quarterly cap on aggregate redemptions of shares of our common stock. Our Board may limit, suspend, terminate or amend any provision of our SRP at any time upon 30 days’ notice. Our Board has previously suspended our SRP, including most recently on October 1, 2021. Even if the SRP is active and in effect, we may not have sufficient cash to satisfy the permitted quarterly value of redemption requests.
Furthermore, to ensure that we do not fail to qualify as a REIT, our charter also prohibits the ownership by any Person (as defined in our charter) of more than 9.8% (in value or in number, whichever is more restrictive, as determined in good faith by our Board) of the aggregate of our common stock or more than 9.8% of the value (as determined in good faith by our Board) of the aggregate of outstanding Shares (as defined in our charter), unless waived by our Board. Such restriction may inhibit large investors from desiring to purchase a stockholder’s shares, including in connection with a takeover that could otherwise result in a premium price for our stockholders, and could impose further impediments to a stockholder’s ability to sell shares of our common stock.
Our published NAV per share amounts may change materially if the appraised values of our properties materially change from prior appraisals or if actual operating results differ from our historical and/or anticipated results. Additionally, no NAV per share that we publish will reflect changes in our NAV that are immediately quantifiable, including potentially material changes.
We update our NAV per share on a yearly basis based on third-party appraisals of our properties, which are impacted by real estate market events that are known to be material to our NAV. The valuations reflect information provided to the appraisers with a reasonable time to analyze such information. Annual third-party appraisals of our properties using an appraisal report format are conducted on a rolling basis, such that properties will be appraised at different times throughout any given year with each property generally appraised at least once per calendar year. These appraisals involve subjective judgments and
are not necessarily representative of the price at which an asset or liability would sell pursuant to negotiation between an arms’ length buyer and seller. We will not retroactively adjust the NAV per share of any class reported. Therefore, because a new annual appraisal may differ materially from the prior appraisal or the actual results from operations may be better or worse than what we previously assumed, the adjustment to reflect the new appraisal or actual operating results may cause the NAV per share for any class of our common stock to increase or decrease. Additionally, notification of property and real estate market events may lag the actual event and events may be missed, unknown or difficult to value.Furthermore, the NAV per share that we publish will not reflect changes in NAV that are not immediately quantifiable, including potentially material changes, 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.
On October 1, 2021, we reported that we had temporarily suspended our quarterly publishing of net asset value per share of common stock. Our Board authorized the suspension in light of the pursuit of certain strategic initiatives. We intend to resume publishing a net asset value per share of common stock at such time asAudit Committee assists our Board determines is appropriate and no later than one year from the most recent net asset value publication, which was as of June 30, 2021. As a result, our net asset value may be materially different than our most recent published net asset value.
Our NAV is not a GAAP measure and involves certain subjective judgments by the Company, the independent valuation management firms and other parties involved in valuing our assets and liabilities.
Our valuation procedures are not subject to GAAP and our NAV is not a GAAP measure. Our NAV may differ from prior appraisals and/or actual operating results, even if we were required to adopt a fair value basis of accounting for GAAP financial statement purposes. In addition, the implementation and coordination of our valuation procedures include certain subjective judgments of the Company, such as whether the independent valuation management firms should be notified of events specific to our properties that could affect the valuations of such properties. Such valuation procedures also include subjective judgements on the part of the independent valuation management firms 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 to adopt appropriate valuation procedures and on the independent valuation management firm 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. Our NAV is not audited or reviewed by ourby: (1) selecting an independent registered public accounting firm.firm to audit our annual financial statements; (2) reviewing with the independent registered public accounting firm the plans and results of the audit engagement; (3) approving the audit and non-audit services provided by the independent registered public accounting firm; (4) reviewing the independence of the independent registered public accounting firm; (5) considering the range of audit and non-audit fees; and (6) reviewing the adequacy of our internal accounting controls. The Audit Committee fulfills these responsibilities primarily by carrying out the activities enumerated in its charter and in accordance with current laws, rules and regulations.
The members of the Audit Committee are four independent directors, Samuel Tang, Ranjit M. Kripalani, James F. Risoleo and J. Grayson Sanders, each of whom is also independent as defined in Rule 10A-3 under the Exchange Act, with Mr. Tang serving as Chairperson of the Audit Committee. Our Board has determined that Mr. Tang satisfies the requirements for an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and has designated Mr. Tang as the audit committee financial expert in accordance with applicable SEC rules. The Audit Committee held five meetings during 2021.
Nominating and Corporate Governance Committee
General
Our NAV may not be comparableBoard has a Nominating and Corporate Governance Committee. A copy of the charter of our Nominating and Corporate Governance Committee is available in the “Governance Documents” subpage of the “Investors” section of our website, www.grtreit.com. The Nominating and Corporate Governance Committee’s primary focus is to NAV reported by other public REITs and no rule or regulation requires that we calculate our NAV in a certain way, andassist our Board including a majority of our independent directors, may adopt changesDirectors in fulfilling its responsibilities with respect to our valuation procedures.
Our NAV may not be comparable to NAV reported by other public REITs because our calculationdirector nominations, corporate governance, Board of NAV may be different from the NAV calculations used by other public REITs. While the Institute for Portfolio Alternatives sets forth certain “best practices” guidelines for non-traded REITs to use in calculating NAV, there are no existing rules or regulatory bodies that specifically govern the manner in which we calculate our NAV. Other public REITs may use different methodologies or assumptions to determine their NAV. In addition, each yearDirectors and committee evaluations and conflict resolutions. The Nominating and Corporate Governance Committee assists our Board including a majority of our independent directors, reviews the appropriateness of its valuation procedures and may, at any time, adopt changesDirectors in this regard by: (1) identifying individuals qualified to the valuation procedures. During such review,serve on our Board may change aspects of our valuation procedures, which changes may have a material adverse effect on us.
We may be unable to maintain cash distributions or increase distributions over time.
We may be unable to maintain cash distributions or increase distributions over time. The amount of cash available for distribution will be affected by many factors, such as our operating expense levels, and many other variables. Actual cash available for distribution may vary substantially from estimates. We cannot assure our stockholders that we will be able to pay or maintain distributions or that distributions will increase over time, nor can we give any assurance that rents from the properties will increase. Our actual results may differ significantly from the assumptions usedDirectors, consistent with criteria approved by our Board of Directors, and recommending that our Board of Directors select a slate of director nominees for election by our stockholders at the annual meeting of our stockholders; (2) developing and implementing the process necessary to identify qualified candidates for our Board of Directors; (3) determining the advisability of retaining any search firm or consultant to assist in establishing the distribution rateidentification and evaluation of candidates for membership on our Board of Directors; (4) overseeing an annual evaluation of our Board of Directors, each of the committees of our Board of Directors and management; (5) developing and recommending to our stockholders.
Our stockholders are subjectBoard of Directors a set of corporate governance principles and policies; (6) periodically reviewing our corporate governance principles and policies and suggesting improvements thereto to the risk that our businessBoard of Directors; and operating plans may change, including that we may pursue a Strategic Transaction.
We may consider Strategic Transactions from time to time.We are not prohibited(7) considering and acting on any conflicts-related matter required by our charter or otherwise from engaging in Strategic Transactions at any time. Subject to certain significant transactions that require stockholder approval, our Board maintains sole discretion to change our current strategy to pursue Strategic Transactions or otherwise if it believes such a change is in the best interest of our stockholders. There can be no assurance, however that any Strategic Transaction will occur.
Our Board may also change our investment objectives, targeted investments, borrowing policies or other corporate policies without stockholder approval.
The value ascribed to our shares of common stock in connection with any Strategic Transaction may be lower than our published NAV, any given stockholder’s initial investment cost and/or the value of our assets under the fair value basis of accounting for GAAP financial statements and our stockholders could suffer a loss in the event that they seek liquidity at a Strategic Transaction price per share. Furthermore, because we have a large amount of outstanding shares of stock which are readily tradable, access to liquidity may trigger significant pent-up demand to sell shares of our common stock. Significant sales of shares of our common stock, or the perception that significant sales of such shares could occur, may cause any market price of our common stock to decline significantly.
In the event that we complete a Strategic Transaction, the value of our shares in connection with such Strategic Transaction may be lower than our published NAV, any given stockholder’s initial investment cost and/or the value of our assets under the fair value basis of accounting for GAAP financial statement. For example, if our shares are listed on a national securities exchange, the price at which the shares are listed may be lower than the most recent published NAV per share of our common stock.
Furthermore, because our common stock is not listed on any national securities exchange, the ability of our stockholders to liquidate their investments is limited. As a result, there may be significant pent-up demand to sell shares of our common stock. A large volume of sales of shares of our common stock could decrease the prevailing market price of our common stock significantly. Regardless of whether a substantial number of sales of our shares of common stock actually occurs, the mere perception of the possibility of these sales could depress the market price of our common stock, and have a material adverse effect on us.
Risks Related to Our Conflicts of Interest
Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of GRT OP Units, which may impede business decisions that could benefit our stockholders. Additionally, the chairman of our Board is a controlling person of entities that own GRT OP Units, and therefore may face conflicts with regard to his fiduciary duties to the Company and those entities.
Conflicts of interest exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and the GRT OP or any partner thereof, on the other. Our directors and officers have duties to the Company under applicablepermitted by Maryland law in connection with their managementwhere the exercise of the Company. At the same time, we, as the general partner of the GRT OP, have fiduciary duties, and obligations to the GRT OP and its limited partners under Delaware law and the partnership agreement of the GRT OP in connection with the management of the GRT OP. Our fiduciary duties and obligations as general partner to the GRT OP and its partners may come into conflict with the dutiesindependent judgment by any of our directors, and officers to the Company. Additionally, the partnership agreement provides that we and our directors and officers willwho is not an independent director, could reasonably be liable for monetary damages to the GRT OP, any partners or assignees for losses sustained or liabilities incurred as a result of errors in judgment orcompromised, including approval of any act or omission if we acted in good faith. Moreover, the partnership agreement provides that the GRT OP is required to indemnify us, as general partner,transaction involving any of our officers,affiliates. The Nominating and Corporate Governance Committee fulfills these responsibilities primarily by carrying out the activities enumerated in its charter and in accordance with current laws, rules and regulations.
The members of the Nominating and Corporate Governance Committee are three independent directors, or employeesGregory M. Cazel, Kathleen S. Briscoe, and other personsJ. Grayson Sanders, with Mr. Cazel serving as we may designate fromChairperson of the Nominating and against anyCorporate Governance Committee. The Nominating and all losses, claims, damages, liabilities, joint or several, expenses (including reasonable legal fees and expenses), judgments, fines, settlements and other amounts incurred in connection with any claims, demands, actions, suits or proceedings, relatingCorporate Governance Committee held five meetings during 2021.
Corporate Governance
Pursuant to the operationsNominating and Corporate Governance Committee Charter, the Nominating and Corporate Governance Committee developed and recommended a set of the GRT OP. No reported decision of a Delaware appellate court has interpreted provisions similar to the provisions of the partnership agreement of the GRT OP that modify and reduce our fiduciary duties or obligations as the general partner or reduce or eliminate our liabilityformal, written guidelines for money damages to the GRT OP and its partners. Additionally, the chairman of our Board is a controlling person of entities that own GRT OP Unitscorporate governance, which may be exchanged for our common stock in the future. The chairman of our Board may also make decisions on behalf of those entities.
Risks Related to Our Corporate Structure
Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay, defer or prevent a change of control transaction that might involve a premium price for our shares or that our stockholders otherwise believe to be in their best interest.
Our charter contains certain ownership limits with respect to our shares.
Generally, to maintain our qualification as a REIT, no more than 50% in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year (except with respect to the first taxable year for which an election to be taxed as a REIT is made). The Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities. Our charter authorizes our Board to take such
actions as it determines are necessary or appropriate to preserve our qualification as a REIT. Our charter prohibits the ownership by any Person (as defined in our charter) of more than 9.8% (in value or in number, whichever is more restrictive, as determined in good faithwere adopted by our Board)full Board of Directors.
The Nominating and Corporate Governance Committee also, from time to time, reviews the aggregate of our common stock or more than 9.8% of the value (as determined in good faith by our Board) of the aggregate of our outstanding Shares (as defined in our charter), unless waived by our Board. For these purposes, our charter includes a “group” as that term is used for purposes of Section 13(d)(3) of the Exchange Act in the definition of “Person.” Our Board may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied.
This ownership limitgovernance structures and the other restrictions on ownership and transfer of our shares contained in our charter may:
•discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our shares or that our stockholders might otherwise believe to be in their best interest; or
•result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.
Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that might involve a premium price for our shares or that our stockholders might otherwise believe to be in their best interest.
Certain provisions of the MGCL may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of common stock with the opportunity to realize a premium price for our common stock, including:
• “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then-outstanding voting shares at any time within the two-year period immediately prior to the date in question) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter impose fair price and/or supermajority shareholder voting requirements on these combinations; and
• “control share” provisions that provide that a shareholder’s “control shares” of our Company (defined as shares (other than shares acquired directly from us) that, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to their control shares, except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
As permitted by the MGCL, we have elected to opt out of the business combination and control share provisions of the MGCL. However, we cannot assure you that our Board will not opt to be subject to such provisions of the MGCL in the future, including opting to be subject to such provisions retroactively.
Further, Maryland statutory law provides that an act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director. Hence, directors of a Maryland corporation by statute are not required to act in certain takeover situations under the same standards of care, and are not subject to the same standards of review, as apply in Delaware and other corporate jurisdictions.
Our stockholders’ investment return would be reduced if we were required to register as an investment company under the 1940 Act and we would not be able to continue our business unless and until we registered under the 1940 Act.
We conduct our operations so that we and our subsidiaries are not required to register as an investment company under the 1940 Act.
To maintain compliance with our 1940 Act exemption, we may be unable to sell assets we would otherwise want to sell and may sell assets we would otherwise wish to retain. If we or our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we may be required to, among other things, substantially change the manner in which we conduct our operations
to avoid being required to register as an investment company under the 1940 Act or alternatively, register as an investment company under the 1940 Act. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take controlprocedures of the Company and liquidatesuggests improvements thereto to our business.full Board of Directors. Such improvements, if adopted by the full Board of Directors, will be incorporated into the written guidelines.
Periodic Evaluations
The Nominating and Corporate Governance Committee conducts an annual evaluation of its own performance and oversees the annual evaluations of our Board of Directors, each of the other committees of our Board of Directors and management.
Our stockholders’ interest in the Company will be diluted if we issue additional sharesConflicts of Interest
The Nominating and Corporate Governance Committee considers and acts upon any conflicts of interest-related matter required by our charter or if GRT OP issues additional units.
Our stockholders’ interest in the Company will be diluted if we issue additional shares. Our stockholders do not have preemptive rights to any shares issuedotherwise permitted by us in the future. Subject to Maryland law our Board may increasewhere the numberexercise of authorized shares of stock, increase or decrease the number of shares ofindependent judgment by any class or series of stock designated, or reclassify any unissued shares without obtaining stockholder approval. Further, our outstanding and any later-issued Series A Preferred Shares may be converted into our common stock under certain circumstances. Existing stockholders will experience dilution of their equity investment or voting power in the Company if we issue additional shares in the future, including issuing shares of restricted common stock or restricted stock units (“RSUs”) to our independent directors and executive officers, issuing shares in connection with an exchange of limited partnership interests of the GRT OP, or converting shares of the outstanding tranche of our Series A Preferred Shares into shares of our common stock and an additional tranche of Series A Preferred Shares that we are obligated to issue under certain circumstances and/or issuing shares under our DRP. Furthermore, because we own all of our assets and liabilities through the GRT OP, directly or indirectly through subsidiaries, to the extent we issue additional GRT OP unit, our stockholders' overall interest in our company will be diluted.
Our rights and the rights of our stockholders to recover claims against our officers and directors are limited, which could reduce our stockholders’ and our recovery against them if they cause us to incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter requires us to indemnify our directors and officers to the maximum extent permitted under Maryland law. Additionally, our charter limits the liability of our directors, who is not an independent director, could reasonably be compromised, including approval of any transaction involving our affiliates. Our independent directors must approve such transactions as fair and officers for monetary damagesreasonable to the maximum extent permitted under Maryland law. The former directorsus and officers of EA-1 also have indemnification agreements that we previously assumed for claims relating to such person’s status as a former director or officer of EA-1. Further,on terms and conditions not less favorable than those available from unaffiliated third parties, based upon standards set forth in our charter permitsand Code of Ethics, as well as applicable laws, rules and regulations.
Compensation Committee
Our Board has a Compensation Committee. A copy of the Company,charter of our Compensation Committee Charter is available in the “Governance Documents” subpage of the “Investors” section of our website, www.grtreit.com. The primary focus of the Compensation Committee is to assist our Board of Directors in fulfilling its responsibilities with respect to officer and director compensation. The Compensation Committee assists our Board of Directors in this regard by: (1) reviewing and approving our corporate goals with respect to compensation of executive officers; (2) reviewing and acting on compensation levels and benefit plans for our executive officers, (3) recommending to our Board of Directors compensation for all non-employee directors, including Board of Directors and committee retainers, meeting fees and equity-based compensation; (4) administering and granting awards under the Plan (as defined below); and (5) setting the terms and conditions of such awards in accordance with the approvalPlan. The Compensation Committee fulfills these responsibilities in accordance with its charter and current laws, rules and regulations.
The members of the Compensation Committee are three independent directors, Ranjit M. Kripalani, Samuel Tang, and J. Grayson Sanders, with Mr. Kripalani serving as Chairperson of the Compensation Committee. Our Board of Directors has determined that each member of the Compensation Committee is a “non-employee director” as defined in the SEC’s Rule 16b-3. The Compensation Committee held three meetings during 2021.
Capital Committee
Our Board also has a Capital Committee, which is comprised of Kathleen Briscoe, Kevin Shields, Michael Escalante, Gregory Cazel and Samuel Tang. Ms. Briscoe currently serves as the Chairperson of our Capital Committee. Our Capital Committee operates pursuant to a written charter adopted by our Board to provide such indemnificationof Directors, which sets forth the Capital Committee’s specific functions and advancement of expenses to anyresponsibilities. The purpose of our employees or agents. As a result, weCapital Committee is to:
• assist our Board of Directors in fulfilling its oversight responsibilities with respect to acquisitions, dispositions, development projects, financings and other similar investments by us;
• assist our stockholders may have more limited rights against our directors,executive officers employees and agents, than might otherwise exist under common law, which could reduce our stockholders’management in evaluating and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employeesformulating proposed investments; and agents
• review and assess proposed investments in some cases which would decrease the cash otherwise available for distribution to our stockholders.
Holderslight of our Series A Preferred Shares have a right to require us to redeem the Series A Preferred Shares for cash in the event that we have not listed our securities on a national exchange by a certain date. This redemption obligation requires us to allocate cash to such redemption on limited notice when there may be a shortage of cash or when we may prefer to allocate cash to other uses consistentstrategic goals and objectives.
Stockholder Communications with our business plans. Such holders also have a right to convert their Series A Preferred Shares into common shares as soon as August 2023 and such conversion would dilute the interests of our other stockholders. Furthermore, we may be obligated to issue a second tranche of such securities, increasing the holder’s interest in our Company and further diluting the interests of other stockholders. Any of the foregoing risks could have a material adverse effect on us.Directors
We have issued 5,000,000 Series A Preferred Shares that rank seniorestablished several means for stockholders to all other shares of our stock, including our common stock, and grant the holder certain rights that are superior or additional to the rights of common stockholders, including with respect to the payment of distributions, liquidation preference, redemption rights, and conversion rights. Distributions on the Series A Preferred Shares are cumulative and are declared and payable quarterly in arrears. We are obligated to pay the holder of the Series A Preferred Shares its current distributions and any accumulated and unpaid distributions prior to any distributions being paidcommunicate concerns to our common stockholders and, therefore, any cash available for distribution is used first to pay distributions toBoard of Directors. If the holder of the Series A Preferred Shares. The Series A Preferred Shares also have a liquidation preference in the event of our voluntary or involuntary liquidation, dissolution, or winding up of our affairs (a “liquidation”) which could negatively affect any payments to the common stockholders in the event of a liquidation. Under the terms of the original purchase agreement for the Series A Preferred Shares, the holder of the Series A Preferred Shares agreed to purchase an additional 5,000,000 Series A Preferred Shares at a later date for an additional purchase price of $125.0 million, subject to satisfaction of certain conditions. Accordingly, under certain circumstances, we may be obligated to issue a second tranche of the Series A Preferred Shares.
The holder of the Series A Preferred Shares has a right to require us to redeem the Series A Preferred Shares (including any second tranche) for cash in the event that there has not been a listing by August 2023. This redemption obligation would require us to allocate cash to such redemption on limited notice when there may be a shortage of cash or when we would prefer to allocate cash to other uses consistent with our business plans. In addition, the holder of the Series A Preferred Shares has the right to convert any or all of the Series A Preferred Shares held by the holder into shares of our common stock beginning as soon as August 2023. Such conversion of the Series A Preferred Shares, whether the current tranche or both the current and second tranche, would be dilutiveconcern relates to our common stockholders, and, infinancial statements, accounting practices or internal controls, the event of the issuance of a second tranche and the conversion of both tranches, would result in the holder of the Series A Preferred Shares owning approximately 8.0% of our common stock.
If we fail to pay distributions on the Series A Preferred Shares for six quarters (whether or not consecutive), the holder willconcerns should be entitled to elect two additional directors of the Company (the Preferred Shares Directors”). The election will take place at the next annual meeting of stockholders, or at a special meeting of the holder of Series A Preferred Shares called for that purpose, and such right to elect Preferred Stock Directors shall continue until all distributions accumulated on the Series A Preferred Shares have been paid in full for all past distribution periods and the accumulated distribution for the then current distribution period shall have been authorized, declared and paid in full or authorized, declared and a sum sufficient for the payment thereof irrevocably set apart for payment in trust.
If any of the foregoing risks were to materialize, it could have a material adverse effect on us.
We are uncertain of our sources of funding our future capital needs. If we cannot obtain funding on acceptable terms, our ability to make necessary capital improvements to our properties may be impaired or delayed.
To continue to qualify as a REIT, we generally must distribute to our stockholders at least 90% of our taxable income each year, excluding capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our future capital needs from retained earnings. We have not identified all of our sources of funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or expand our business.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders.
Our bylaws provide that, unless we consentsubmitted in writing to the selectionChairperson of the Audit Committee of our Board of Directors in care of our Secretary at our headquarters address. If the concern relates to our governance practices, business ethics or corporate conduct, the concern should be submitted in writing to the Chairperson of the Nominating and Corporate Governance Committee of our Board of Directors in care of our Secretary at our headquarters address. If a different forum,stockholder is uncertain as to which category his or her concern relates, he or she may communicate it to any one of the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the U.S. District Court for the Districtindependent directors in care of Maryland, Baltimore Division,our Secretary. All concerns submitted in care of our Secretary will be delivered to the sole and exclusive forum for: (i) any derivative action or proceeding broughtappropriate independent director based upon our Secretary’s determination.
Though we have no formal policy on behalfthe matter, we encourage all of the Company, (ii) any action assertingmembers of our Board of Directors to attend our annual meeting of stockholders. All of the directors serving at the time of the 2021 annual meeting attended such meeting.
Code of Ethics
Our Board has adopted a claimCode of breach by any director,Ethics and Business Conduct (the “Code of Ethics”), which contains general guidelines applicable to our executive officers, including our principal executive officer, principal financial officer and principal accounting officer or controller, our directors and our other employeeofficers. We make sure that each individual subject to the Code of Ethics acknowledges reviewing and receipt thereof. We adopted our Code of Ethics with the purpose of promoting the following: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with or submit to the SEC and in other public communications made by us; (3) compliance with applicable laws and governmental rules and regulations; (4) the prompt internal reporting of violations of the CompanyCode of a duty owedEthics to our Code of Ethics Compliance Officer; and (5)
accountability for adherence to the Company or our stockholders orCode of any standardEthics. A copy of conduct set forththe Code of Ethics is available in the Maryland General Corporation Law (“MGCL”), (iii)“Governance Documents” subpage of the “Investors” section of our website, www.grtreit.com. We intend to satisfy the disclosure requirement regarding any action assertingamendment to, or waiver of, a claim arising pursuant to any provision of the MGCL including, but not limitedCode of Ethics applicable to the meaning, interpretation, effect, validity, performanceour principal executive officer, principal financial officer, principal accounting officer or enforcementcontroller, or persons performing similar functions by posting such information on our website.
Hedging Company Securities
Our Insider Trading Policy Statement prohibits our directors, executive officers, any other persons as may be designated from time to time and informed of our charter or our bylaws, or (iv) any action asserting a claim governedsuch status by the internal affairs doctrine. This exclusive forum provision does not applyCompany’s Compliance Officer, and any family and any household members of such directors, executive officers and other designated persons from engaging in any transaction involving the Company’s securities (including a stock plan transaction such as an option exercise, gift, loan, pledge, hedge, contribution to claims under the Securities Act, the
Exchange Act,a trust or any other claim for whichtransfer or the federal courts have exclusive jurisdiction Any personpurchase of financial instruments, including prepaid variable forward contracts, equity swaps, collars, and exchange funds, or entity purchasingother transactions that hedge or otherwise acquiringoffset, or holdingare designed to hedge or offset, any interestdecrease in shares of our common stock will be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time. Our Board, without stockholder approval, adopted this provision of our bylaws so that we may respond to such litigation more efficiently and reduce the costs associated with our responses to such litigation, particularly litigation that might otherwise be brought in multiple forums. This exclusive 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 the Company or our directors, officers, agents or employees, if any, and may discourage lawsuits against us and our directors, officers, agents or employees, if any. Alternatively, if a court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or moremarket value of the specified typesCompany’s equity securities) without first obtaining pre-clearance of actions or proceedings notwithstanding that the MGCL expressly provides thattransaction from the charter or bylaws of a Maryland corporation may require that any internal corporate claim be brought only in courts sitting in one or more specified jurisdictions, we may incur additional costs that we do not currently anticipate associated with resolving such matters in other jurisdictions, which could have a material adverse effect on us.Company’s Compliance Officer.
Risks Related to Our Business
We are primarily dependent on single-tenant leases for our revenue, andthe bankruptcy, insolvency, or downturn in the business of, or a lease termination or election by a tenant not to renew could have a material adverse effect on us.
Our properties are primarily leased to single tenants or will derive a majority of their rental income from single tenants and, therefore, the success of those properties is materially dependent on the financial stability of the companies to which we have leased and/or who have guaranteed such leases. Lease payment defaults, including those caused by the current economic climate, could cause us to reduce the amount of distributions we pay and/or force us to find an alternative source of revenue to meet a debt payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default under a lease, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting the property. If a lease is terminated or an existing tenant elects not to renew a lease upon its expiration, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. A default by a tenant, the failure of a guarantor to fulfill its obligations, a premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration, could have a material adverse effect on us. Additionally, in certain instances, we may enter into leases that do not include a credit party guaranty. Moreover, we can provide no assurance that our strategy of owning and operating office and industrial properties that are primarily leased to single tenants will be successful or that we will attain our investment and portfolio management objectives. Furthermore, although we have no current intention to do so, we may also invest in single-tenant, leased office and industrial properties outside of the United States and we can provide no assurance that we will have success in any such investments. The occurrence of any of the foregoing could have a material adverse effect on us.
We currently rely onfive tenants for a meaningful amount of revenue and adverse effects to their business could have a material adverse effect on us.
Our five largest tenants, based on Annualized Base Rent as of December 31, 2021, were Amazon.com, Inc. located in Illinois, Ohio and Virginia (approximately 4.5%), Keurig Green Mountain, Inc., located in Massachusetts (approximately 3.2%), General Electric Company located in Georgia, Ohio and Texas (approximately 3.1%), Wood Group USA, Inc. located in Texas (approximately 2.7%) and Cigna Corporation located in Alabama (approximately 2.5%). The revenues generated by the properties leased and/or guaranteed by these companies are substantially reliant upon the financial condition of such companies and, accordingly, any event of bankruptcy, insolvency, or a general downturn in the business of any of these tenants may result in the failure or delay of such tenant’s rental payments, which could have a material adverse effect on us.
Approximately a quarter of the leases in our portfolio are scheduled to expire in the next three years and more than a third of our leases are scheduled to expire in the next four years, which may cause a loss in the value of our stockholders’ investment until the affected properties are re-leased or sold, increase our exposure to downturns in the real estate market during the time that we are trying to re-lease or sell such space, and increase our capital expenditure requirements during the re-leasing or sale period, any of which could have a material adverse effect on us.
Our lease expirations by year based on Annualized Base Rent as of December 31, 2021 are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year of Lease Expiration (1) | | Annualized Base Rent
(unaudited) | | Number of Leases | | Approx. Square Feet | | Percentage of Annualized Base Rent |
| 2022 | | $ | 10,652 | | | 9 | | | 871,400 | | | 2.9 | % |
| 2023 | | 27,969 | | | 12 | | 1,262,300 | | 7.7 | |
| 2024 | | 47,231 | | | 20 | | 4,349,400 | | 13.1 | |
| 2025 | | 40,416 | | | 24 | | 3,052,100 | | 11.2 | |
| 2026 | | 28,691 | | | 11 | | 2,425,900 | | 7.9 | |
| 2027 | | 33,228 | | | 16 | | 1,614,700 | | 9.2 | |
| >2028 | | 173,734 | | | 63 | | 13,961,400 | | 48.0 | |
| Vacant | | — | | | — | | | 1,604,900 | | — | |
| Total | | $ | 361,921 | | | 155 | | 29,142,100 | | 100.0 | % |
(1) Expirations that occur on the last day of the month are shown as expiring in the subsequent month.
We may experience concentrations of lease expiration dates in the future. As the expiration date of a lease for a single-tenant building approaches, the value of the property generally declines because of the risk that the building may not be re-leased upon expiration of the existing lease or may not be re-leased on terms as favorable as those of the current lease(s).
Therefore, if we were to liquidate any of these assets prior to the favorable re-leasing of the space, we may suffer a loss on our investment. Our stockholders may also suffer a loss (and a reduction in distributions) after the expiration of the applicable lease term if we are not able to re-lease such space on favorable terms. These expiring leases, therefore, increase our risk to real estate downturns during and approaching these periods of concentrated lease expirations. To meet our need for cash during these times, we may have to increase borrowings or reduce our distributions, or both. The occurrence of any of the foregoing risks could have a material adverse effect on us.
Our portfolio has geographic market concentrations that make us especially susceptible to adverse developments in those geographic markets.
In addition to general, regional, national and international economic conditions, our operating performance is impacted by the economic conditions of the specific geographic markets in which we have concentrations of properties. We have significant property concentrations based on ABR as of December 31, 2021 in Texas (11.4%), California (10.9%), Arizona (9.3%) and Ohio (8.4%). In the future, we may experience additional geographic concentrations, which could adversely affect our operating performance if conditions become less favorable in any of the states or markets within such states in which we have a concentration of properties. We cannot assure you that any of our markets will grow, not experience adverse developments or that such markets will not become less desirable to investors. Our operations may also be affected if competing properties are built in our markets. A downturn in the economy in the states or regions in which we have a concentration of properties, or markets within such states or regions, could adversely affect our tenants operating businesses in those states, impair their ability to pay rent to us and materially and adversely affect us.
We may be unable to benefit from increases in market rental rates because our leases typically are long-term, have initial lease term rent escalations that are fixed and contain limitations on market rental rate resets upon renewal.
Based on ABR, as of December 31, 2021, our weighted average lease term was approximately 6.25 years and approximately 98.6% of our leases contained fixed rental rate increases during the initial lease term. By entering into longer term leases, we are subject to the risk during the initial term that we would not be able to increase our rental rates to market rental rates if prevailing rental rates have increased. In addition, during periods of high inflation, fixed rental rate increases subject us to the risk of receiving lower rental revenue than we otherwise would have been entitled to receive if the rental rate increases were based on an increase in the consumer price index over a specified period. In addition, our leases often contain provisions (including caps, collars, fixed increases, etc.) that may limit our ability to reset rental rates to market rental rates upon expiration of the initial lease term. Any inability to take advantage of increases in prevailing rental rates could adversely impact the value of our properties and on the market price of our common shares.
Our real estate investments may include special use single tenant properties, and, as such, it may be difficult to re-lease or sell these properties, which could have a material adverse effect on us.
We focus our investments on office and industrial properties, a number of which may have special uses. Special use properties may be relatively illiquid compared to other types of real estate and financial assets. Upon expiration or early termination of a lease, this illiquidity could limit our ability to quickly change our portfolio in response to changes in economic, market or other conditions to an even greater extent than the typically illiquid nature of real estate assets. With these properties, we may be required to renovate or demolish a vacant property in order to try to re-lease or sell it, grant rent or other concessions and/or make significant capital expenditures to improve theseproperties in order to retain existing tenants. In addition, in the event we are forced to sell the property, we may have difficulty selling it to a party other than the company that has leased and/or guaranteed the lease of the property due to the special purpose for which the property may have been designed. These and other limitations could have a material adverse effect on us and may affect our ability to re-lease or sell these properties upon expiration or early termination of a lease, which could have a material adverse effect on us.
We face significant competition for tenants, which may decrease or prevent increases of the occupancy and rental rates of our properties, which could have a material adverse effect on us.
The commercial real estate markets in which we operate are highly competitive. The leasing of real estate is also often highly competitive, and we may experience competition for tenants from owners and managers of competing properties. An oversupply of properties in the industries and geographies in which we concentrate could further increase competition. As a result, we may have to reduce our rental rates or to offer more substantial rent abatements, tenant improvements, early termination rights, below-market renewal options or other lease incentive payments or we might not be able to timely lease the space. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates or to offer more substantial rent abatements, tenant improvements, early termination rights, below-market renewal options or other lease incentives in order to retain tenants when our leases expire. Competition for companies that may lease or guarantee our
properties could decrease or prevent increases of the occupancy and rental rates of our properties.Furthermore, at the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers for our properties. The occurrence of any of the foregoing could have a material adverse effect on us.
We depend on current key personnel for our future success, and the loss of such personnel or inability to attract and retain personnel could harm our business and the loss of services of one or more members of our executive management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our business relationships with lenders, business partners, companies that may lease or guarantee our properties and other industry participants, any of which could have a material adverse effect on us.
Our future success will depend in large part on our ability to attract and retain a sufficient number of qualified personnel. Competition for such personnel is intense, and we cannot assure stockholders that we will be successful in attracting and retaining such skilled personnel. Our future success also depends upon the service of our executive management team, who we believe have extensive market knowledge and business relationships and will exercise substantial influence over the Company’s operating, financing, acquisition and disposition activity. Among the reasons that they are important to our success is that we believe that each has a national or regional industry reputation that is expected to attract business and investment opportunities and assist us in negotiations with lenders, companies that may lease or guarantee our properties and other industry personnel. As a result, the loss of one or more of them could harm our business. We believe that many of our other key executive personnel also have extensive experience and strong reputations in the industry. In particular, the extent and nature of the business relationships that these individuals have developed is critically important to the success of our business. The loss of services of one or more members of our executive management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business and weaken our business relationships with lenders, business partners, companies that may lease or guarantee our properties and other industry participants, any of which could have a material adverse effect on us.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, any of which could have a material adverse effect on us.
A cyber incident is any intentional or unintentional adverse event that threatens the confidentiality, integrity, or availability of our information resources and can include unauthorized persons gaining access to systems to disrupt operations, corrupting data or stealing confidential information. The risk of a cyber incident or disruption, including by computer hackers, foreign governments, information service interruptions and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks have increased globally. As our reliance on technology increases, so do the risks posed to our systems – both internal and external. Our primary risks that could directly result from the occurrence of a cyber incident are theft of assets; operational interruption; regulatory enforcement, lawsuits and other legal proceedings; damage to our relationships with our tenants; and private data exposure. A significant and extended disruption could damage our business or reputation, cause a loss of revenue, have an adverse effect on tenant relations, cause an unintended or unauthorized public disclosure, or lead to the misappropriation of proprietary, personally identifying, or confidential information, any of which could result in us incurring significant expenses to resolve these kinds of issues. Although we have implemented processes, procedures and controls based on published best practices cybersecurity controls to help mitigate the risks associated with a cyber incident, there can be no assurance that these measures will be sufficient for all possible situations. Even security measures that are appropriate, reasonable and/or in accordance with applicable legal requirements may not be sufficient to protect the information we maintain. Unauthorized parties, whether within or outside the Company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted cyber incidents evolve and generally are not recognized until launched against a target. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, making it impossible for us to entirely mitigate this risk. The occurrence of any of the foregoing risks could have a material adverse effect on us.
To the extent we are unable to pass along our property operating expenses to our tenants, our financial condition, results of operations and cash flow, may be negatively impacted.
Operating expenses associated with owning a property typically include real estate taxes, insurance, maintenance, repair and renovation costs, the cost of compliance with governmental regulation (including zoning) and the potential for liability under applicable laws. We generally lease our properties to tenants pursuant to triple-net leases that require the tenant to pay their proportionate share of substantially all such property operating expenses. However, on a limited basis we lease our properties to tenants pursuant to leases that do not pass along all such property operating expenses (e.g., triple-net leases that
cap the amount by which certain operating expenses may grow on a per annum basis and be reimbursed by the tenant, net leases (single net or double net) that require the tenant to pay their proportionate share of one or more of real estate taxes and insurance costs, modified gross leases in which a tenant pays only base rent at the lease’s inception but, in subsequent years, pays the base rent plus a proportional share of some of the property operating expenses to the extent that a tenant’s pro rata share of expenses exceeds a base year level set forth in the lease, etc.). Occasionally, we have entered into leases pursuant to which we retain responsibility for the costs of structural repairs and maintenance. An increase in property operating expenses that we are unable to pass along to our tenants could negatively impact our financial condition, results of operations and cash
flow. Similarly, vacancy in our portfolio would negatively impact our financial condition, results of operations and cash flow, as we would be responsible for all property operating expenses that we have formerly passed on to our tenants.
If global market and economic conditions deteriorate, it could have a material adverse effect on us.
Weak economic conditions generally, sustained uncertainty about global economic conditions, a tightening of credit markets, business layoffs, downsizing, industry slowdowns and other similar factors that affect our tenants could negatively impact real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio. Additionally, these factors and conditions could have an impact on our lenders or tenants, causing them to fail to meet their obligations to us. No assurances can be given regarding such macroeconomic factors or conditions, and our ability to lease our properties and increase or maintain rental rates may be negatively impacted, which may have a material adverse effect on our business, financial condition and results of operations.
Inflation may materially and adversely affect us and our tenants.
Increased inflation could have a negative impact on variable rate debt we currently have or that we may incur in the future. During times when inflation is greater than the increases in rent provided by many of our leases, rent increases will not keep up with the rate of inflation. Increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue, which may adversely affect the tenants’ ability to pay rent owed to us.
Corporate responsibility, specifically related to environmental, social, and governance (“ESG”) factors, may impose additional costs and expose us to new risks.
The importance of sustainability evaluations is becoming more broadly accepted by investors and shareholders. Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies and investment funds based upon ESG or “sustainability” metrics. Many investment funds focus on positive ESG business practices and sustainability scores when making investments and may consider a company’s sustainability score as a reputational or other factor in making an investment decision. In addition, investors, particularly institutional investors, use these scores to benchmark companies against their peers, and if a company is perceived as lagging, these investors may engage with companies to require improved ESG disclosure or performance. We may face reputational damage in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies. A low sustainability score could result in a negative perception of the Company, or exclusion of our common stock from consideration by certain investors.
If we fail to maintain effective internal controls over financial reporting, we may not be able to accurately and timely report our financial results.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. For so long as our common stock is not traded on a national securities exchange, we will be exempt from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and we can provide no assurance that the system and process evaluation and testing of our internal control over financial reporting that we perform to allow management to report on the effectiveness of such internal controls will be effective.
As a result of material weaknesses or significant deficiencies that may be identified in our internal control over financial reporting in the future, we may also identify certain deficiencies in some of our disclosure controls and procedures that we believe require remediation. If we or our independent registered public accounting firm discover any such material weaknesses or significant deficiencies, we will make efforts to further improve our internal control over financial reporting controls, but there is no assurance that we will be successful. Any failure to maintain effective controls or timely effect any necessary improvement of our internal control over financial reporting controls could harm operating results or cause us to fail to meet our reporting obligations. Ineffective internal control over financial reporting and disclosure controls could also cause investors to lose confidence in our reported financial information.
Risks Related to Investments in Real Estate
Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we cannot assure our stockholders that we will be profitable or that we will realize growth in the value of our real estate properties.
We own and operate real estate and face risks related to investments in real estate. As of December 31, 2021, our real estate portfolio included 121 properties in 26 states and 134 lessees consisting substantially of office, industrial, and manufacturing facilities and one land parcel. Our operating results will be subject to risks generally incident to the ownership of real estate. These include risks described elsewhere in this "Risk Factors" section and other risks, including the following:
•the value of real estate fluctuates depending on conditions in the general economy and the real estate business. Additionally, adverse changes in these conditions may result in a decline in rental revenues, sales proceeds and occupancy levels at our properties and could have a material adverse effect on us. If rental revenues, sales proceeds and/or occupancy levels decline, we generally would expect to have less cash available to pay indebtedness and for distribution to stockholders;
•it may be difficult to sell real estate quickly, or potential buyers of our properties may experience difficulty in obtaining financing, which may limit our ability to dispose of properties promptly in response to changes in economic or other conditions. Additionally, we may be unable to identify, negotiate, finance or consummate dispositions of our properties, on favorable terms, or at all;
•our properties may be subject to impairment losses, which could have a material adverse effect on us;
•changes in tax, real estate, environmental or zoning laws and regulations;
•changes in property tax assessments and insurance costs;
•changes in interest rates and rising inflation;
•the cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads, and our inability or the inability of our tenants to timely refinance maturing liabilities to meet liquidity needs could have a material adverse effect on us; and
•we may from time to time be subject to litigation, which may significantly divert the attention and resources of the Company’s management and result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance, and any of which could have a material adverse effect on us.
These and other risks could have a material adverse effect on us and may prevent us from realizing value from our real estate properties.
We may obtain only limited warranties when we purchase a property.
The seller of a property will often sell such property in its “as is” condition on a “where is” basis and “with all faults,”
without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements typically contain limited warranties, representations and indemnifications that will only survive for a limited period after the closing and subject to a floor and cap. Also, most sellers of large commercial properties are special purpose entities without assets other than the property itself and there is often no credit behind the surviving provisions of a purchase agreement. The purchase of properties with limited warranties and/or from undercapitalized sellers increases the risk that we may lose some or all of our invested capital in the property as well as the loss of rental income from that property and could expose us to unknown liabilities.
We may finance properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.
Lock-out provisions are provisions that generally prohibit repayment of a loan balance for a certain number of years following the origination date of a loan. We may finance properties with lock-out provisions, which could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distribution to our stockholders and may prohibit us from reducing the outstanding indebtedness with respect to any such properties by repaying or refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Any mortgage debt that we place on our properties may also impose prepayment penalties upon the sale of the mortgaged property. If a lender invokes these penalties upon the sale of a property or prepayment of a mortgage on a property, the cost to the Company to sell, repay or refinance the property could increase substantially. Lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in our stockholders’ best interests. The occurrence of any of the foregoing could have a material adverse effect on us.
If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, it could have a material adverse effect on us.
We may suffer losses that are not covered by insurance or that are in excess of insurance.There are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, fires, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. In addition, we may decide not to obtain, even though available, any or adequate earthquake or similar catastrophic insurance coverage because the premiums are too high.Generally, our leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy. Tenants are required to provide proof of insurance by furnishing a certificate of insurance to us on an annual basis. The insurance certificates are tracked and reviewed for compliance by our property manager. Separately, we obtain, to the extent available, contingent liability and property insurance and flood insurance, rent loss insurance covering at least one year of rental loss, and a pollution insurance policy for all of our properties.However, the coverage and amounts of our environmental and flood insurance policies may not be sufficient to cover our entire risk. We cannot assure stockholders that we will have adequate coverage for losses. If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, it could have a material adverse effect on us.
We are subject to risks from climate change and natural disasters such as earthquakes and severe weather conditions.
Our properties are located in areas that may be subject to climate change and natural disasters, such as earthquakes and wildfires, and severe weather conditions. Climate change and natural disasters, including rising sea levels, flooding, extreme weather, and changes in precipitation and temperature, may result in physical damage to, or a total loss of, our properties located in areas affected by these conditions, including those in low-lying areas close to sea level, and/or decreases in demand, rent from, or the value of those properties. In addition, we may incur material costs to protect these properties, including increases in our insurance premiums as a result of the threat of climate change, or the effects of climate change may not be covered by our insurance policies. Furthermore, changes in federal and state legislation and regulations on climate change could result in increased utility expenses and/or increased capital expenditures to improve the energy efficiency and reduce carbon emissions of our properties in order to comply with such regulations or result in fines for non-compliance.
The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have a geographic concentration of exposures, a single catastrophe (such as an earthquake) affecting an area in which we have a significant concentration of properties, such as in Texas, California, Ohio, Arizona, Georgia, Illinois or New Jersey, could have a material adverse effect on us. We also own at least one property near an earthquake fault line. As a result, our operating and financial results may vary significantly from one period to the next, and our financial results may be adversely affected by our exposure to losses arising from climate change, natural disasters or severe weather conditions.
Costs of complying with governmental laws and regulations, including those relating to environmental matters and the ADA, may have a material adverse effect on us.
Our operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and zoning and state and local fire and life safety requirements.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of removing or remediating hazardous or toxic substances. These laws often impose clean-up responsibility and liability without regard to whether the owner or operator was responsible for, or even knew of, the presence of the hazardous or toxic substances. The costs of investigating, removing or remediating these substances may be
substantial, and the presence of these substances may adversely affect our ability to lease or sell the property or to borrow using the property as collateral and may expose us to liability resulting from any release of or exposure to these substances, any of which could have a material adverse effect on us. If we arrange for the disposal or treatment of hazardous or toxic substances at another location, we may be liable for the costs of removing or remediating these substances at the disposal or treatment facility, whether or not the facility is owned or operated by us. We may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site that we own or operate. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances. We maintain a pollution insurance policy for all of our properties to insure against the potential liability of remediation and exposure risk. Compliance with current and future laws and regulations may require us to incur material expenditures, which could have a material adverse effect on us. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous 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.
Additionally, our tenants’ operations, the existing condition of land when we acquired 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. There are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance, which could result in material expenditures. We cannot assure our stockholders that the independent third-party environmental assessments we obtain prior to acquiring any properties we purchase will reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us.
Under the ADAall public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. The ADA generally requires that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We aim to own and operate properties that comply with the ADA or may place the burden on a third party to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to allocate responsibilities in this manner. Failing to comply could result in the imposition of fines by the federal government or an award of damages to private litigants. Although we diligence compliance with laws, including the ADA, when we acquire properties, we may incur additional costs to comply with the ADA or other regulations related to access by disabled persons. If required changes involve a greater amount of expenditures than we currently anticipate, it could have a material adverse effect on us.
Furthermore, our properties may be subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. Through our due diligence process and protections in our leases, we aim to own and operate properties that are in material compliance with all such regulatory requirements. However, we cannot assure our stockholders that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures by us and could have a material adverse effect on us.
The occurrence of any of the foregoing could have a material adverse effect on us.
If we sell properties by providing financing to purchasers, defaults by the purchasers could have a material adverse effect on us.
When we provide financing to purchasers, we will bear the risk that the purchaser may default, which could have a material adverse effect on us. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could have a material adverse effect on us.
Risks Associated with Debt Financing
If we breach covenants under our unsecured credit agreement with KeyBank and other syndication partners, we could be held in default under such agreement, which could accelerate our repayment date could have a material adverse effect on us.
If we were to default under our credit agreement, the lenders would have the ability to immediately declare the loans due
and payable in whole or in part. In such event, we may not have sufficient available cash to repay such debt at the time it
becomes due, or be able to refinance such debt on acceptable terms or at all. Pursuant to the Second Amended and Restated Credit Agreement dated as of April 30, 2019 (as amended by the First Amendment to the Second Amended and Restated Credit Agreement dated as of October 1, 2020, the Second Amendment to the Second Amended and Restated Credit Agreement dated as of December 18, 2020 and the Third Amendment to the Second Amended and Restated Credit Agreement dated as of July 14, 2021 (the “Third Amendment”), the “Second Amended and Restated Credit Agreement”), with KeyBank, National Association (“KeyBank”), as administrative agent, and a syndicate of lenders, we, through GRT OP, L.P., a Delaware limited partnership and a subsidiary of the Company, as the borrower, have been provided with a $1.9 billion credit facility consisting of the Revolving Credit Facility maturing in June 2022 with (subject to the satisfaction of certain customary conditions) a one-year extension option, a $200 million senior unsecured term loan maturing in June 2023 (the “$200M 5-Year Term Loan”), a $400 million senior unsecured term loan maturing in April 2024 (the “$400M 5-Year Term Loan”), a delayed draw $400 million senior unsecured term loan maturing in December 2025 (the "$400M 5-Year Term Loan 2025”) (collectively, the “KeyBank Loans”), and a $150 million senior unsecured term loan maturing in April 2026 (the “$150M 7-Year Term Loan”). The credit facility also provides the option, subject to obtaining additional commitments from lenders and certain other customary conditions, to increase the commitments under the Revolving Credit Facility, increase the existing term loans and/or incur new term loans by up to an additional $600 million in the aggregate. In addition to customary representations, warranties, covenants, and indemnities, the Second Amended and Restated Credit Agreement contains a number of financial covenants as described in Note 5, Debt, to our consolidated financial statements included in this Annual Report on Form 10-K.
Any of the foregoing could have a material adverse effect on us.
We have broad authority to incur debt, and our indebtedness could have a material adverse effect on us.
Subject to certain limitations in our charter that may be eliminated in the future, we have broad authority to incur debt. High debt levels would cause us to incur higher interest charges, which would result in higher debt service payments, and could be accompanied by restrictive covenants.
Our indebtedness could have a material adverse effect on us, as well as:
•increasing our vulnerability to general adverse economic and industry conditions;
•limiting our ability to obtain additional financing to fund future working capital, acquisitions, capital expenditures and other general corporate requirements;
•requiring the use of an increased portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;
•limiting our flexibility in planning for, or reacting to, changes in our business and our industry;
•putting us at a disadvantage compared to our competitors with less indebtedness; and
•limiting our ability to access capital markets or limiting the possibility of a listing on a national securities exchange.
We have placed, and intend to continue to place, permanent financing on our properties or increase our credit facility or other similar financing arrangement in order to acquire properties. We may also decide to later further leverage our properties or to rely on securitization vehicles. We may borrow funds for any purposes related to our business. A shortfall between the cash flow from our properties and the cash flow needed to service debt could have a material adverse effect on us.
Any of the foregoing could have a material adverse effect on us.
We have incurred, and intend to continue to incur, indebtedness secured by our properties. If we are unable to make our debt payments when required, a lender could foreclose on the property or properties securing such debt, which could have a material adverse effect on us.
Some of our borrowings to acquire properties will be secured by mortgages on our properties, and we may in the future rely on securitization vehicles. In addition, some of our properties contain mortgage financing. If we default on our secured
indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan or vehicle, which could have a material adverse effect on us. To the extent lenders require us to cross-collateralize our properties, or provisions in our loan documents contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure. Foreclosures of one or more of our properties could have a material adverse effect on us.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders at our current level or otherwise have a material adverse effect on us.
When providing financing, a lender could impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt, including customary restrictive covenants, that, among other things, restrict our ability to incur additional indebtedness, to engage in material asset sales, mergers, consolidations and acquisitions, and to make capital expenditures, and maintain financial ratios. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property or discontinue insurance coverage. These or other limitations may adversely affect our flexibility and limit our ability to make distributions to stockholders at our current level or otherwise have a material adverse effect on us.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to stockholders at our current level or otherwise have a material adverse effect on us.
We expect that we will incur indebtedness in the future. Interest we pay on our indebtedness will reduce cash available for distribution. Additionally, if we incur variable rate debt, increases in interest rates would increase our interest costs could reduce our cash flows and our ability to make distributions to stockholders at our current level. In addition, 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 in properties at times that may not permit realization of the maximum return on such investments. Any of the foregoing risks could have a material adverse effect on us.
Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of
operations, cash flow, per share trading price of our common shares and ability to make distributions to our shareholders.
The REIT provisions of the Code impose certain restrictions on our ability to utilize hedges, swaps and other types of
derivatives to hedge our liabilities. Subject to these restrictions, we have entered, and may continue to enter into, hedging transactions to protect ourselves from the effects of interest rate fluctuations on floating rate debt. Our hedging transactions include entering into interest rate swap agreements. These agreements involve risks, such as the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an agreement is not legally enforceable. In addition, interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates, which could reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes could materially adversely affect our financial condition, results of operations, cash flow and ability to make distributions to our shareholders. In addition, while such agreements would be intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes. Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligation under the hedging agreement.
A substantial portion of our indebtedness bears interest at variable interest rates based on US Dollar London Interbank Offered Rate and certain of our financial contracts are also indexed to USD LIBOR. Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness and could have a material adverse effect on us.
On March 5, 2021, LIBOR’s regulator, the Financial Conduct Authority, and administrator, ICE Benchmark Administration, Limited, announced that the publication of the one-week and two-month USD LIBOR maturities and non-USD LIBOR maturities will cease immediately after December 31, 2021, with the remaining USD LIBOR maturities ceasing immediately after June 30, 2023. In the U.S., the Alternative Rates Reference Committee (the “ARRC”), a group of market participants convened in 2014 to help ensure a successful transition away from USD LIBOR, has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Liquidity in SOFR-linked products has increased significantly this year after the implementation of the SOFR First best practice as recommended by the Market Risk Advisory Committee of the Commodity Futures Trading Commission.
We have term loans totaling $950 million and interest swap agreements with a total notional amount of $750 million that currently use LIBOR as a reference rate and extend past June 30, 2023. Though an alternative reference rate for LIBOR, SOFR, exists, significant uncertainties still remain. We can provide no assurance regarding the future of LIBOR and when our LIBOR-
based instruments will transition from LIBOR as a reference rate to SOFR or another reference rate. The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things, result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions. In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with contract negotiations.
U.S. Federal Income Tax Risks
Failure to continue to qualify as a REIT would adversely affect our operations and our ability to make distributions because we would incur additional tax liabilities, which could have a material adverse effect on us.
We believe we operate in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes under the Code. Qualification as a REIT involves highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Our qualification as a REIT will depend upon our ability to meet, through investments, actual operating results, distributions and satisfaction of specific stockholder rules, and various other requirements imposed by the Code.
If we fail to qualify as a REIT for any taxable year, we will 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 of losing 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. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. In addition, distributions to our stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions.
Qualification as a REIT is subject to the satisfaction of tax requirements and various factual matters and circumstances that are not entirely within our control. New legislation, regulations, administrative interpretations, or court decisions could change the tax laws with respect to qualification as a REIT or the U.S. federal income tax consequences of being a REIT. Our failure to continue to qualify as a REIT could have a material adverse effect on us.
To qualify as a REIT, and to avoid the payment of U.S. federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds, use proceeds from the issuance of securities, or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations, which could have a material adverse effect on us.
To qualify as a REIT, we will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, generally determined without regard to the deduction for dividends 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 dividends we pay with respect to any taxable year are less than the sum of (i) 85% of our ordinary income, (ii) 95% of our capital gain net income, and (iii) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on the acquisition, maintenance or development of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities, or sell assets in order to distribute enough of our taxable income to maintain our REIT status and to avoid the payment of U.S. federal income and excise taxes. We may be required to make distributions to our stockholders at times it would be more advantageous to reinvest cash in our business or when we do not have cash readily available for distribution, and we may be forced to liquidate assets on terms and at times unfavorable to us, which could have a material adverse effect on us. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash. In addition, such distributions may constitute a return of capital.
If the GRT OP fails to maintain its status as a partnership for U.S. federal income tax purposes, its income would be subject to taxation and our REIT status could be terminated.
We intend to maintain the status of the GRT OP as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the GRT OP as a partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the GRT OP could make. This would also result in our losing REIT status and becoming subject to a corporate level tax on our income. This would substantially reduce our cash available to pay distributions and the return on our stockholders’ investment, which could have a material adverse effect on us. In addition, if any of the entities through which the GRT OP owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, the underlying entity would become subject to taxation as a corporation, thereby reducing distributions to the GRT OP and jeopardizing our ability to maintain REIT status.
In certain circumstances, even if we qualify as a REIT, we and our subsidiaries may be subject to certain federal, state, and other income taxes, which would reduce our cash available for distribution to our stockholders and could have a material adverse effect on us.
Even if we qualify and maintain our status as a REIT, we may be subject to certain U.S. federal, state and local income taxes on our income and assets, including taxes and undistributed income, built in gain tax on the taxable sale of assets, tax on income from some activities conducted as a result of a foreclosure, and non-U.S., state or local income, property and transfer taxes. Moreover, if we have net income from “prohibited transactions”, that income will be subject to a 100% tax. In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our 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 GRT OP or at the level of the other companies through which we indirectly own our assets. In particular, we will be subject to U.S. federal and state income tax (and any applicable non-U.S. taxes) on the income earned by our taxable REIT subsidiaries. Any U.S. or federal, state or other taxes we pay will reduce our cash available for distribution to our stockholders and could have a material adverse effect on us.
We may be required to pay some taxes due to actions of our taxable REIT subsidiaries, which would reduce our cash available for distribution to our stockholders and could have a material adverse effect on us.
Any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for U.S. federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to U.S. federal and possibly state corporate income tax. We have elected to treat Griffin Capital Essential Asset TRS, Inc. as a taxable REIT subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of U.S. federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. To the extent that we and our affiliates are required to pay U.S. federal, state and local taxes, we will have less cash available for distributions to our stockholders.
Complying with the REIT requirements may cause us to forgo otherwise attractive opportunities, which could have a material adverse effect on us.
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 make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests, any of which could have a material adverse effect on us. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
To the extent our distributions represent a return of capital for tax purposes, a stockholder could recognize an increased capital gain upon a subsequent sale of the stockholder’s common stock.
Distributions in excess of our current and accumulated earnings and profits and not treated by us as a dividend will not be taxable to a stockholder to the extent those distributions do not exceed the stockholder’s adjusted tax basis in his or her common stock, but instead will constitute a return of capital and will reduce such adjusted basis. (Such distributions to non-U.S. stockholders may be subject to withholding, which may be refundable.) If distributions exceed such adjusted basis, then such adjusted basis will be reduced to zero and the excess will be capital gain to the stockholder (assuming such stock is held as a capital asset for U.S. federal income tax purposes). If distributions result in a reduction of a stockholder’s adjusted basis in his or her common stock, then subsequent sales of such stockholder’s common stock potentially will result in recognition of an increased capital gain.
Legislation that modifies the rules applicable to partnership tax audits may affect us.
Under the Bipartisan Budget Act of 2015, liability is imposed on the partnership (rather than its partners) for adjustments to reported partnership taxable income resulting from audits or other tax proceedings. The liability can include an imputed underpayment of tax, calculated by using the highest marginal U.S. federal income tax rate, as well as interest and penalties on such imputed underpayment of tax. It is possible that the Bipartisan Budget Act of 2015 rules could result in partnerships in which we directly or indirectly invest (including our operating partnership) being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we may have not been a partner in the partnership during the year to which the audit relates and we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. Using certain rules, partnerships may be able to transfer these liabilities to their partners. In the event any adjustments are imposed by the IRS on the taxable income reported by any subsidiary partnerships, we intend to utilize certain rules to the extent possible to allow us to transfer any liability with respect to such adjustments to the partners of the subsidiary partnerships who should properly bear such liability. However, there is no assurance that we will qualify under those rules or that we will have the authority to use those rules under the operating agreements for certain of our subsidiary partnerships.
The changes created by the Bipartisan Budget Act of 2015 rules are sweeping, and in many respects, dependent on the promulgation of future regulations or other guidance by the U.S. Department of the Treasury. Investors are urged to consult their tax advisors with respect to these changes and their potential impact on their investment in our common stock.
Legislative or regulatory tax changes related to REITs could materially and adversely affect our business.
The U.S. federal income tax laws and regulations governing REITs and their stockholders, as well as the administrative interpretations of those laws and regulations, are constantly under review and may be changed at any time, possibly with retroactive effect. No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable to us and our stockholders may be enacted. Changes to the U.S. federal income tax laws and interpretations of U.S. federal tax laws could adversely affect an investment in our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
As of December 31, 2021, we owned a fee simple interest and a leasehold interest in 114 and 7 properties, respectively, encompassing approximately 29.2 million rentable square feet. See Part IV, Item 15. “Exhibits, Financial Statement Schedules—Schedule III—Real Estate and Accumulated Depreciation and Amortization,” of this Annual Report on Form 10-K for a detailed listing of our properties. See Note 5, Debt, to our consolidated financial statements included in this Annual Report on Form 10-K for more information about our indebtedness secured by our properties.
Revenue Concentration
No lessee or property, based on Annualized Base Rent as of December 31, 2021, pursuant to the respective in-place leases, was greater than 4.5% as of December 31, 2021.
The percentage of Annualized Base Rent as of December 31, 2021, by state, based on the respective in-place leases, is as follows (dollars in thousands): | | | | | | | | | | | | | | | | | | | | |
| State | | Annualized Base Rent (unaudited) | | Number of
Properties | | Percentage of Annualized Base Rent |
| Texas | | $ | 41,117 | | | 14 | | | 11.4 | % |
| California | | 39,546 | | | 9 | | | 10.9 | |
| Arizona | | 33,546 | | | 10 | | | 9.3 | |
| Ohio | | 30,258 | | | 12 | | | 8.4 | |
| Georgia | | 24,583 | | | 5 | | | 6.8 | |
| Illinois | | 21,676 | | | 7 | | | 6.0 | |
| New Jersey | | 18,113 | | | 5 | | | 5.0 | |
| North Carolina | | 17,408 | | | 9 | | | 4.8 | |
| Massachusetts | | 16,532 | | | 5 | | | 4.6 | |
| Colorado | | 14,010 | | | 6 | | | 3.9 | |
All Others (1) | | 105,132 | | | 39 | | | 28.9 | |
| Total | | $ | 361,921 | | | 121 | | | 100.0 | % |
(1)All others account for less than 3.7% of total Annualized Base Rent on an individual state basis.
The percentage of Annualized Base Rent as of December 31, 2021, by industry, based on the respective in-place leases, is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
Industry (1) | | Annualized Base Rent (unaudited) | | Number of
Lessees | | Percentage of Annualized Base Rent |
| Capital Goods | | $ | 45,269 | | | 22 | | | 12.5 | % |
| Health Care Equipment & Services | | 32,572 | | | 11 | | | 9.0 | |
| Materials | | 28,551 | | | 10 | | | 7.9 | |
| Consumer Services | | 27,461 | | | 12 | | | 7.6 | |
| Insurance | | 26,685 | | | 11 | | | 7.4 | |
| Telecommunication Services | | 21,724 | | | 6 | | | 6.0 | |
| Diversified Financials | | 19,037 | | | 5 | | | 5.3 | |
| Technology Hardware & Equipment | | 18,786 | | | 6 | | | 5.2 | |
| Consumer Durables & Apparel | | 18,228 | | | 8 | | | 5.0 | |
| Retailing | | 17,538 | | | 6 | | | 4.8 | |
All others (2) | | 106,070 | | | 37 | | | 29.3 | |
| Total | | $ | 361,921 | | | 134 | | | 100.0 | % |
(1) Industry classification based on the Global Industry Classification Standard.
(2) All others account for less than 4.5% of total Annualized Base Rent on an individual industry basis.
The percentage of Annualized Base Rent as of December 31, 2021, for the top 10 tenants, based on the respective in-place leases, is as follows (dollars in thousands):
| | | | | | | | | | | | | | |
| Tenant | | Annualized Base Rent (unaudited) | | Percentage of Annualized Base Rent |
| Amazon.com, Inc. | | $ | 16,176 | | | 4.5 | % |
| Keurig Green Mountain, Inc. | | $ | 11,419 | | | 3.2 | % |
| General Electric Company | | $ | 11,221 | | | 3.1 | % |
| Wood Group USA, Inc. | | $ | 9,817 | | | 2.7 | % |
| Cigna Corporation | | $ | 8,902 | | | 2.5 | % |
| Southern Company Services, Inc. | | $ | 8,866 | | | 2.4 | % |
| McKesson Corporation | | $ | 8,841 | | | 2.4 | % |
| LPL Holdings, Inc. | | $ | 8,404 | | | 2.3 | % |
| Freeport Minerals Corporation | | $ | 7,629 | | | 2.1 | % |
| State Farm Mutual Automobile Insurance Company | | $ | 7,507 | | | 2.1 | % |
The tenant lease expirations by year based on Annualized Base Rent as of December 31, 2021 are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year of Lease Expiration (1) | | Annualized Base Rent
(unaudited) | | Number of
Leases | | Approx. Square Feet | | Percentage of Annualized Base Rent |
| 2022 | | $ | 10,652 | | | 9 | | | 871,400 | | | 2.9 | % |
| 2023 | | 27,969 | | | 12 | | | 1,262,300 | | | 7.7 | |
| 2024 | | 47,231 | | | 20 | | | 4,349,400 | | | 13.1 | |
| 2025 | | 40,416 | | | 24 | | | 3,052,100 | | | 11.2 | |
| 2026 | | 28,691 | | | 11 | | | 2,425,900 | | | 7.9 | |
| 2027 | | 33,228 | | | 16 | | | 1,614,700 | | | 9.2 | |
| >2028 | | 173,734 | | | 63 | | | 13,961,400 | | | 48.0 | |
| Vacant | | — | | | — | | | 1,604,900 | | | — | |
| Total | | $ | 361,921 | | | 155 | | | 29,142,100 | | | 100.0 | % |
(1)Expirations that occur on the last day of the month are shown as expiring in the subsequent month.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of our business. We are not a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that would have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
As of February 25, 2022, we had approximately 565,265 Class T shares, 1,801 Class S shares, 42,013 Class D shares, 1,911,819 Class I shares, 24,509,573 Class A shares, 47,592,118 Class AA shares, 926,936 Class AAA shares and 249,088,662 Class E shares of common stock outstanding, including common stock issued pursuant to our DRP and stock distributions held by a total of approximately 59,000 stockholders of record. There is currently no established public trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all.
Pursuant to the terms of our charter, certain restrictions are imposed on the ownership and transfer of shares.
As described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we expect to pay distributions regularly unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions will be authorized at the discretion of our Board, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code.
Recent Sales of Unregistered Securities
During the year ended December 31, 2021, there were no sales of unregistered securities.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On October 1, 2021 the Company announced that it suspended the SRP beginning with the next cycle commencing fourth quarter 2021. Therefore, during the quarter ended December 31, 2021, we had no redemptions of common shares.
ITEM 6. [Reserved]EXECUTIVE OFFICERS
Included below is certain information regarding our executive officers.
| | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Position(s) | | Period with Company |
| Kevin A. Shields | | 63 | | Chairman of the Board of Directors and Executive Chairman | | 11/2013 - present |
| Michael J. Escalante | | 61 | | Chief Executive Officer, President and Director | | 11/2013 - present |
| Javier F. Bitar | | 60 | | Chief Financial Officer and Treasurer | | 6/2016 - present |
| Nina Momtazee Sitzer | | 54 | | General Counsel, Chief Administrative Officer and Secretary | | 6/2019 - present |
| Louis K. Sohn | | 47 | | Executive Vice President | | 4/2019 - present |
| Scott Tausk | | 63 | | Executive Vice President | | 4/2019 - present |
| Bryan K. Yamasawa | | 55 | | Chief Accounting Officer | | 12/2018 - present |
| Travis W. Bushman | | 44 | | Managing Director, Asset Management | | 12/2018 - present |
| Craig J. Phillips | | 61 | | Managing Director, Industrial Properties | | 9/2019 - present |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the Company’s consolidated financial statements is our Executive Chairman and the notes thereto contained in this Annual Report on Form 10-K.
Overview
Griffin Realty Trust, Inc. is an internally managed, publicly-registered, non-traded REIT. We are committed to creating exceptional value for allChairman of our stakeholders through the ownershipBoard of Directors and operation of a diversified portfolio of strategically-located, high-quality, business-essential office and industrial properties that are primarily leased to nationally-recognized single tenants we have determined to be creditworthy.
The GRT platform was founded in 2009 and we have since grown to become one of the largest office and industrial-focused net-lease REITs in the United States. Since our founding, our mission has been consistent –an officer and director since November 2013. Additional information regarding Mr. Shields is provided above under “Board of Directors.”
Michael J. Escalante is our Chief Executive Officer, President and a director. He has been our President since our formation, a director since February 2015, and our Chief Executive Officer since April 2019. Additional information regarding Mr. Escalante is provided above under “Board of Directors.”
Javier F. Bitar is our Chief Financial Officer and Treasurer. He has been our Chief Financial Officer and Treasurer since June 2016. Mr. Bitar served as Chief Financial Officer and Treasurer of EA-1 from June 2016 to generate long-term results for our stockholders by combining the durability of high-quality corporate tenants, the stability of our revenue and the power of proactive management. To achieve this mission, we leverage the skills and expertise of our employees, who have experience across a range of disciplines including acquisitions, dispositions, asset management, property management, development, finance, law and accounting. They are led by an experienced senior management team with an average of approximately 30April 2019. Mr. Bitar has over 34 years of commercial real estate related accounting and financial experience, including over 20 years of executive management-level experience. Prior to joining GCC, from July 2014 to May 2016, Mr. Bitar served as the Chief Financial Officer of New Pacific Realty Corporation, a real estate investment and development company. From January 2014 to July 2014, Mr. Bitar served as the Proprietor of JB Realty Advisors, a real estate consulting and advisory company. From July 2008 to December 2013, Mr. Bitar served as the Chief Operating Officer of Maguire Investments, where he was responsible for overseeing operating and financial matters for the company’s real estate investment and development portfolio. Mr. Bitar also served as Senior Investment Officer at Maguire Properties, Inc. from 2003 to 2008 and as Partner and Senior Financial Officer at Maguire Partners from 1987 to 2003. Mr. Bitar graduated Magna Cum Laude from California State University, Los Angeles, with a Bachelor of Business Administration degree and is a Certified Public Accountant in the State of California.
On July 1, 2021, we changedNina Momtazee Sitzer is our name from Griffin Capital Essential Asset REIT, Inc. to Griffin Realty Trust, Inc.General Counsel, Chief Administrative Officer and Secretary. She has been General Counsel since June 2019 and our operating partnership changed its nameChief Administrative Officer and Secretary since February 2021. She was also an Executive Vice President from GriffinJune 2019 to January 2021. From December 2011 until she joined the Company, Ms. Sitzer was a partner in the real estate department at the law firm of DLA Piper LLP (US) in Chicago, Illinois. From 1994 until she joined DLA Piper, Ms. Sitzer was at Katten Muchin Rosenman in Chicago, Illinois, where she was also a partner in the real estate group. Ms. Sitzer has over 29 years of experience in the real estate industry across a broad range of property types. Ms. Sitzer earned her B.A. from Emory University in Atlanta, Georgia, studied at the London School of Economics and Political Science, and earned her J.D. degree from Northwestern University Pritzker School of Law in Chicago, Illinois.
Louis K. Sohn is an Executive Vice President and has held that position since February 2021. From April 2019 to January 2021, he was our Managing Director, Acquisitions & Corporate Finance. From December 2018 to April 2019, Mr. Sohn was the Managing Director, Acquisitions & Corporate Finance of EA-1. Mr. Sohn joined GCC in 2006 as Vice President - Acquisitions and became Senior Vice President - Acquisitions in January 2012 and Director - Acquisitions in December 2014 until he resigned from GCC in December 2018 in connection with EA-1’s self-administration transaction. Mr. Sohn oversees our property acquisitions in the Western United States. He is responsible for our corporate finance functions, including the development and maintenance of our strategic business plan, in collaboration with the executive leadership team. Prior to joining GCC, Mr. Sohn was an Associate Director with Holliday Fenoglio Fowler where he was instrumental in launching the firm’s note sale advisory business. Prior to Holliday Fenoglio Fowler, Mr. Sohn was an Associate with Secured Capital Essential Asset Operating Partnership L.P. to GRT OP, L.P.
On March 1, 2021, we completed our acquisition of Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”) for approximately $1.3 billion, including transaction costs,Corp. in a stock-for-stock transaction (the “CCIT II Merger”). AtLos Angeles. Mr. Sohn began his real estate career as an Analyst with Column Financial. Mr. Sohn earned his B.S. in Economics from the effective timeWharton School of the CCIT II Merger, each issuedUniversity of Pennsylvania in 1997.