Rithm Property Trust (45R0) Risk Analysis
Risk Overview Q3, 2023
Source: the company's latest filing for the period ended Sep 30, 2023, filed Nov 02, 2023
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1The Exchange Ratio is fixed and will not be adjusted in the event of any change in the stock prices of either Kimco or RPT.
As a result of the Mergers, each outstanding common share (other than shares held by Kimco or any Kimco subsidiary) as of immediately prior to the Company Merger Effective Time will be converted into the right to receive 0.6049 of a share of Kimco common stock, plus the right, if any, to receive cash in lieu of fractional shares of Kimco common stock into which such common shares would have been converted, and a holder of one preferred share will receive one depositary share representing one one-thousandth of a share of new Kimco preferred stock, in each case, without interest, and subject to any withholding required under applicable law, upon the terms and subject to the conditions set forth in the Merger Agreement. The Exchange Ratio is fixed and will not be adjusted to reflect stock price changes of Kimco common stock, our common shares or our preferred shares prior to the closing of the Mergers, other than for customary adjustments in specified circumstances, including, without limitation, in the event of certain changes in Kimco's or RPT's capitalization or in the event that RPT or Kimco determines it is necessary to declare a permitted REIT dividend. Changes in the price of Kimco common stock prior to the Mergers will affect the market value of the merger consideration that holders of our common shares and holders of our preferred shares will be entitled to receive on the closing of the Mergers. Stock price changes may result from a variety of factors (many of which are beyond our control or the control of Kimco), including the following factors: - market reaction to the announcement of the Mergers and the prospects of the combined company;- changes in the respective businesses, operations, assets, liabilities and prospects of us and Kimco;- changes in market assessments of the business, operations, financial position and prospects of either company;- market assessments of the likelihood that the Mergers will be completed;- the expected timing of the Mergers;- interest rates, general market and economic conditions and other factors generally affecting the price of Kimco common stock, RPT common shares or RPT preferred shares;- federal, state, and local legislation, governmental regulation and legal developments in the businesses in which we and Kimco operate; and - other factors beyond the control of us and Kimco including those described under this "Risk Factors" heading. The price of Kimco common stock at the closing of the Mergers may vary from its price on the date the Merger Agreement was executed, on the date of the proxy statement/prospectus and on the date of the special meeting. As a result, the market value of the merger consideration represented by the Exchange Ratio will also vary. For example, based on the range of closing prices of Kimco common stock during the period from August 25, 2023, the last practicable trading day before public announcement of the mergers, through November 2, 2023, the Exchange Ratio of 0.6049 represented a market value per common share ranging from a low of $9.91 to a high of $11.53. Since the Mergers will be completed after the date of the special meeting, at the time of the special meeting, you will not know the exact market value of the Kimco common stock or new Kimco preferred stock (or depositary shares in respect thereof) that holders of our common shares and holders of our preferred shares, respectively, will receive upon completion of the Mergers. If the price of Kimco common stock increases between the date the merger agreement was signed, the date of the proxy statement/prospectus or the date of the special meeting and the closing of the Mergers, our shareholders will receive shares of Kimco common stock and holders of our preferred shares will receive shares of new Kimco preferred stock (or depositary shares in respect thereof) that have a market value upon completion of the Mergers that is greater than the market value of such shares calculated pursuant to the Exchange Ratio of the date the Merger Agreement was signed, the date of the proxy statement/prospectus or the date of the special meeting, respectively. Additionally, if the price of Kimco common stock declines between the date the Merger Agreement was signed, the date of the proxy statement/prospectus or the date of the special meeting and the closing of the Mergers, including for any of the reasons described above, our shareholders will receive shares of Kimco common stock and holders of our preferred shares will receive shares of new Kimco preferred stock (or depositary shares in respect thereof) that have a market value upon completion of the Mergers that is less than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed, the date of the proxy statement/prospectus or on the date of the special meeting, respectively. Therefore, since the number of shares of Kimco common stock to be issued per common share and the number of shares of new Kimco preferred stock (or depositary shares in lieu thereof) to be issued per preferred share is generally fixed, holders of our common shares and holders of our preferred shares cannot be sure of the market value of the merger consideration they will receive upon completion of the Mergers.
- Share Price & Shareholder Rights - Risk 2The market price of Kimco common stock may decline as a result of the Mergers.
The market price of Kimco common stock may decline as a result of the Mergers if, among other things, Kimco does not achieve the perceived benefits of the Mergers or the effect of the Mergers on Kimco's results of operations or financial conditions is not consistent with the expectations of financial or industry analysts. In addition, upon consummation of the Mergers, our shareholders and Kimco stockholders will own interests in Kimco, which will operate an expanded business with a different mix of properties, risks and liabilities. Current stockholders of Kimco and shareholders of us may not wish to continue to invest in Kimco, or for other reasons may wish to dispose of some or all of their shares of Kimco common stock. If, following the Company Merger Effective Time or while the Mergers are still pending, large amounts of Kimco common stock are sold, the price of Kimco common stock could decline, perhaps substantially.
- Share Price & Shareholder Rights - Risk 3The market price and trading volume of the Kimco common stock after the Mergers may be volatile.
Investors in shares of Kimco common stock may experience a decrease, which could be substantial, in the value of their shares, including decreases unrelated to Kimco's operating performance or prospects. In addition, United States stock markets, including the NYSE, on which Kimco common stock is listed under the trading symbol "KIM," have experienced significant price volatility and may continue to experience similar volatility. We cannot assure you that the market price of Kimco common stock will not fluctuate or decline significantly in the future. In addition to the risks listed in this section entitled "Risk Factors" and the section entitled "Risk Factors" in Kimco's most recently filed reports on Forms 10-K and 10-Q, a number of factors could negatively affect Kimco's share price or result in fluctuations in the price or trading volume of Kimco common stock.
- Corporate Activity and Growth - Risk 4The Merger Agreement contains provisions that could make it more difficult for a third party to acquire us or could result in any competing proposal being at a lower price than it might otherwise be.
We are subject to certain restrictions on its ability to solicit alternative proposals from third parties, to enter into a definitive agreement with respect to an alternative acquisition proposal and to participate in discussions or negotiations with or provide non-public information to any person relating to an alternative proposal, subject to customary exceptions. In addition, we may be required to pay Kimco a termination fee of $33.6 million under specified circumstances, including if (A) Kimco terminates the Merger Agreement because (1) our board of trustees changes its recommendation before the receipt of the requisite shareholder approval or (2) we materially violate our obligations not to solicit alternative transaction proposals, (B) we terminate the Merger Agreement in order to enter into a definitive agreement with respect to a superior proposal, as described in the Merger Agreement, or (C) (1) the Merger Agreement is terminated (a) by Kimco because of a breach by us or (b) by Kimco or us because of a failure to complete the Mergers on or before the outside date or a failure to obtain the requisite shareholder approval, (2) prior to the termination or, in the case of a termination of the Merger Agreement because of a failure to obtain the requisite shareholder approval, the special meeting, there was an alternative proposal that was announced or made known to our board of trustees and, in the case of a termination of the Merger Agreement because of a failure to obtain the requisite shareholder approval, not withdrawn publicly at least five business days prior to the special meeting and (3) within 12 months after such termination, we consummate an alternative transaction or enter into an agreement for an alternative transaction that is later consummated. Notwithstanding these "no-shop" restrictions, prior to obtaining the requisite shareholder approval at the special meeting, under specified circumstances, our board of trustees may change its recommendation of the transaction, and we may also terminate the Merger Agreement to enter into a definitive agreement with respect to a superior proposal upon payment of the termination fee described above. These provisions could make it more difficult for a third party that might have an interest in acquiring all or a significant part of us from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received in the Mergers, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances under the Merger Agreement.
- Corporate Activity and Growth - Risk 5The pendency of the Mergers could adversely affect our businesses and operations.
In connection with the pending Mergers, some of our tenants, prospective tenants, managers, vendors or other parties with commercial relationships with us may delay or defer decisions, which could adversely affect our business, financial condition, results of operations and growth prospects, regardless of whether the Mergers are completed. Similarly, our current and prospective employees may experience uncertainty about their future roles with the combined company following the Mergers, which may adversely affect our ability to operate as effectively and efficiently as compared to periods prior to the announcement of the Merger Agreement or to attract and retain key personnel during the pendency of the Mergers. In addition, due to interim operating covenants in the Merger Agreement, we may be unable (without Kimco's prior written consent), during the pendency of the Mergers, to pursue strategic transactions involving the acquisition and/or disposition of assets, make significant capital expenditures, enter into a new line of business or form or enter into any new funds or joint ventures, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions are believed by us to be beneficial. In addition, until the Mergers close or the Merger Agreement is terminated, our liquidity requirements will primarily be funded by our cash flow from operations, our revolving credit agreement and certain other capital activities allowed under the Merger Agreement.
- Corporate Activity and Growth - Risk 6If the Mergers are not consummated by the outside date set forth in the Merger Agreement, either we or Kimco may terminate the merger agreement.
Either we or Kimco may terminate the Merger Agreement if the Mergers have not been consummated by the outside date set forth in the Merger Agreement. However, this termination right will not be available to a party if that party failed to comply with any provision under the Merger Agreement and that failure was the cause of or resulted in the failure to consummate the Mergers before such date. Any termination of the Merger Agreement may adversely affect our business, financial condition, results of operations and growth prospects.
- Corporate Activity and Growth - Risk 7The pending Mergers may not be completed on the currently contemplated timeline or terms, or at all, which could result in a requirement that RPT pay certain termination fees.
We and Kimco expect that the Mergers will be completed in the first quarter of 2024, subject to the satisfaction or waiver of the conditions to closing in the Merger Agreement. The completion of the Mergers is subject to various conditions, including, among others, customary conditions relating to: (1) the approval of the Company Merger by the holders of two-thirds of all the votes entitled to be cast at the special meeting by the holders of RPT common shares; (2) the effectiveness of a registration statement on Form S-4 to register the issuance of Kimco common stock and Kimco preferred stock (or depository shares in respect thereof) in connection with the Mergers; (3) the shares of Kimco common stock and Kimco preferred stock (or depository shares in respect thereof) to be issued in the Mergers having been approved for listing on the NYSE; (4) the absence of any judgment, order or decree issued by any governmental authority of competent jurisdiction prohibiting completion of the mergers; (5) the accuracy of all representations and warranties (subject to certain materiality or material adverse effect exceptions) made by the parties to the Merger Agreement; (6) performance of, in all material respects, each party's agreements and covenants under the Merger Agreement; (7) the absence of any material adverse effect with respect to RPT or Kimco; (8) the receipt by each of RPT and Kimco of a certificate signed on behalf of the other party by the chief executive officer or the chief financial officer of such other party, certifying that the conditions set forth in clauses (5), (6) and (7) have been satisfied and (9) the receipt by each of RPT and Kimco of a tax opinion relating to the other party's status as a REIT and the receipt by each of RPT and Kimco of a tax opinion to the effect that the Company Merger will qualify as a "reorganization" within the meaning of Section 368(a) of the Code. We cannot provide assurance that the conditions to completing the Mergers will be satisfied or waived or that other events (some of which may beyond our or Kimco's control) will not intervene to delay or result in the termination of the proposed Mergers, and accordingly, that the Mergers will be completed on the terms or timeline that the parties anticipate or at all. If any condition to the Mergers is not satisfied, it could delay or prevent the Mergers from occurring, which could negatively impact the price of our common shares and our business, financial condition, results of operations and growth prospects. In addition, either RPT or Kimco may terminate the Merger Agreement under specified circumstances, including, among other reasons, (i) if the Mergers are not completed on or before May 28, 2024 (which we refer to as the "outside date"), (ii) if a governmental authority of competent jurisdiction shall have issued an order or taken any other action permanently restraining or otherwise prohibiting the Mergers, and such order or other action shall have become final and non-appealable, (iii) upon a failure of RPT to obtain the requisite approval of its shareholders; and (iv) upon a material, uncured breach by the other party that would cause the closing conditions not to be satisfied, subject to a cure period. In addition, the Merger Agreement may be terminated (x) by Kimco if the RPT's board of trustees makes an adverse recommendation change with respect to the transaction, or (y) by us, prior to RPT obtaining approval of its shareholders, and upon payment of the applicable termination fee, in order to enter into a definitive agreement with a third party with respect to a superior acquisition proposal. In addition to the above risks, if the Merger Agreement is terminated and we seek an alternative transaction, our shareholders cannot be certain that we will be able to find a party willing to engage in a transaction on more attractive terms than the Mergers. In addition, if the Merger Agreement is terminated under certain circumstances specified therein, we may be required to pay Kimco a termination fee of $33.6 million.
- Corporate Activity and Growth - Risk 8Failure to complete the pending Mergers could have an adverse effect on us.
Either we or Kimco may terminate the Merger Agreement under specified circumstances. If the Mergers are not completed, our business, financial condition, results of operations and growth prospects may be adversely affected and, without realizing any of the benefits of having completed the Mergers, we will be subject to a number of risks, including the following: - the market price of our common shares could decline;- we will have incurred substantial costs relating to the Mergers, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration costs that have already been incurred or will continue to be incurred until the closing of the Mergers, which could adversely affect our business financial condition, results of operations and growth prospects;- if the Merger Agreement is terminated and our board of trustees seeks another transaction, our shareholders cannot be certain that we will be able to find another party willing to enter into a transaction as attractive as the Mergers;- we could be subject to litigation related to any failure to complete the Mergers or related to any enforcement proceeding commenced against such party to perform its obligations under the Merger Agreement;- we will not realize the benefit of the time and resources, financial and otherwise, committed by management to matters relating to the Mergers that could have been devoted to pursuing other beneficial opportunities;- we may experience reputational harm due to the adverse perception of any failure to successfully complete the Mergers or negative reactions from the financial markets or from our tenants, managers, vendors, employees and other commercial relationships; and - we may be required, under specified circumstances, to pay Kimco a termination fee of $33.6 million. Any of these risks could adversely affect our business, financial condition, results of operations and growth prospects. Similarly, delays in the completion of the Mergers could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with delay and uncertainty about completion of the Mergers and could adversely affect the combined company's business, financial condition, results of operations and growth prospects after the Mergers.
- Corporate Activity and Growth - Risk 9Following the Mergers, Kimco may be unable to integrate our business and its business successfully or realize the anticipated benefits and synergies from the pending Mergers.
The Mergers involve the combination of two companies which currently operate as independent public companies. While we will continue to operate independently until the completion of the Mergers, the success of the Mergers will depend, in part, on Kimco's ability to realize the anticipated benefits from successfully combining our and its businesses. Kimco plans on devoting substantial management attention and resources to integrating our and its business practices and operations so that Kimco can fully realize the anticipated benefits of the Mergers. Nonetheless, the business and assets acquired may not be successful or continue to grow at the same rate as when operated independently or may require greater resources and investments than originally anticipated. The Mergers could also result in the assumption of unknown or contingent liabilities. Potential difficulties Kimco may encounter in the integration process include the following: - the inability to successfully combine our business and Kimco's business in a manner that permits Kimco to achieve the cost savings anticipated to result from the Mergers, which would result in some anticipated benefits of the Mergers not being realized in the time frame currently anticipated, or at all;- the failure to integrate operations and internal systems, programs and controls within the expected time frame or at all;- the inability to successfully realize the anticipated value from some of our assets;- lost sales, loss of tenants and other commercial relationships;- the complexities associated with managing the combined company;- the additional complexities of combining two companies with different histories, cultures, markets, strategies and tenant bases;- the failure to retain key employees of either of the two companies that may be difficult to replace;- the disruption of each company's ongoing businesses or inconsistencies in services, standards, controls, procedures and policies;- potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Mergers; and - performance shortfalls at one or both companies as a result of the diversion of management's attention caused by completing the Mergers and integrating our operations with Kimco's. Any of these risks could adversely affect each company's ability to maintain relationships with tenants, managers, vendors, employees and other commercial relationships, or could otherwise adversely affect the business and financial results of the combined company. As a result, the anticipated benefits of the Mergers may not be realized fully within the expected time frame or at all or may take longer to realize or cost more than expected, which could adversely affect the combined company's business, financial condition, results of operations and growth prospects. In addition, changes in laws and regulations could adversely impact the combined company's business, financial condition, results of operations and growth prospects.
- Corporate Activity and Growth - Risk 10The combined company may incur substantial expenses related to the Mergers and the integration of the combined company.
The combined company may incur substantial expenses in connection with completing the Mergers and integrating our business, operations, practices, policies and procedures into Kimco. While we and Kimco have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of their integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Accordingly, while the expenses in connection with the Mergers are expected to be significant, the aggregate amount and timing of such charges are uncertain at present.
Risk Highlights Q3, 2023
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 54
- Share Price & Shareholder Rights - Risk 1AddedThe Exchange Ratio is fixed and will not be adjusted in the event of any change in the stock prices of either Kimco or RPT.
As a result of the Mergers, each outstanding common share (other than shares held by Kimco or any Kimco subsidiary) as of immediately prior to the Company Merger Effective Time will be converted into the right to receive 0.6049 of a share of Kimco common stock, plus the right, if any, to receive cash in lieu of fractional shares of Kimco common stock into which such common shares would have been converted, and a holder of one preferred share will receive one depositary share representing one one-thousandth of a share of new Kimco preferred stock, in each case, without interest, and subject to any withholding required under applicable law, upon the terms and subject to the conditions set forth in the Merger Agreement. The Exchange Ratio is fixed and will not be adjusted to reflect stock price changes of Kimco common stock, our common shares or our preferred shares prior to the closing of the Mergers, other than for customary adjustments in specified circumstances, including, without limitation, in the event of certain changes in Kimco's or RPT's capitalization or in the event that RPT or Kimco determines it is necessary to declare a permitted REIT dividend. Changes in the price of Kimco common stock prior to the Mergers will affect the market value of the merger consideration that holders of our common shares and holders of our preferred shares will be entitled to receive on the closing of the Mergers. Stock price changes may result from a variety of factors (many of which are beyond our control or the control of Kimco), including the following factors: - market reaction to the announcement of the Mergers and the prospects of the combined company;- changes in the respective businesses, operations, assets, liabilities and prospects of us and Kimco;- changes in market assessments of the business, operations, financial position and prospects of either company;- market assessments of the likelihood that the Mergers will be completed;- the expected timing of the Mergers;- interest rates, general market and economic conditions and other factors generally affecting the price of Kimco common stock, RPT common shares or RPT preferred shares;- federal, state, and local legislation, governmental regulation and legal developments in the businesses in which we and Kimco operate; and - other factors beyond the control of us and Kimco including those described under this "Risk Factors" heading. The price of Kimco common stock at the closing of the Mergers may vary from its price on the date the Merger Agreement was executed, on the date of the proxy statement/prospectus and on the date of the special meeting. As a result, the market value of the merger consideration represented by the Exchange Ratio will also vary. For example, based on the range of closing prices of Kimco common stock during the period from August 25, 2023, the last practicable trading day before public announcement of the mergers, through November 2, 2023, the Exchange Ratio of 0.6049 represented a market value per common share ranging from a low of $9.91 to a high of $11.53. Since the Mergers will be completed after the date of the special meeting, at the time of the special meeting, you will not know the exact market value of the Kimco common stock or new Kimco preferred stock (or depositary shares in respect thereof) that holders of our common shares and holders of our preferred shares, respectively, will receive upon completion of the Mergers. If the price of Kimco common stock increases between the date the merger agreement was signed, the date of the proxy statement/prospectus or the date of the special meeting and the closing of the Mergers, our shareholders will receive shares of Kimco common stock and holders of our preferred shares will receive shares of new Kimco preferred stock (or depositary shares in respect thereof) that have a market value upon completion of the Mergers that is greater than the market value of such shares calculated pursuant to the Exchange Ratio of the date the Merger Agreement was signed, the date of the proxy statement/prospectus or the date of the special meeting, respectively. Additionally, if the price of Kimco common stock declines between the date the Merger Agreement was signed, the date of the proxy statement/prospectus or the date of the special meeting and the closing of the Mergers, including for any of the reasons described above, our shareholders will receive shares of Kimco common stock and holders of our preferred shares will receive shares of new Kimco preferred stock (or depositary shares in respect thereof) that have a market value upon completion of the Mergers that is less than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed, the date of the proxy statement/prospectus or on the date of the special meeting, respectively. Therefore, since the number of shares of Kimco common stock to be issued per common share and the number of shares of new Kimco preferred stock (or depositary shares in lieu thereof) to be issued per preferred share is generally fixed, holders of our common shares and holders of our preferred shares cannot be sure of the market value of the merger consideration they will receive upon completion of the Mergers.
- Share Price & Shareholder Rights - Risk 2AddedThe market price of Kimco common stock may decline as a result of the Mergers.
The market price of Kimco common stock may decline as a result of the Mergers if, among other things, Kimco does not achieve the perceived benefits of the Mergers or the effect of the Mergers on Kimco's results of operations or financial conditions is not consistent with the expectations of financial or industry analysts. In addition, upon consummation of the Mergers, our shareholders and Kimco stockholders will own interests in Kimco, which will operate an expanded business with a different mix of properties, risks and liabilities. Current stockholders of Kimco and shareholders of us may not wish to continue to invest in Kimco, or for other reasons may wish to dispose of some or all of their shares of Kimco common stock. If, following the Company Merger Effective Time or while the Mergers are still pending, large amounts of Kimco common stock are sold, the price of Kimco common stock could decline, perhaps substantially.
- Share Price & Shareholder Rights - Risk 3AddedThe market price and trading volume of the Kimco common stock after the Mergers may be volatile.
Investors in shares of Kimco common stock may experience a decrease, which could be substantial, in the value of their shares, including decreases unrelated to Kimco's operating performance or prospects. In addition, United States stock markets, including the NYSE, on which Kimco common stock is listed under the trading symbol "KIM," have experienced significant price volatility and may continue to experience similar volatility. We cannot assure you that the market price of Kimco common stock will not fluctuate or decline significantly in the future. In addition to the risks listed in this section entitled "Risk Factors" and the section entitled "Risk Factors" in Kimco's most recently filed reports on Forms 10-K and 10-Q, a number of factors could negatively affect Kimco's share price or result in fluctuations in the price or trading volume of Kimco common stock.
- Share Price & Shareholder Rights - Risk 4Certain anti-takeover provisions of our Declaration of Trust and Bylaws may inhibit a change of our control.
Certain provisions contained in our Declaration of Trust and Amended and Restated Bylaws, as amended (the "Bylaws") and the Maryland General Corporation Law, as applicable to Maryland REITs, may discourage a third party from making a tender offer or acquisition proposal to us. These provisions and actions may delay, deter or prevent a change in control or the removal of existing management. These provisions and actions also may delay or prevent the shareholders from receiving a premium for their common shares of beneficial interest over then-prevailing market prices. These provisions and actions include: - the REIT ownership limit described above;- authorization of the issuance of our preferred shares of beneficial interest with powers, preferences or rights to be determined by our Board;- special meetings of our shareholders may be called only by the chairman of our Board, the president, one-third of the Trustees, or the secretary upon the written request of the holders of shares entitled to cast not less than a majority of all the votes entitled to be cast at such meeting;- a two-thirds shareholder vote is required to approve some amendments to our Declaration of Trust;- our Bylaws contain advance-notice requirements for proposals to be presented at shareholder meetings; and - our Board, without the approval of our shareholders, may from time to time (i) amend our Declaration of Trust to increase or decrease the aggregate number of shares of beneficial interest, or the number of shares of beneficial interest of any class, that we have authority to issue, and (ii) reclassify any unissued shares of beneficial interest into one or more classes or series of shares of beneficial interest. In addition, the Trust, by Board action, may elect to be subject to certain provisions of the Maryland General Corporation Law that inhibit takeovers such as the provision that permits the Board by way of resolution to classify itself, notwithstanding any provision our Declaration of Trust or Bylaws.
- Share Price & Shareholder Rights - Risk 5Restrictions on the ownership of our common shares are in place to preserve our REIT status.
Our Declaration of Trust restricts ownership by any one shareholder to no more than 9.8% of our outstanding common shares, subject to certain exceptions granted by our Board. The ownership limit is intended to ensure that we maintain our REIT status given that the Code imposes certain limitations on the ownership of the stock of a REIT. Not more than 50% in value of our outstanding shares of beneficial interest may be owned, directly or indirectly by five or fewer individuals (as defined in the Code) during the last half of any taxable year. If an individual or entity were found to own constructively more than 9.8% in value of our outstanding shares, then any excess shares would be transferred by operation of our Declaration of Trust to a charitable trust, which would sell such shares for the benefit of the shareholder in accordance with procedures specified in our Declaration of Trust. The ownership limit may discourage a change in control, may discourage tender offers for our common shares and may limit the opportunities for our shareholders to receive a premium for their shares. Upon due consideration, our Board previously has granted limited exceptions to this restriction for certain shareholders who requested an increase in their ownership limit. However, the Board has no obligation to grant such limited exceptions in the future.
- Share Price & Shareholder Rights - Risk 6There may be future dilution to holders of our common shares.
Our Articles of Restatement of Declaration of Trust (the "Declaration of Trust") authorizes our Board to, among other things, issue additional common or preferred shares, or securities convertible or exchangeable into equity securities, without shareholder approval. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional common or preferred shares or convertible securities could be dilutive to holders of our common shares. Moreover, to the extent that we issue restricted shares, options or warrants to purchase our common shares in the future and those options or warrants are exercised or the restricted shares vest, our shareholders will experience further dilution. Holders of our common shares have no preemptive rights that entitle them to purchase a pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders. We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common shares as to distributions and in liquidation, which could negatively affect the value of our common shares. There were 899,979 shares of unvested restricted common shares outstanding at December 31, 2022.
- Share Price & Shareholder Rights - Risk 7The price of our common shares may fluctuate significantly.
The market price of our common shares fluctuates based upon numerous factors, many of which are outside of our control. A decline in our share price, whether related to our operating results or not, may constrain our ability to raise equity in pursuit of our business objectives. In addition, a decline in price may affect the perceptions of lenders, tenants or others with whom we transact. Such parties may withdraw from doing business with us as a result. An inability to raise capital at a suitable cost or at any cost, or to do business with certain tenants or other parties, would affect our operations and financial condition.
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