Revenue Sources and Tenant Risks - As of December 31, 2024, 14.9% of rental revenue was derived from tenants under common control of Post Acute Medical LLC, which poses a risk if these tenants face financial difficulties[83] - Approximately 38.3% of annualized contractual base rental revenue was from tenants with investment grade credit ratings, while 28.6% was from tenants rated below investment grade, and 33.1% from unrated tenants as of December 31, 2024[86] - Compliance with healthcare laws and regulations is critical, as non-compliance may negatively impact tenants' financial conditions and rent payments[109] - Adverse trends in the healthcare industry, such as shifts to outpatient services and increased scrutiny of billing practices, may negatively affect lease revenues[113] Geographic and Market Concentration - Geographic concentration of properties resulted in 8.0%, 7.3%, 5.4%, 4.2%, and 4.1% of annualized contractual base rental revenue coming from markets in Dallas, Oklahoma City, San Antonio, Akron, and Tucson respectively[84] Lease and Property Management - As of December 31, 2024, 96.0% of the property portfolio was leased, with leases representing 20.3% of annualized base rent set to expire within 5 years[89] - The company may incur additional costs for tenant improvements and refurbishments if tenants vacate their spaces, impacting cash distributions[91] - Properties acquired through ground leases may impose significant limitations, potentially impairing property value and tenant suitability[106] Financial Risks and Costs - The company may face increased operating costs due to climate change compliance obligations, which could affect cash flow and distributions to stockholders[85] - The company is subject to risks from potential development and construction delays, which could lead to increased costs and impact investment returns[98] - Defaults by purchasers in financing arrangements could negatively impact cash distributions to stockholders[104] - The company faces risks in identifying and completing attractive acquisition opportunities, which may not yield anticipated benefits[105] - Competition from nearby healthcare facilities and new stakeholders, including telemedicine, could adversely affect rental revenues[108] Interest Rate and Debt Management - Interest rate exposure poses a risk, as increases may not be matched by rental income, adversely affecting financial condition and distributions[115] - The company has hedged all variable rate debt as of December 31, 2024, to mitigate interest rate risk[116] - High debt levels could limit cash available for distributions and decrease stockholder investment value[118] - The company is exposed to interest rate risk due to variable rate debt financing linked to the one-month Term SOFR[270] - As of December 31, 2024, the total principal debt outstanding was 20,023,000[272] - A decrease of 50 basis points in market interest rates would decrease the settlement asset value of interest rate swaps to $3,311,000[272] REIT Compliance and Taxation - Failure to maintain REIT qualification could result in corporate-level tax liabilities, adversely affecting net earnings and stockholder returns[125] - To maintain REIT qualification, the company must distribute at least 90% of its REIT taxable income, which may limit available cash for operations and investments[126] - Failure to meet distribution requirements could result in a 4% nondeductible excise tax on the excess of required distributions over actual distributions[126] - The company may face U.S. federal, state, and local income taxes, which would reduce cash available for distribution to stockholders[128] - The use of taxable REIT subsidiaries could increase overall tax liability, further reducing cash available for distribution[129] - If the company fails to comply with REIT asset tests, it may be required to liquidate attractive investments to maintain qualification[132] - Legislative changes could adversely affect the company's ability to qualify as a REIT and impact stockholder returns[136] - Dividends from REITs are generally taxed at ordinary income rates, which may make them less attractive compared to non-REIT corporate dividends[139] - If the Operating Partnership is reclassified as a corporation, it would lose REIT status and face corporate-level taxation, reducing distributions[140] - Foreign investors may be subject to FIRPTA tax on gains from the sale of shares, which could reduce their net investment returns[141] - The company must ensure that its leases qualify as true leases for tax purposes to maintain REIT status[133] Operational and Cybersecurity Risks - The company may face challenges in selling properties at or above purchase prices, potentially leading to decreased asset values and stockholder returns[95] - Disruptions in credit markets could impact the availability of financing for property acquisitions, affecting growth and returns[121] - The company has implemented cybersecurity measures to mitigate risks, but there is no guarantee against potential cyber incidents[150] - The company may be subject to litigation that could negatively impact future cash flow and financial condition[154] - The company has previously paid distributions from sources other than cash flows from operations, which may affect future distributions[152] - The company expects to continue acquiring commercial real estate primarily in the continental United States, which is subject to economic downturns[151] - The company may face substantial volatility in trading prices of its common stock following its listing due to pent-up demand from stockholders[147]
Sila Realty Trust, Inc.(SILA) - 2024 Q4 - Annual Report