Property Ownership and Revenue - As of December 31, 2019, the company owned 152 properties located in 67 MSAs, with the Atlanta-Sandy Springs-Roswell, Georgia MSA accounting for 15.0% of rental revenue for the year [95]. - As of December 31, 2019, the company owned 152 properties, which represent the substantial majority of its total asset mix, maintaining an exemption from registration under the Investment Company Act of 1940 [116]. - Investments in healthcare properties accounted for 48.0% of total rental revenue for the year ended December 31, 2019 [168]. - Data center properties represented 52.0% of total rental revenue for the year ended December 31, 2019 [189]. - Approximately 14.5% of total rental revenue was derived from tenants with an investment grade credit rating, while 61.5% came from unrated tenants, indicating a significant risk of default [132]. Financial Performance and Risks - The company has historically experienced net losses and may not be profitable in the future, with losses attributed to operating costs and impairment-related expenses [94]. - The company’s ability to maintain cash distributions is uncertain, as it is influenced by factors such as property acquisitions and rental income levels [127]. - Properties with prolonged vacancies could diminish the return on stockholders' investments, affecting cash flow and market value [135]. - The company may not be able to sell properties at or above purchase prices, potentially leading to asset value decreases and reduced stockholder value [141]. - Rising operating expenses could reduce cash flow and funds available for future acquisitions or distributions to stockholders [143]. Compliance and Regulatory Risks - The company may incur costs related to environmental compliance, which could materially affect business operations and asset values [165]. - Compliance with the Americans with Disabilities Act may require significant expenditures, affecting cash available for distributions [166]. - The healthcare industry is heavily regulated, and changes in laws or regulations could negatively impact tenants' operations and financial condition [175]. - Changes in reimbursement rates from third-party payors, including Medicare and Medicaid, could hinder tenants' profitability and their ability to pay rent [172]. Debt and Interest Rate Risks - As of December 31, 2019, total principal debt outstanding was $1,365.3 million, with $658.0 million subject to variable interest rates at a weighted average interest rate of 3.9% per annum [408]. - The company is primarily exposed to interest rate risk due to variable rate debt financing for property acquisitions [404]. - An increase of 50 basis points in market interest rates would result in an increase in interest expense of approximately $3.3 million per year [408]. - The company has entered into derivative financial instruments, such as interest rate swaps, to mitigate interest rate risk [405]. Stockholder Considerations - The company’s stockholders may experience dilution if additional shares are issued, as there are no preemptive rights for existing stockholders [123]. - The company’s charter limits stock ownership to 9.8%, which may discourage takeovers that could provide a premium price to stockholders [112]. - Payment of fees to the Advisor and Property Manager will reduce cash available for distribution, increasing investment recovery risks for stockholders [125]. - Stockholders participating in the distribution reinvestment plan will recognize taxable income equal to the amount reinvested, potentially requiring funds from other sources to cover tax liabilities [211]. Operational and Market Risks - Cybersecurity risks could disrupt operations and negatively impact financial results, with potential liabilities for stolen assets or information [101]. - The outbreak of contagious diseases, such as COVID-19, could adversely impact investment values and the ability to meet capital and operating needs [144]. - Competition for properties may increase acquisition costs, reducing profitability and returns for stockholders [157]. - Delays in property acquisitions may adversely affect stockholder investment value and cash distribution timelines [160]. Management and Governance Risks - The company is subject to conflicts of interest due to compensation arrangements with its Advisor, which could influence decisions not in the best interest of stockholders [104]. - The board of directors has the authority to change investment policies without stockholder approval, which could alter the nature of stockholders' investments [120]. - The company’s board can issue stock that may subordinate the rights of common stockholders, potentially delaying or preventing changes in control [113].
Sila Realty Trust, Inc.(SILA) - 2019 Q4 - Annual Report