The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the selected financial data and the Company's consolidated financial statements and notes thereto included in this Form 10-K. Our consolidated financial statements have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP.") The preparation of these financial statements in conformity with GAAP requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the estimates, judgments, and assumptions we use to prepare our consolidated financial statements. Changes in estimates, judgments, or assumptions could affect our financial position and our results of operations, which are used by our stockholders, potential investors, industry analysts, and lenders in their evaluation of our performance.
Critical Accounting Estimates
Our critical accounting estimates are defined as accounting estimates or assumptions made in accordance with GAAP, which involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our significant accounting policies, which utilize these critical accounting estimates, are described in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements under Item 15 in this annual report on Form 10-K. Our critical accounting estimates are described below. Accounting for Business Combinations: The Merger was accounted for as a business combination because substantially all of the fair value of the gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets. The Parent elected to apply pushdown accounting. Accordingly, the purchase price of the Merger has been allocated to the Company's assets and liabilities based upon their estimated fair values at the Acquisition Date in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. 22
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Such estimates, which are determined with the assistance of third-party valuation specialists where appropriate, are based upon many assumptions and judgments, including, but not limited to:
•market rates of return and capitalization rates on real estate and intangible assets;
•building and material cost levels;
•estimated market rent levels;
•future revenue growth rates;
•future cash flows from the real estate and the existing customer base; and
•comparisons of the acquired underlying land parcels to recent land transactions.
There was one business combination that occurred during the periods presented which was the Merger. For additional information on this transaction refer to Note 1 - Description of Business and Note 2 - Summary of Significant Accounting Policies. Executive Summary Business Overview The Company is a REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant industrial, industrial-flex, and low rise-suburban office space. As ofDecember 31, 2022 , the Company owned 471 buildings and one land parcel in six states representing 20,656,858 gross leasable square feet. As ofDecember 31, 2022 , our largest markets includedCalifornia ,Texas ,Florida ,Washington ,Maryland , andVirginia . We have and intend to continue to allocate capital to these and other key population and distribution markets in theU.S. which we believe will maximize risk-adjusted growth for our portfolio cash flows. The operating results of our real estate facilities are substantially influenced by demand for rental space within our properties and our markets, which impacts occupancy, rental rates, and capital expenditure requirements. We strive to maintain high occupancy levels while increasing rental rates and investing in capital expenditures when market conditions indicate favorable return on investment, although the Company may decrease rental rates in markets where conditions require. Management's initiatives and strategies with respect to our existing real estate facilities, which include incentivizing Link personnel to maximize the return on investment for each lease transaction and provide a superior level of service to our customers.
As a result of the Merger and the application of pushdown accounting, the periods presented are not necessarily comparable.
Completed Merger Transaction: Refer to Note 1 - Description of Business to our consolidated financial statements under Item 15 in this annual report on Form 10-K, for information regarding the merger agreement the Company entered into onApril 24, 2022 (the merger described therein, the "Merger"). Dispositions: We continually evaluate opportunities with respect to our portfolio and may from time to time sell individual real estate facilities and land parcels or groups of facilities and land parcels based on market conditions, fit with our existing portfolio, evaluation of long-term potential returns of markets or product types, or other reasons. The size of such sales may be significant to us. Refer to Note 3 - Investments in Real Estate to our consolidated financial statements under Item 15 in this annual report on Form 10-K for a discussion of our recently completed dispositions. 23 --------------------------------------------------------------------------------
Developments:
The following table presents the Company's development pipeline atDecember 31, 2022 : Estimated Estimated Stabilization/In Number of Projects Estimated Square Feet Project Cost1 Service Date2 Development/redevelopment under construction 3 472,825$ 199,147 1Q23 - 4Q23 ____________________________ 1 Estimated project cost includes the initial purchase price allocation. See Note 3 - Investments in Real Estate to our Consolidated Financial Statements under Item 15 in this annual report on Form 10-K. 2 Estimated stabilization/in service date is typically defined as the earlier of 12 months post completion or 90% occupancy.
Refer to Note 3 - Investments in Real Estate to our consolidated financial statements under Item 15 in this annual report on Form 10-K for a discussion of our recently completed developments.
Factors that Affect Our Results of Operations and Financial Condition
Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. See Part I. Item 1A. "Risk Factors" in this Annual Report on Form 10-K, for more information regarding factors that could materially adversely affect our results of operations and financial condition. Key factors that impact our results of operations and financial condition include rental rates and occupancy levels, rollover, acquisitions, dispositions, and development. Sensitivity to many of these factors has been heightened as a result of the ongoing and numerous adverse impacts of COVID-19.
Impact of Inflation: Inflation has significantly increased recently and a continued increase in inflation could adversely impact our future results, including as a result of adverse impacts to our tenants and to the economy generally. The Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company's leases require customers to pay operating expenses, including real estate taxes, utilities, and insurance, as well as increases in common area expenses, which should partially reduce the Company's exposure to inflation. Customer Concentrations: We seek to minimize the risk of industry or customer concentrations. No significant tenant concentrations existed as ofDecember 31, 2022 . 24
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Results of Operations
Comparison of the period from
Successor Predecessor Period from July Period from January Year Ended 20, 2022 through 1, 2022 through July December 31, December 31, 2022 19, 2022 2021 Revenue: Rental revenue$ 174,225 $ 246,175$ 439,154 Total revenue$ 174,225 $ 246,175$ 439,154 Revenue: Rental revenue decreased by$18,754 or 4.3%, for the year endedDecember 31, 2022 , including the successor and predecessor periods, as compared to the year endedDecember 31, 2021 primarily due to the distribution of the Company's interest in 58 properties included in the Non-Core Portfolio (refer to Note 1 - Description of Business to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K). Successor Predecessor Period from July Period from January Year Ended 20, 2022 through 1, 2022 through July December 31, December 31, 2022 19, 2022 2021 Expenses: Property expenses $ 39,956 $ 74,848$ 130,941 Depreciation and amortization 225,472 50,557 93,486 General and administrative 7,578 19,079 19,327 Merger costs 33,255 100,952 - Total expenses$ 306,261 $ 245,436$ 243,754 Other income (expense): Gain on sale of real estate, net $ - $ 157,022$ 359,875 Interest expense (43,189) (615) (728) Other income 235 2,044 2,085 Total other income (expense)$ (42,954) $ 158,451$ 361,232 Expenses: Total expenses increased by$307,943 , or 126.3%, for the year endedDecember 31, 2022 , including the successor and predecessor periods, as compared to the year endedDecember 31, 2021 , primarily due to the following: Depreciation and amortization increased by$182,543 for the year endedDecember 31, 2022 , including the successor and predecessor periods, as compared to the year endedDecember 31, 2021 , primarily due to the step-up in basis of the real estate assets acquired and intangibles assumed in connection with the Merger (refer to Note 2 - Summary of Significant Accounting Policies to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K). General and administrative expenses increased by$7,330 for the year endedDecember 31, 2022 , including the successor and predecessor periods, as compared to the year endedDecember 31, 2021 , primarily due to a one-time cash payment of$6,734 to the former CEO in the first quarter of 2022, which consisted of a$6,643 cash payment for RSUs (refer to Note 11 - Incentive Compensation to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K), and a$91 cash payment for COBRA coverage reimbursement in accordance with his separation agreement. Merger costs of$134,207 during the year endedDecember 31, 2022 are comprised primarily of legal and other professional fees incurred in connection with the Merger discussed herein. These increases in expenses were partially offset by a decrease in property expenses of$16,137 for the year endedDecember 31, 2022 , including the successor and predecessor periods, as compared to the year endedDecember 31, 2021 , primarily due to the distribution of the Company's interest in 58 properties included in the Non-Core Portfolio (refer to Note 1 - Description of Business to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K). 25 --------------------------------------------------------------------------------
Other Income (Expense): Total other income (expense) for the year ended
Gain on sale of real estate, net for the year endedDecember 31, 2022 , including the successor and predecessor periods, was$157,022 , which was related to the sale of 40 buildings excluding assets distributed as part of the Merger for no gain or loss. Refer to Note 1 for additional details. Gain on sale of real estate, net for the year endedDecember 31, 2021 was$359,875 , which was related to the sale of 22 buildings. Refer to Note 3 - Investments in Real Estate to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K for more information regarding our dispositions. Interest expense increased$43,076 for the year endedDecember 31, 2022 , including the successor and predecessor periods, as compared to the year endedDecember 31, 2021 . There was (i) an increase in interest expense on our outstanding debt of$107,055 , (ii) a$7,332 realized loss during the current year period due to changes in fair value on our interest rate derivatives, and (iii) amortization of financing costs of$11,042 during the current year period. This was partially offset by an unrealized gain on interest rate swaps of$83,607 in connection with the interest rate contracts entered into during the current year period (refer to Note 6 - Derivative Financial Instruments to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K). Subsequent to the Merger, we obtained two mortgage loans and terminated the unsecured revolving line of credit (refer to Note 5 - Debt to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K).
Liquidity and Capital Resources
This section should be read in conjunction with our Consolidated Statements of Cash Flows; and Note 5 - Debt, Note 6 - Derivative Financial Instruments, and Note 13 - Commitments and Contingencies to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K for additional details on the major components of our historical liquidity and capital resources. The discussion below sets forth the factors which we expect will affect our future liquidity and capital resources or which may vary substantially from historical levels. Cash Requirements:
Contractual Commitments: Our significant short-term liquidity requirements over
the next 12 months following
•Interest expense: payment of interest expense on outstanding indebtedness, including approximately$296,280 due within the next 12 months; •Development costs: funding development costs for three ongoing projects, including$17,570 scheduled to be funded within the next 12 months; •Funding capital expenditures for tenant improvements and leasing commissions of$3,106 ; •Ground lease obligations: Our contractual payment requirements under various operating leases as ofDecember 31, 2022 are approximately$199 for 2023 and$1,173 thereafter; •Preferred stock dividends: We paid$38,346 to preferred stockholders during the year ended endedDecember 31, 2022 , including successor and predecessor periods. Dividends on preferred equity are paid when and if declared by our Board of Directors (the "Board") and accumulate if not paid (refer to Note 10 - Stockholders' Equity to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K), and •other normal recurring operating and capital expenses. We intend to satisfy our short-term liquidity requirements through our existing cash and cash equivalents, which totaled$51,608 as ofDecember 31, 2022 , and cash flow from operating activities. We may also satisfy our liquidity needs by:
•proceeds from dispositions of properties and/or land parcels, and •our ability to obtain new financings, draw on existing financings, and exercise our option to extend the maturity dates on existing financings.
Our long-term liquidity needs consist primarily of funds necessary to pay for non-recurring capital expenditures for our properties, development or redevelopment activities, principal and interest payments on our indebtedness, and payment of distributions and dividends to our equity investors. We may satisfy our long-term liquidity needs through our cash flow from operations, long-term secured and unsecured borrowings, the issuance of debt and equity securities, property and/or land parcel dispositions, cash contributions from our Parent, our option to draw on available shared capacity on our existing loans or through repayment of the Parent Partner Loans. 26 -------------------------------------------------------------------------------- Redemption of Preferred Stock: Shares of preferred stock (other than our Series A Preferred Stock) are redeemable by the Company five years after issuance or in order to preserve its status as a REIT, but shares of preferred stock are never redeemable at the option of the holder. Shares of Series A Preferred Stock with a coupon rate of 12.00%, are redeemable at any time or from time to time, for cash at a redemption price equal to$4,000 per share plus an amount equal to all accrued and unpaid dividends thereon to and including the date fixed for redemption. Future redemptions of preferred stock will depend upon many factors, including available cash and our cost of capital. Refer to Note 10 - Stockholders' Equity to our Consolidated Financial Statements under Item 15 in this Annual Report on Form 10-K for more information on our preferred stock. OnNovember 22, 2022 , the Company commenced offers (the "Offers") to purchase for cash any and all outstanding Series X Preferred Shares, at$15.29 per share, Series Y Preferred Shares, at$15.33 per share, and Series Z Preferred Shares, at$14.34 per share. The Company accepted for purchase 5,953,898 Series X Preferred Shares, 5,756,691 Series Y Preferred Shares and 9,728,688 Series Z Preferred Shares. The offers were completed onDecember 23, 2022 and the Preferred Shares purchased were cancelled by the Company. OnNovember 2, 2022 , the board of directors of the Company (the "Board of Directors") authorized a quarterly dividend on each series of the Company's preferred stock underlying the Preferred Shares payable onDecember 31, 2022 (the "December Dividend") to holders of record of such underlying preferred stock at the close of business onDecember 15, 2022 for distribution to the holders of the Preferred Shares. All holders of the Preferred Shares at the close of business on theDecember 15, 2022 record date received the December Dividend for the applicable series of Preferred Shares regardless of whether they participated in the Offers since theDecember 15, 2022 record date occurred prior to the consummation of the Offers. As market conditions warrant, we and our majority equity holders,Blackstone and its affiliates, may from time to time seek to repurchase the remaining outstanding Preferred Shares in open market or privately negotiated purchases, by tender offer or otherwise or to redeem our preferred stock pursuant to the terms of their respective governing documents. The size of such repurchases may be material and may impact the liquidity and trading price of such preferred stock. Requirement to Pay Distributions: Our election to be taxed as a REIT, as defined by the Code, applies to all periods presented herein. As a REIT, we do not incurU.S. federal corporate income tax on our "REIT taxable income" that is distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and we continue to meet certain organizational and operational requirements. We believe we have met these requirements in all periods presented herein.
We paid REIT qualifying distributions of
Our consistent, long-term dividend policy has been to set dividend distribution amounts based on our taxable income. Future quarterly distributions with respect to common stock will continue to be determined based upon our REIT distribution requirements and, along with distributions to preferred stockholders, we expect will be funded with cash provided by operating activities. 27
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