CNSREIT-AR-2024 Final - Flipbook - Page 53
Technological or other innovations may disrupt the markets and sectors in which we operate and subject us to increased
competition or negatively impact the tenants of our properties and the value of our properties.
Recent and ongoing trends in the real estate market and the sectors in which we may invest generally have been toward
disrupting the industry with technological or other innovations, and multiple young companies have been successful in
capitalizing on this trend toward disruption. In this period of rapid technological and commercial innovation, new
businesses and approaches may be created that could affect us, tenants of our properties or our investments or alter the
market practices that help frame our strategy. For example, the value of hospitality properties may be affected by
competition from the non-traditional hospitality sector (such as short-term rental services), office properties may be
affected by competition from shared office spaces (including co-working environments), retail properties may be affected
by changes in consumer behavior, including increased shopping via the internet, and warehouse industrial properties may
be affected if supply chains evolve in a way that decreases the need for traditional warehousing. Any of these new
approaches could damage our investments, significantly disrupt the market in which we operate and subject us to increased
competition, which could materially and adversely affect our business, financial condition and results of investments.
Moreover, given the pace of innovation in recent years, the impact on a particular investment may not have been
foreseeable at the time we made the investment. Furthermore, we could base investment decisions on views about the
direction or degree of innovation that prove inaccurate and lead to losses.
Rising inflation may adversely affect our financial condition and results of operations.
Inflation in the U.S. remained elevated throughout 2024. While inflation has moderated in some areas, it remains
uncertain whether substantial inflation in the U.S. will be sustained over an extended period of time or have a significant
effect on the U.S. or other economies. Rising inflation could have an adverse impact on our floating rate mortgages, credit
facilities, property operating expenses and general and administrative expenses, as these costs could increase at a rate
higher than our rental and other revenue. Inflation could also have an adverse effect on consumer spending, which could
impact our tenants9 revenues and, in turn, our percentage rents, where applicable.
In addition, leases of long-term duration or which include renewal options that specify a maximum rate increase may
result in below-market lease rates over time if we do not accurately estimate inflation or market lease rates. Provisions of
our leases designed to mitigate the risk of inflation and unexpected increases in market lease rates, such as periodic rental
increases, may not adequately protect us from the impact of inflation or unexpected increases in market lease rates. If we
are subject to below-market lease rates on a significant number of our properties pursuant to long-term leases and our
operating and other expenses are increasing faster than anticipated, our business, financial condition, results of operations,
cash flows or our ability to satisfy our debt service obligations or to pay distributions on our common stock could be
materially adversely affected.
Rising interest rates could impact the value of our investments.
Interest rates are one of the variables that affect real estate asset prices. A number of other factors are also important,
including real estate market fundamentals, inflation expectations and investor investment horizons and return targets. For
real estate, changes in interest rates influence real estate capitalization rates, with higher interest rates ultimately resulting
in higher capitalization rates and lower property values, all other things being equal. However, interest rates and
capitalization rates do not always move in lockstep as there typically is a lag between changes in interest rates and changes
in capitalization rates, and especially for high-quality properties. Capitalization rates tend to be durable due to the long
term, inflation-protected nature of tenant leases, which typically include annual rent increases. In response to recent
inflationary pressure, the Federal Reserve and other global central banks have raised interest rates in 2022 and 2023.
During 2024, the Federal Reserve began reducing the federal funds rate but interest rates remained elevated. The Federal
Reserve has indicated an expectation of slower rate decreases moving forward. While further interest rate reductions
remain possible, continued elevated interest rates may negatively affect our investment opportunities and the value of our
investments as described above.
General Risks Related to Investments in Real Estate-Related Securities
Reinvestment risk could affect the price for our shares or their overall returns.
Reinvestment risk is the risk that income from our portfolio will decline if we invest the proceeds from matured, traded
or called securities at market interest rates that are below our real estate debt portfolio9s current earnings rate. A decline in
income could affect the NAV of our shares or their overall returns.
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