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Item 7. Management’s Discussion and Analysis

2021-02-24 compared with 2020-02-25 · 93 added, 78 removed, 326 unchanged (34% of the section changed)

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We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S.

General Services Administration, or GSA.

General Services Administration, which we refer to herein as the GSA.

Our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation.

As of December 31, 2019, we wholly owned 70 operating properties in the United States that were 100% leased, including 68 operating properties that were leased primarily to U.S.

Government tenant agencies and two operating properties that were entirely leased to private tenants, encompassing approximately 6.5 million square feet in the aggregate.

In addition, we wholly owned two properties under development that we expect to encompass approximately 0.2 million square feet upon completion.

We focus on acquiring, developing and managing U.S.

Government-leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S.

Government, working with the tenant agency to meet their needs and objectives.

Government, working closely with the tenant agency to meet its needs and objectives.

As of December 31, 2020, we wholly owned 79 operating properties in the United States, encompassing approximately 7.3 million leased square feet in the aggregate, including 77 operating properties that were leased primarily to U.S.

Government tenant agencies and two operating properties that were entirely leased to private tenants.

As of December 31, 2020, our operating properties were 99% leased.

For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition.

In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion.

Our operating partnership holds substantially all of our assets and conducts substantially all of our business.

We own approximately 88.6% of the aggregate operating partnership units in our operating partnership.

We believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S.

We are the sole general partner of our operating partnership and owned approximately 88.8% of the aggregate limited partnership interests in our operating partnership, which we refer to herein as common units, as of December 31, 2020.

We have elected to be taxed as a REIT and believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S.

federal income tax purposes commencing with our taxable year ended December 31, 2015.

Impact of the COVID-19 Pandemic

The novel coronavirus, or COVID-19, pandemic, has caused and continues to cause significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.

We continue to carefully monitor the COVID-19 pandemic and its potential impact on our business.

We are following guidelines established by the Centers for Disease Control and the World Health Organization and orders issued by the state and local governments where we operate.

In addition, we have taken a number of precautionary steps to safeguard our business and our employees from the COVID-19 pandemic, including, but not limited to, implementing non-essential travel restrictions and facilitating telecommuting arrangements for our employees.

We have taken these precautionary steps while maintaining business continuity so

that we can continue to deliver service to and meet the demands of our tenants, including our U.S.

Government tenant agencies.

Since March 13, 2020, nearly all of our employees have been working remotely, with only certain operationally critical employees working on site.

The operations of many of our U.S.

Government tenant agencies are deemed essential.

We are working closely with our tenants to follow directions from the various federal government tenant agencies with respect to building operations within our portfolio, and have issued guidance for our vendors and building engineers grounded in applicable federal, state and local guidelines.

Whenever we learn of a confirmed case of COVID-19 involving an individual known to have been in one of our buildings, we immediately take additional steps in collaboration with our tenants and vendors to disinfect and sanitize the affected spaces and all common areas in the building.

To date, the impact of the COVID-19 pandemic on our business and financial condition has not been significant.

Substantially all of our revenue continues to be generated through the receipt of rental payments from U.S.

Government tenant agencies, which accounted for 98.5% of our annualized lease income as of December 31, 2020.

We expect that leases to agencies of the U.S.

Government will continue to be the primary source of our revenues for the foreseeable future.

Notwithstanding the recent volatility in the financial markets, we also believe that our capital structure will continue to provide us with the resources, financial flexibility and the capacity to support the continued growth of our business.

Since January 1, 2020, we have issued an aggregate of 6,996,824 shares of our common stock, including in settlement of forward sales transactions, through our March 2019 ATM Program and December 2019 ATM Program (each as described below).

As of February 16, 2021, there are 4,106,521 shares underlying forward sale transactions that have not yet been settled, including an aggregate of 359,289 shares sold on a forward basis subsequent to the year ended December 31, 2020.

Subject to our right to elect net share settlement, we expect to physically settle the forward sales transactions between April 2021 and February 2022.

As of December 31, 2020, we also had $370.7 million available under our $450.0 million senior unsecured revolving credit facility.

The future impact of the COVID-19 pandemic on our operations and financial condition will, however, depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

See “Item 1A Risk Factors” for a discussion of the potential adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition .

Financial information analyzed below reflects the audited financial statements as of December 31, 2020, included in the F pages of this Annual Report on Form 10-K.

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Total expenses

Other expenses

Interest expense

Gain on the sale of operating property

Total revenues consist primarily of rental income from our properties, tenant reimbursements for real estate taxes, projects and certain other expenses, and project management income.

Total revenue increased $61.1 million to $221.7 million for the year ended December 31, 2019 compared to $160.6 million for the year ended December 31, 2018.

The increase was primarily attributable to an additional $57.9 million of revenue from the eight operating properties acquired and one development property placed in service since December 31, 2018 as well as a full period of operations from the 15 operating properties acquired and one development property placed in service during the year ended December 31, 2018 , offset by one property disposed of in the second quarter of 2019.

Additionally, there was a $6.

2 million increase in tenant project reimbursements and the associated project management income, offset by a $2.

4 million decrease in the timing of above and below market lease intangible s amortization.

Other income (expense)

Interest expense, net

Gain (loss) on the sale of operating property

Total revenues increased $23.4 million to $245.1 million for the year ended December 31, 2020 compared to $221.7 million for the year ended December 31, 2019.

The $29.6 million increase in Rental income is primarily attributable to an increase in revenues from the nine operating properties acquired and one development property placed in service since December 31, 2019 as well as a full period of operations from the eight operating properties acquired and one development property placed in service during the year ended December 31, 2019, offset by a decrease in revenues attributable to the disposal of two operating properties, one in the fourth quarter of 2020 and one in the second quarter of 2019.

The $5.7 million decrease in Tenant reimbursements and $0.5 million decrease in Other income are primarily attributable to a decrease in tenant project reimbursements and the associated project management income.

Total expenses increased by $5.8 million to $192.1 million for the year ended December 31, 2020 compared to $186.3 million for the year ended December 31, 2019.

The increase is primarily attributable to a $49.1 million increase in property operating expenses, real estate taxes, and depreciation and amortization associated with the eight operating properties acquired and one development property placed in service since December 31, 2018 and a full period of operations from the 15 operating properties acquired and one development property placed in service during the year ended December 31, 2018, offset by one property disposed of in the second quarter of 2019.

Additionally, there was a $5.2 million increase in expenses associated with tenant project reimbursements and a $0.9 million increase in employee costs, offset by a $6.1 million decrease in depreciation related to the timing of above and below market lease intangibles amortization.

Acquisition costs and Corporate and general administrative costs also increased by an aggregate of $5.5 million primarily due to an increase in employee costs.

The $0.2 million increase in Property operating expenses is primarily attributable to an increase in property operating expenses associated with the nine operating properties acquired and one development property placed in service since December 31, 2019, as well as a full period of operations from the eight operating properties acquired and one development property placed in service during the year ended December 31, 2019, offset by a decrease in expenses associated with tenant project reimbursements.

The $3.5 million increase in Real estate taxes is also primarily attributable to the nine operating properties acquired and one development property placed in service since December 31, 2019 as well as a full period of operations from the eight operating properties acquired and one development property placed in service during the year ended December 31, 2019.

Additionally, the $1.4 million increase in Depreciation and amortization is primarily attributable to the nine operating properties acquired and one development property placed in service since December 31, 2019, as well as a full period of operations from the eight operating properties acquired and one development property placed in service during the year ended December 31, 2019, offset by a decrease in depreciation related to the timing of intangible amortization.

The $0.3 million increase in Acquisition costs was primarily due to an increase in employee costs.

The $0.4 million increase in Corporate and general administrative costs was also primarily due to an increase in employee costs.

Interest Expense

Interest expense increased $2.0 million to $35.5 million for the year ended December 31, 2020 compared to $33.5 million for the year ended December 31, 2019.

The increase is primarily due to additional interest expense of $4.0 million related to the 2018 term loan facility, which was entered into during the year ended December 31, 2018.

Interest expense also increased due to an additional $3.7 million of interest on our revolving credit facility due to an increase in the weighted average interest rate from 3.36% and weighted average borrowings of $74.4 million during the year ended December 31, 2018 to weighted average interest rate of 3.71% and weighted average borrowings of $175.6 million during the year ended December 31, 2019.

Additionally, interest expense increased $3.2 million due to interest attributable to the $275.0 million of fixed rate, senior unsecured notes issued in the third quarter of 2019.

These increases were partially offset by an increase in capitalized interest associated with properties under development, resulting in a $0.6 million decrease in interest expense.

Gain on the sale of operating property

The increase is primarily due to additional interest expense attributable to the $275.0 million fixed rate, senior unsecured notes issued in the third quarter of 2019.

This increase is offset by a decrease in interest owed on our revolving credit facility primarily due to a decrease in the weighted average interest rate and weighted average borrowings for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Gain (Loss) on the sale of operating property

On November 24, 2020, we sold DEA – Otay to a third party.

Net proceeds from the sale of the operating property were approximately $3.5 million and we recognized the full loss on the sale of the operating property of approximately $4.0 million for the year ended December 31, 2020.

On May 8, 2019, we sold CBP – Chula Vista to a third party.

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Comparison of Results of Operations for the Years Ended December 31, 20 19 and December 31, 20 18

Information pertaining to fiscal year 2017 was included in our Annual Report on Form 10-K for the year ended December 31, 2018 on page 35 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations”, which was filed with SEC on February 28, 2019.

Information pertaining to fiscal year 2018 was included in our Annual Report on Form 10-K for the year ended December 31, 2019 on page 35 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations”, which was filed with the Securities and Exchange Commission, or SEC, on February 25, 2020.

Liquidity and Capital Resources

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Shelf Registration Statement on Form S-3

On March 16, 2018, we filed an automatic universal shelf registration statement on Form S-3 with the Securities and Exchange Commission, or SEC, which was deemed automatically effective and which provides for the registration of unspecified amounts of securities.

On March 16, 2018, we filed an automatic universal shelf registration statement on Form S-3 with the SEC, which was deemed automatically effective and which provides for the registration of unspecified amounts of securities.

However, there can be no assurance that we will be able to complete any such offerings of securities in the future.

In 2017, we established a $100.0 million ATM program (the “2017 ATM Program”), which as of December 31, 2019 had no shares remaining available for sale.

On March 4, 2019, we entered into separate equity distribution agreements with each of Citigroup Global Markets Inc., BMO Capital Markets Corp., BTIG, LLC, Capital One Securities, Inc., Jefferies LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC, SunTrust Robinson Humphrey, Inc.

and Wells Fargo Securities, LLC (collectively, the “Sales Agents”) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $200.0 million from time to time (the “March 2019 ATM Program”) in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act.

Under the March 2019 ATM Program, we may also enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of Citibank, N.A., Bank of Montreal, Jefferies LLC, Raymond James & Associates, Inc., Royal Bank of Canada and Wells Fargo Bank, National Association (collectively, the “Forward Counterparties”) for the sale of shares of our common stock on a forward basis.

On December 20, 2019, we entered into separate new equity distribution agreements with each of the Sales Agents pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million from time to time (the “December 2019 ATM Program”) in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act.

Under the December 2019 ATM Program, we may also enter into one or more forward sale transactions under separate master forward sale confirmations and related supplemental confirmations with the Forward

Counterparties for the sale of shares of our common stock on a forward basis .

No sale of shares of our common stock was made under the December 2019 ATM Program during the year ended December 31, 2019.

The following table sets forth certain information with respect to sales made under the 2017 ATM Program and the March 2019 ATM Program as of December 31, 2019 (amounts in thousands except share amounts):

2017 ATM Program

ATM Program s

On each of March 4, 2019 and December 20, 2019, we entered into separate equity distribution agreements with each of C itigroup Global Markets Inc., BMO Capital Markets Corp., BTIG, LLC, Capital One Securities, Inc., Jefferies LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC, SunTrust Robinson Humphrey, Inc.

and Wells Fargo Securities, LLC, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $200.0 million and $300.0 million, respectively, from time to time, which we refer to herein as the ATM Programs, in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act.

The ATM Programs implemented on March 4, 2019 and December 20, 2019 are referred to as the “March 2019 ATM Program” and “December 2019 ATM Program” respectively.

Under each of the ATM Programs, we may also enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of Citibank, N.A., Bank of Montreal, Jefferies LLC, Raymond James & Associates, Inc., Royal Bank of Canada and Wells Fargo Bank, National Association for the sale of shares of our common stock on a forward basis.

The following table sets forth certain information with respect to issuances, including in settlement of forward sales transactions, made under each of the ATM Programs as of December 31, 2020 (amounts in thousands except share amounts):

March 2019 ATM Program

December 2019 ATM Program

For the Three Months Ended:

Number of Shares Sold

Number of Shares Sold (1)

Number of Shares Issued (1)

Net Proceeds (1)

Number of Shares Issued (1)

Net Proceeds (1)

March 31, 2020

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December 31, 2020

During the year ended December 31, 2019, we entered into and fully settled forward sale transactions under the March 2019 ATM Program by selling and issuing an aggregate of 1,825,712 shares of our common stock in exchange for net proceeds to us of approximately $35.2 million, after deducting offering costs .

As of December 31, 2019, we had entered into forward sales transactions under the March 2019 ATM Program for the sale of an additional 2,878,703 shares of our common stock that had not yet been settled.

Subject to our right to elect net share settlement, we expect to physically settle the forward sales transactions no later than December 9, 2020.

Assuming the forward sales transactions are physically settled in full utilizing a weighted average initial forward sales price of $22.56 per share, we expect to receive net proceeds of approximately $64.9 million, after deducting offering costs, subject to adjustments in accordance with the applicable forward sale transactions.

Includes shares issued by the Company, including in settlement of forward sales transactions.

Additionally, as of December 31, 2020, we had entered into forward sales transactions under the March 2019 ATM Program and December 2019 ATM Program for the sale of an additional 3,747,232 shares of our common stock that had not yet been settled.

Subject to our right to elect net share settlement, we expect to physically settle the forward sales transactions by the maturity dates set forth in each applicable forward sale transaction placement notice, which dates range from April 2021 to September 2021.

Assuming the forward sales transactions are physically settled in full utilizing a net weighted average initial forward sales price of $25.96 per share, we expect to receive net proceeds of approximately $97.3 million, after deducting offering costs, subject to adjustments in accordance with the applicable forward sale transactions.

We accounted for the forward sale agreements as equity.

We have used the proceeds from such sales for general corporate purposes.

As of December 31, 2019, we had approximately $103.9 million and $300.0 million of gross sales of our common stock available under the March 2019 ATM Program and the December 2019 ATM Program, respectively.

We have used the net proceeds received from such sales for general corporate purposes.

As of December 31, 2020, we had approximately $140.6 million of gross sales of our common stock available under the December 2019 ATM Program and no remaining availability under the March 2019 ATM Program.

Amended and Restated Credit Facility

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The revolving credit facility also includes an accordion feature that will provide us with additional capacity, subject to the satisfaction of customary terms and conditions, of up to $250.0 million.

As of December 31, 2019, we had full capacity available under the revolving credit facility.

As of December 31, 2020, we had $370.7 million in available capacity available under the revolving credit facility.

We also have a $100.0 million senior unsecured term loan facility, which we refer to as the 2016 term loan facility.

Private Placement of Senior Unsecured Notes

On September 12, 2019, the operating partnership issued an aggregate of $275.0 million of fixed rate, senior unsecured notes (the “2019 senior unsecured notes”) in a private placement pursuant to a purchase agreement among us, the operating partnership and the purchasers of the 2019 senior unsecured notes dated July 30, 2019 (the “Purchase Agreement”).

The 2019 senior unsecured notes consist of (i) 3.73% Series A Senior Notes due September 12, 2029 in an aggregate principal amount of $85.0 million, (ii) 3.83% Series B Senior Notes due September 12, 2031 in an aggregate principal amount of $100.0 million, and (iii) 3.98% Series C Senior Notes due September 12, 2034 in an aggregate principal amount of $90.0 million.

The 2019 senior unsecured notes are unconditionally guaranteed by us and various subsidiaries of the operating partnership (the “Subsidiary Guarantors”).

Subject to the terms of the Purchase Agreement and the 2019 senior unsecured notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal, “make-whole” amount or interest under the 2019 senior unsecured notes, and (ii) a default in the payment of certain other indebtedness of us or the operating partnership or of the Subsidiary Guarantors, the principal and accrued and unpaid interest and the make-whole amount on the outstanding 2019 senior unsecured notes will become due and payable at the option of the holders.

The Purchase Agreement and the 2019 senior unsecured notes also contain various covenants (including, among others, financial covenants with respect to debt service coverage, consolidated net worth, fixed charges and consolidated leverage and covenants relating to liens) and if we or the operating partnership breaches any of these covenants, the principal and accrued and

unpaid interest and the make-whole amount on the outstanding 2019 senior unsecured notes will become due and payable at the option of the holders.

Indebtedness Outstanding

The following table sets forth certain information with respect to the indebtedness outstanding as of December 31, 2019 (dollars in thousands):

The following table sets forth certain information with respect to our outstanding indebtedness as of December 31, 2020 (dollars in thousands):

Principal Outstanding

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Total mortgage notes payable, net

Current interest rates as of December 31, 2019.

At December 31, 2020 the one-month LIBOR (“L”) was 0.14%.

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The spread over the applicable rate for each of our revolving credit facility, our 2018 term loan facility, and our 2016 term loan facility is based on our consolidated leverage ratio, as defined in the respective loan agreements.

Available capacity of $450.0 million at December 31, 2019, with an accordion feature that provides additional capacity of up to $250.0 million.

Our revolving credit facility had available capacity of $370.7 million at December 31, 2020, with an accordion feature that permits us to request additional lender commitments for up to $250.0 million of additional capacity, subject to the satisfaction of customary terms and conditions.

Our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee.

Entered into two interest rate swaps with an effective date of March 29, 2017 with an aggregate notional value of $100.0 million to effectively fix the interest rate at 2.6 7 % annually, based on our consolidated leverage ratio, as defined in the 2016 term loan facility agreement.

Entered into four interest rate swaps with an effective date of December 13, 2018 with an aggregate notional value of $150.0 million to effectively fix the interest rate at 3.96% annually, based on the Company’s consolidated leverage ratio, as defined in the 2018 term loan facility agreement.

Entered into two interest rate swaps with an effective date of March 29, 2017 with an aggregate notional value of $100.0 million to effectively fix the interest rate at 2.67% annually, based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement.

Entered into four interest rate swaps with an effective date of December 13, 2018 with an aggregate notional value of $150.0 million to effectively fix the interest rate at 3.9 6 % annually, based on our consolidate d leverage ratio, as defined in our 2018 term loan facility agreement .

Effective interest rates are as follows:

DEA – Pleasanton 1.8%, VA – Golden 5.03%, MEPCOM – Jacksonville 3.89%, USFS II – Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%.

Our revolving credit facility, term loan facilities, unsecured notes, and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants.

As of December 31, 2019, we were in compliance with the applicable financial covenants.

Our revolving credit facility, term loan facilities, notes payable, and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants.

As of December 31, 2020, we were in compliance with all applicable financial covenants.

The chart below details our debt capital structure as of December 31, 2020 (dollars in thousands):

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Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019 (amounts in thousands):

The following table summarizes our contractual obligations as of December 31, 2020 (dollars in thousands):

Payments due by period

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It is possible that it would be necessary to utilize cash reserves, liquidate assets at unfavorable prices or incur additional indebtedness in order to make required distributions.

It is also possible that the board of directors could decide to make required distributions in part by using shares of our common stock.

It is also possible that our board of directors could decide to make required distributions in part by using shares of our common stock.

A summary of dividends declared by the board of directors per share of common stock and per common unit of our operating partnership at the date of record is as follows:

Declaration Date

June 10, 2019

April 29, 2020

June 25, 2020

July 29, 2020

September 12, 2019

August 13, 2020

September 11, 2020

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March 17, 2021

We use long-term investment partnership units in our operating partnership, which we refer to as LTIP units, as a form of performance-based award and service-based award for annual long-term incentive equity compensation.

We use long-term investment partnership units in our operating partnership, which we refer to herein as LTIP units, as a form of performance-based award and service-based award for annual long-term incentive equity compensation.

LTIP units are convertible into common units upon the satisfaction of certain conditions.

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We generated $145.2 million and $142.3 million of cash from operating activities during the years ended December 31, 2020 and 2019, respectively.

Net cash provided by operating activities for the year ended December 31, 2019 includes $91.1 million in net cash from rental activities net of expenses, offset by $51.3 million related to the changes in rents receivable, accounts receivable, deferred revenue, prepaid and other assets, and accounts payable and accrued liabilities.

Net cash provided by operating activities for the year ended December 31, 2018 includes $62.9 million in net cash from rental activities net of expenses, offset by $0.1 million related to the changes in rents receivable, accounts receivable, deferred revenue, prepaid and other assets, and accounts payable and accrued liabilities.

Net cash provided by operating activities for the year ended December 31, 2020 included $105.0 million in net cash from rental activities net of expenses and $40.2 million related to the changes in rents receivable, accounts receivable, prepaid and other assets, deferred revenue associated with operating leases, and accounts payable, accrued expenses and other liabilities.

Net cash provided by operating activities for the year ended December 31, 2019 included $91.1 million in net cash from rental activities net of expenses, and $51.3 million related to the changes in rents receivable, accounts receivable, prepaid and other assets, deferred revenue associated with operating leases, and accounts payable, accrued expenses and other liabilities .

Investing Activities

We used $290.2 million and $442.3 million in cash for investing activities during the years ended December 31, 2020 and 2019, respectively.

Net cash used in investing activities for the year ended December 31, 2019 primarily includes $394.5 million in real estate acquisitions related to the net asset purchase of eight operating properties, $60.6 million in additions to development properties and $7.2 million in additions to operating properties, offset by $19.9 million in proceeds from the sale of CBP – Chula Vista in the second quarter of 2019.

Net cash used in investing activities for the year ended December 31, 2018 primarily includes $402.6 million in real estate acquisitions related to the net asset purchase of 15 operating properties, $58.5 million in additions to development properties and $5.7 million in additions to operating properties.

Net cash used in investing activities for the year ended December 31, 2020 primarily included $232.7 million in real estate acquisitions, $43.0 million in additions to development properties and $18.0 million in additions to operating properties, offset by $3.5 million in proceeds from the sale of DEA – Otay in the fourth quarter of 2020.

Net cash used in investing activities for the year ended December 31, 2019 primarily included $394.5 million in real estate acquisitions, $60.6 million in additions to development properties and $7.2 million in additions to operating properties, offset by $19.9 million in proceeds from the sale of CBP – Chula Vista in the second quarter of 2019.

Financing Activities

We generated $144.1 million and $304.5 million in cash from financing activities during the years ended December 31, 2020 and 2019, respectively.

Net cash provided by financing activities for the year ended December 31, 2019 includes $258.6 million in gross proceeds from issuance of shares of our common stock, $275.0 million in issuance of notes payable, $134.8 million in net paydowns under the revolving credit facility, offset by $81.9 million in dividends, $7.1 million in payment of deferred offering costs,

$ 3.4 million in mortgage debt repayment and $ 2.0 million in payment of deferred financing costs .

Net cash provided by financing activities for the year ended December 31, 201 8 includes $297.8 million in gross proceeds from issuance of shares of our common stock , $150.0 million in draws under the 2018 term loan facility , and $35.0 million in net draws under the revolving credit facility, offset by $66.0 million in dividends, $11.3 million in payment of deferred offering costs, $3.5 million in payment of deferred financing costs and $3.2 million in mortgage debt repayment.

Net cash provided by financing activities for the year ended December 31, 2020 included $162.0 million in gross proceeds from issuance of shares of our common stock and $79.3 million in net draws under the revolving credit facility, offset by $91.7 million in dividends, $3.6 million in mortgage debt repayment, and $1.9 million in payment of deferred offering costs.

Net cash provided by financing activities for the year ended December 31, 2019 included $258.6 million in gross proceeds from issuance

of shares of our common stock, $275.0 million in issuance of notes payable, offset by $ 134.8 million in net paydowns under the revolving credit facility , $ 81.9 million in dividends, $ 7.1 million in payment of deferred offering costs, $ 3.4 million in mortgage debt repayment and $ 2.0 million in payment of deferred financing costs .

Comparison of Cash Flow for the Years Ended December 31, 2019 and December 31, 2018

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We use and present Funds From Operations, or FFO, and FFO, as Adjusted as supplemental measures of our performance.

The summary below describes our use of FFO and FFO, as Adjusted, provides information regarding why we believe these measures are meaningful supplemental measures of our performance and reconciles these measures from net income, presented in accordance with GAAP.

Funds From Operations and Funds From Operations, as Adjusted

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Impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

We present FFO because we consider it an important supplemental measure of our operating performance, and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results.

W e present FFO because we consider it an important supplemental measure of our operating performance, and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results.

We adjust FFO to present FFO, as Adjusted as an alternative measure of our operating performance, which, when applicable, excludes the impact of acquisition costs, straight-line rent, amortization of above-/below-market leases, amortization of deferred revenue (which results from landlord assets funded by tenants), non-cash interest expense, non-cash compensation and other non-cash items.

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Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows.

The following table sets forth a reconciliation of our net income to FFO and FFO, as Adjusted for the years ended December 31, 201 9 , 201 8 , and 201 7 (in thousands):

The following table sets forth a reconciliation of our net income to FFO and FFO, as Adjusted for the years ended December 31, 20 20 , 201 9 , and 201 8 ( dollars in thousands):

For the years ended December 31,

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Development Activities

As of December 31, 2019, we had two properties under development.

As of December 31, 2020, we had one property under development.

We intend to continue to engage in development and redevelopment activities with respect to our properties, including build-to-suit new developments and redevelopments for existing U.S.

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Above- and below-market leases are amortized into rental income over the terms of the respective leases.

Further, Rental income includes certain tenant reimbursement income (real estate taxes, operating expenses, utility usage, and other reimbursements), which are accrued as variable lease payments in the same periods as the related expenses are incurred in accordance with Accounting Standards Codification Topic 842, Leases (“ASC 842”) which the Company adopted on January 1, 2019.

Refer to the Recently Adopted Accounting Pronouncements for further discussion.

Tenant reimbursement income includes income from tenant construction projects.

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Deferred Revenue

Deferred revenue consists primarily of lump sum reimbursements made by a tenant to us for landlord improvements in excess of a tenant improvement allowance.

Deferred revenue consists primarily of lump sum reimbursements made by tenants to us for landlord improvements in excess of a tenant improvement allowance.

Lump sum reimbursements are recorded as Deferred revenue on the Consolidated Balance Sheets and are amortized over the life of the lease through Rental income.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis