What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-27 compared with 2020-04-28 · 204 added, 116 removed, 325 unchanged (50% of the section changed)

18 unchanged sentences

All references to annualized generally accepted accounting principles (“GAAP”) rent are rents that each tenant pays in accordance with the terms of its respective lease reported evenly over the non-cancelable term of the lease.

As of April 28, 2020 :

As of July 27, 2020 :

we owned 121 properties totaling 14.7 million square feet in 28 states;

3 unchanged sentences

Business Environment

The rapid spread of the coronavirus identified as COVID-19 has resulted in authorities throughout the United States and the world implementing widespread measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, the promotion of social distancing and limitations on business activity, including business closures.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and widespread infection continues in the United States and many parts of the world.

The rapid spread of the coronavirus identified as COVID-19 resulted in authorities throughout the United States and the world implementing widespread measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, the promotion of social distancing and limitations on business activity, including business closures.

These measures and the pandemic have caused a significant national and global economic downturn, disrupted business operations, including those of our tenants, significantly increased unemployment and underemployment levels, and are expected to have an adverse effect on both industrial and office demand for space in the short term.

Interest rates have been volatile and although interest rates are still low by historical standards (and in some cases have been reduced to help curb the impact of COVID-19), lenders have varied on their required spreads over the last several quarters.

Fourth quarter 2019 statistics reflect that single property listings and investment sales volumes are lower as compared to the prior year’s same period, although the full year volume was healthy.

Investment sales volume across all product types in recent months is lower year over year, as compared to 2019 as a direct result of COVID-19.

After completing the 11th year of the current cycle, some national research firms had been estimating that both pricing and investment sales volume would be peaking and the national economy would be slowing in the near term, prior to the rapid spread of COVID-19.

Global recessionary conditions are expected in 2020 as a direct result of the COVID-19 pandemic, although the actual impact and duration are unknown.

Global recessionary conditions are currently expected for the remainder of 2020 as a direct result of the COVID-19 pandemic, although the actual impact and duration are unknown.

See “Impact of COVID-19 on Our Business” below for the impact on the COVID-19 pandemic on our business.

From a more macro-economic perspective, there continues to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities and private businesses to attempt to contain the COVID-19 outbreak or to mitigate its impact, the extent and duration of social distancing and the adoption of shelter-in-place orders, and the ongoing impact of COVID-19 on business and economic activity.

From a more macro-economic perspective, there continues to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities and private businesses to attempt to contain the COVID-19 outbreak or to mitigate its impact, the extent and duration of social distancing and the adoption of shelter-in-place orders, or reversal of reopening orders, and the ongoing impact of COVID-19 on business and economic activity.

Much of the United States economy is now in the process of re-opening, but at the same time the COVID-19 pandemic is intensifying in many areas of the country.

Impact of COVID-19 on Our Business

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Any of these events could materially adversely impact our business, financial condition, liquidity, results of operations, funds from operations or prospects.

We collected all of cash base rent obligations during the first quarter of 2020.

As of April 28, 2020, we have collected approximately 98% of all April cash base rent obligations.

As of July 27, 2020 , we have collected approximately 99% of all July cash base rent obligations.

In April 2020, we granted rent deferrals to three tenants representing approximately 2% of total portfolio rents.

1 unchanged sentence

In connection with one of the rent deferrals, we were able to obtain short term mortgage payment relief from our lender on the loan associated with those properties.

We collected all cash base rent obligations during the first half of 2020 that were not subject to rent deferral agreements.

We may pursue additional loan relief agreements in the future.

1 unchanged sentence

However, we are unable to quantify the outcomes of the negotiation of relief packages, the success of any tenant’s financial prospects or the amount of relief requests that we will ultimately receive or grant.

We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in the retail, hospitality, airlines, and oil & gas industries.

We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in the retail, hospitality, airlines, and oil and gas industries.

These industries, among certain others, have generally been severely impacted by the COVID-19.

Additionally, our properties are located in 28 states, which we believe mitigates our exposure to economic issues, including as a result of COVID-19, in any one geographic market or area.

We believe we currently have adequate liquidity in the near term, and we believe the availability on our Credit Facility is sufficient to cover all near term debt obligations and operating expenses.

We are in compliance with all of our debt covenants, and we amended our Credit Facility within the past nine months to increase our borrowing capacity.

We are in compliance with all of our debt covenants, and we amended our Credit Facility within the past twelve months to increase our borrowing capacity.

We have had numerous conversations with lenders and do not believe there will be a credit freeze in the near term.

Public equity markets have been volatile as of recent, and we do not anticipate using our at the market programs until there is more stability in our share price.

We continue to monitor our portfolio and intend to maintain a reasonably conservative liquidity position for the foreseeable future.

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We continue to focus on re-leasing vacant space, renewing upcoming lease expirations, re-financing upcoming loan maturities, and acquiring additional properties with associated long-term leases.

Currently, we have four partially vacant building and three fully vacant buildings.

We have five leases expiring during the remainder of 2020 , which account for 5.1% of lease revenue recognized during the three months ended March 31, 2020 , 11 leases expiring in 2021 , which account for 4.9% of lease revenue recognized during the three months ended March 31, 2020 , and eight leases expiring in 2022 , which account for 6.4% of lease revenue recognized during the three months ended March 31, 2020 .

Our available vacant space at March 31, 2020 represents 3.4% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $1.8 million .

Currently, we have three partially vacant buildings and three fully vacant buildings.

We have two leases expiring during the remainder of 2020 , which account for 3.9% of lease revenue recognized during the six months ended June 30, 2020 , 11 leases expiring in 2021 , which account for 5.1% of lease revenue recognized during the six months ended June 30, 2020 , and eight leases expiring in 2022 , which account for 6.2% of lease revenue recognized during the six months ended June 30, 2020 .

Our available vacant space at June 30, 2020 represents 4.5% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $1.7 million .

We continue to actively seek new tenants for these properties.

5 unchanged sentences

2020 Sale Activity

During the three months ended March 31, 2020 , we continued to execute our capital recycling program, whereby we sell non-core properties and redeploy proceeds to fund property acquisitions located in our target secondary growth markets, as well as repay outstanding debt.

During the six months ended June 30, 2020 , we continued to execute our capital recycling program, whereby we sell non-core properties and redeploy proceeds to fund property acquisitions located in our target secondary growth markets, as well as repay outstanding debt.

We will continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available.

2 unchanged sentences

Loss on Sale of Real Estate, net

On July 1, 2020 , we sold our Maple Heights, Ohio property for $11.4 million .

We recognized a gain on sale, net, of $1.2 million .

2020 Acquisition Activity

During the three months ended March 31, 2020 , we acquired five industrial properties, one property located in Indianapolis, Indiana, a three-property portfolio in Houston, Texas;

During the six months ended June 30, 2020 , we acquired five industrial properties, one property located in Indianapolis, Indiana, a three-property portfolio in Houston, Texas;

Charlotte, North Carolina;

3 unchanged sentences

Aggregate Purchase Price

Acquisition Costs

Aggregate Annualized GAAP Rent

Aggregate Mortgage Debt Issued or Assumed

We accounted for these transactions under ASU 2017-01.

As a result, we treated these acquisitions as asset acquisitions rather than business combinations.

As a result of this treatment, we capitalized $0.3 million of acquisition costs that would otherwise have been expensed under business combination treatment.

Capitalized Acquisition Expenses

Aggregate Annualized GAAP Fixed Lease Payments

Aggregate Debt Issued or Assumed

2020 Leasing Activity

During the three months ended March 31, 2020 , we executed three leases, which are summarized below (dollars in thousands):

During the six months ended June 30, 2020 , we executed eight leases, which are summarized below (dollars in thousands):

Aggregate Square Footage

Weighted Average Remaining Lease Term

Aggregate Annualized GAAP Rent

Aggregate Annualized GAAP Fixed Lease Payments

Aggregate Tenant Improvement

Aggregate Leasing Commissions

On July 8, 2020 , the tenant in our Richmond, Virginia property renewed their lease for an additional six years , with a new maturity date of September 30, 2026 .

2020 Financing Activity

During the three months ended March 31, 2020 , we issued four mortgages, collateralized by four properties, which are summarized below (dollars in thousands):

During the six months ended June 30, 2020 , we repaid three mortgages, collateralized by four properties, which are summarized in the table below (dollars in thousands):

Aggregate Fixed Rate Debt Repaid

Interest Rate on Fixed Rate Debt Repaid

Aggregate Variable Rate Debt Repaid

Weighted Average Interest Rate on Variable Rate Debt Repaid

During the six months ended June 30, 2020 , we issued four mortgages, collateralized by four properties, which are summarized below (dollars in thousands):

Aggregate Fixed Rate Debt Issued

3 unchanged sentences

On March 9, 2020 , we issued $17.5 million of floating rate debt swapped to fixed rate debt of 2.8% in connection with the one property acquisition.

On April 24, 2020, we repaid $5.9 million of fixed rate mortgage debt collateralized by one property with an interest rate of 6.0%, and we repaid $12.1 million of variable rate mortgage debt collateralized by two properties with an interest rate of one month LIBOR + 2.25%.

We repaid these mortgages using cash on hand and borrowings from our Credit Facility.

On July 1, 2020 , we repaid the $4.0 million variable rate debt on our Maple Heights, Ohio property.

2020 Equity Activities

Common Stock ATM Program

During the three months ended March 31, 2020 , we sold 1.3 million shares of common stock, raising $27.9 million in net proceeds under our Common Stock ATM Program.

As of March 31, 2020 , we had remaining capacity to sell up to $209.2 million of common stock under the Common Stock ATM Program.

During the six months ended June 30, 2020 , we sold 1.3 million shares of common stock, raising $28.4 million in net proceeds under our At-the-Market Equity Offering Sales Agreements with sales agents Robert W.

Incorporated (“Baird”), Goldman Sachs & Co.

LLC (“Goldman Sachs”), Stifel, Nicolaus & Company, Incorporated (“Stifel”), BTIG, LLC, and Fifth Third Securities, Inc.

(“Fifth Third”), pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $250.0 million (the “Common Stock ATM Program”).

As of June 30, 2020 , we had remaining capacity to sell up to $208.7 million of common stock under the Common Stock ATM Program.

Preferred ATM Programs

We have an At-the-Market Equity Offering Sales Agreement (the “Series E Preferred Stock Sales Agreement”), with Baird, Goldman Sachs, Stifel, Fifth Third, and U.S.

Bancorp Investments, Inc.

(the “Series E Preferred Stock Sales Agents”), pursuant to which we may, from time to time, offer to sell shares of our Series E Preferred Stock in an aggregate offering price of up to $100.0 million.

We did not sell any of our Series E Preferred Stock pursuant to the Series E Preferred Stock Sales Agreement during the three months ended March 31, 2020 .

We have an At-the-Market Equity Offering Sales Agreement (the “Series E Preferred Stock Sales Agreement”), with sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S.

Bancorp Investments, Inc., pursuant to which we may, from time to time, offer to sell shares of our Series E Preferred Stock in an aggregate offering price of up to $100.0 million.

We sold 86,564 shares of our Series E Preferred Stock, raising $1.9 million in net proceeds pursuant to the Series E Preferred Stock Sales Agreement during the six months ended June 30, 2020 .

As of June 30, 2020 , we had remaining capacity to sell up to $98.0 million of Series E Preferred Stock under the Series E Preferred Stock Sales Agreement.

We do not have an active At-the-Market program for our Series D Preferred Stock.

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The 2019 Universal Shelf allows us to issue up to $500.0 million of securities.

As of March 31, 2020, we had the ability to issue up to $409.7 million under the 2019 Universal Shelf.

As of June 30, 2020 , we had the ability to issue up to $407.2 million under the 2019 Universal Shelf.

On January 29, 2020 , we filed an additional universal registration statement on Form S-3, File No.

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The 2020 Universal Shelf allows us to issue up to an additional $800.0 million of securities.

Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our Series F Preferred Stock.

As of March 31, 2020, we had the ability to issue up to $800.0 million of securities under the 2020 universal shelf, as we have not sold any securities under the 2020 Universal Shelf.

Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our 6.00% Series F Cumulative Redeemable Preferred Stock of the Company, par value $0.001 per share (the “Series F Preferred Stock”).

As of June 30, 2020 , we had the ability to issue up to $800.0 million of securities under the 2020 Universal Shelf, as we have not sold any securities under the 2020 Universal Shelf.

Series F Preferred Stock

On February 20, 2020, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the 6.00% Series F Cumulative Redeemable Preferred Stock of the Company, par value $0.001 per share (the “Series F Preferred Stock”) and (ii) reclassifying and designating 26,000,000 shares of the Company’s authorized and unissued shares of Common Stock as shares of Series F Preferred Stock.

On February 20, 2020, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of the Company’s authorized and unissued shares of Common Stock as shares of Series F Preferred Stock.

The reclassification decreased the number of shares classified as Common Stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification.

4 unchanged sentences

Generally, the Series F Preferred Units provided for under the Amendment have preferences, distribution rights and other provisions substantially equivalent to those of the Series F Preferred Stock.

Amendment to the Advisory Agreement

On July 14, 2020 , the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Amended Agreement”).

The Company’s entrance into the Amended Agreement was approved by its board of directors, including, specifically, unanimously by its independent directors.

The Amended Agreement revised and replaced the previous calculation of the Base Management Fee, which was based on Total Equity, with a calculation based on Gross Tangible Real Estate.

The revised Base Management Fee will be payable quarterly in arrears and shall be calculated at an annual rate of 0.425% ( 0.10625% per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Amended Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon).

The calculation of the other fees in the Amended Agreement remain unchanged.

The revised Base Management Fee calculation will begin with the fee calculations for the quarter ending September 30, 2020 .

Diversity of Our Portfolio

1 unchanged sentence

By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic market.

For the three months ended March 31, 2020 , our largest tenant comprised only 3.6% of total lease revenue.

The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three months ended March 31, 2020 and 2019 (dollars in thousands):

For the three months ended March 31,

For the six months ended June 30, 2020 , our largest tenant comprised only 3.6% of total lease revenue.

The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):

For the three months ended June 30,

For the six months ended June 30,

Industry Classification

3 unchanged sentences

Percentage of Lease Revenue

Lease Revenue

Percentage of Lease Revenue

Lease Revenue

Percentage of Lease Revenue

Telecommunications

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Home & Office Furnishings

The tables below reflect the breakdown of total lease revenue by state for the three months ended March 31, 2020 and 2019 (dollars in thousands):

Lease Revenue for the three months ended March 31, 2020

The tables below reflect the breakdown of total lease revenue by state for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):

Lease Revenue for the three months ended June 30, 2020

Percentage of Lease Revenue

Number of Leases for the three months ended March 31, 2020

Lease Revenue for the three months ended March 31, 2019

Number of Leases for the three months ended June 30, 2020

Lease Revenue for the three months ended June 30, 2019

Percentage of Lease Revenue

Number of Leases for the three months ended March 31, 2019

Number of Leases for the three months ended June 30, 2019

North Carolina

1 unchanged sentence

All Other States

Lease Revenue for the six months ended June 30, 2020

Percentage of Lease Revenue

Number of Leases for the six months ended June 30, 2020

Lease Revenue for the six months ended June 30, 2019

Percentage of Lease Revenue

Number of Leases for the six months ended June 30, 2019

North Carolina

South Carolina

All Other States

Our Adviser and Administrator

2 unchanged sentences

David Gladstone, who is also our chairman and chief executive officer.

Gladstone also serves as the chairman and chief executive officer of both our Adviser and Administrator.

Terry Lee Brubaker, our vice chairman and chief operating officer, is also the vice chairman and chief operating officer of our Adviser and Administrator.

Robert Cutlip, our president, is also an executive managing director of our Adviser.

Our Administrator employs our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel, and secretary) and their respective staffs.

Gladstone also serves as the chairman and chief executive officer of both our Adviser and Administrator, as well as president and chief investment officer of our Adviser.

Terry Lee Brubaker, our vice chairman and chief operating officer, is also the vice chairman and chief operating officer of our Adviser and Administrator and assistant secretary of our Adviser.

Robert Cutlip, our president, also serves as the executive vice president of commercial and industrial real estate of our Adviser.

Our Administrator employs our chief financial officer, treasurer, chief compliance officer, general counsel and secretary, Michael LiCalsi (who also serves as our Administrator’s president, general counsel, and secretary, as well as executive vice president of administration of our Adviser) and their respective staffs.

Our Adviser and Administrator also provide investment advisory and administrative services, respectively, to certain of our affiliates, including, but not limited to, Gladstone Capital Corporation and Gladstone Investment Corporation, both publicly-traded business development companies, as well as Gladstone Land Corporation, a publicly-traded REIT that primarily invests in farmland.

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Terry Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of our Adviser and our Administrator.

Michael LiCalsi, our general counsel and secretary, serves as our Administrator’s president, general counsel and secretary.

Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president, general counsel and secretary, as well as executive vice president of administration of our Adviser.

We have entered into an advisory agreement with our Adviser, as amended from time to time (the “Advisory Agreement”), and an administration agreement with our Administrator (the “Administration Agreement”).

5 unchanged sentences

Our Board of Directors reviews and considers renewing the agreement with our Adviser each July.

During its July 2019 meeting, our Board of Directors reviewed and renewed the Advisory Agreement for an additional year, through August 31, 2020.

During its July 2020 meeting, our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2021.

Base Management Fee

Under the Advisory Agreement, the calculation of the annual base management fee equals 1.5% of our Total Equity, which is our total stockholders’ equity plus total mezzanine equity (before giving effect to the base management fee and incentive fee), adjusted to exclude the effect of any unrealized gains or losses that do not affect realized net income (including impairment charges) and adjusted for any one-time events and certain non-cash items (the later to occur for a given quarter only upon the approval of our Compensation Committee), and adjusted to include OP Units held by Non-controlling OP Unitholders.

The fee is calculated and accrued quarterly as 0.375% per quarter of such Total Equity figure.

On July 14, 2020, the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Amended Agreement”).

The Company’s entrance into the Amended Agreement was approved by its board of directors, including, specifically, unanimously by its independent directors.

The Amended Agreement revised and replaced the previous calculation of the Base Management Fee, which was based on Total Equity, with a calculation based on Gross Tangible Real Estate.

The revised Base Management Fee will be payable quarterly in arrears and shall be calculated at an annual rate of 0.425% (0.10625% per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Amended Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon).

The calculation of the other fees in the Amended Agreement remain unchanged.

The revised Base Management Fee calculation will begin with the fee calculations for the quarter ending September 30, 2020.

Under the Advisory Agreement prior to the July 14, 2020 amendment, the calculation of the annual base management fee equaled 1.5% of our Total Equity, which is our total stockholders’ equity plus total mezzanine equity (before giving effect to the base management fee and incentive fee), adjusted to exclude the effect of any unrealized gains or losses that do not affect realized net income (including impairment charges) and adjusted for any one-time events and certain non-cash items (the later to occur for a given quarter only upon the approval of our Compensation Committee), and adjusted to include OP Units held by Non-controlling OP Unitholders.

The fee was calculated and accrued quarterly as 0.375% per quarter of such Total Equity figure.

Our Adviser does not charge acquisition or disposition fees when we acquire or dispose of properties as is common in other externally managed REITs;

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At the end of the fiscal year, if this number is positive, then the capital gain fee payable for such time period shall equal 15.0% of such amount.

No capital gain fee was recognized during the three months ended March 31, 2020 or 2019 .

No capital gain fee was recognized during the three and six months ended June 30, 2020 or 2019 .

Termination Fee

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Administration Agreement

Under the terms of the Administration Agreement, we pay separately for our allocable portion of our Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs.

Under the terms of the Administration Agreement, we pay separately for our allocable portion of our Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary, Michael LiCalsi (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs.

Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the appropriate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under contractual agreements.

Critical Accounting Policies and Estimates

Significant Accounting Policies and Estimates

The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature to make certain estimates and assumptions.

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Beginning January 1, 2020, we are recording the property operating expenses and offsetting lease revenues for these triple net leased properties on a gross basis, as we have amended our process whereby we are paying operating expenses on behalf of our tenants and receiving reimbursement, whereas, previously these tenants were paying these expenses directly with limited insight provided to us.

There were no other material changes to our critical accounting policies or estimates during the three months ended March 31, 2020 .

There were no other material changes to our critical accounting policies or estimates during the six months ended June 30, 2020 .

Results of Operations

The weighted average yield on our total portfolio, which was 8.4% and 8.7% as of March 31, 2020 and 2019 , respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as lease revenue on our condensed consolidated statements of operations and other comprehensive income, less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements.

The weighted average yield on our total portfolio, which was 8.3% and 8.7% as of June 30, 2020 and 2019 , respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as lease revenue on our condensed consolidated statements of operations and other comprehensive income, less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements.

The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties.

A comparison of our operating results for the three months ended March 31, 2020 and 2019 is below (dollars in thousands, except per share amounts) :

For the three months ended March 31,

A comparison of our operating results for the three and six months ended June 30, 2020 and 2019 is below (dollars in thousands, except per share amounts) :

For the three months ended June 30,

Operating revenues

8 unchanged sentences

General and administrative

Impairment charge

Total operating expenses

1 unchanged sentence

Interest expense

(Loss) gain on sale of real estate, net

Other (expense) income, net

Other income, net

Total other expense, net

1 unchanged sentence

Distributions attributable to senior common stock

Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders

Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted

Net loss attributable to common stockholders and Non-controlling OP Unitholders

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1)

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Refer to the “Funds from Operations” section below within the Management’s Discussion and Analysis section for the definition of FFO.

For the six months ended June 30,

Operating revenues

Lease revenue

Total operating revenues

Operating expenses

Depreciation and amortization

Property operating expenses

Base management fee

Incentive fee

Administration fee

General and administrative

Impairment charge

Total operating expenses

Other (expense) income

Interest expense

Gain on sale of real estate, net

Total other expense, net

Distributions attributable to Series A, B, D, and E preferred stock

Distributions attributable to senior common stock

Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders

Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders per weighted average share of total stock - basic & diluted

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1)

FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1)

FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1)

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1)

Refer to the “Funds from Operations” section below within the Management’s Discussion and Analysis section for the definition of FFO.

Same Store Analysis

3 unchanged sentences

Operating Revenues

For the three months ended March 31,

For the three months ended June 30,

(Dollars in Thousands)

3 unchanged sentences

Properties with Vacancy

For the six months ended June 30,

(Dollars in Thousands)

Lease Revenues

Same Store Properties

Acquired & Disposed Properties

Properties with Vacancy

Lease revenues consist of rental income and operating expense recoveries earned from our tenants.

Lease revenues from same store properties increased for the three months ended March 31, 2020 from the comparable 2019 period, primarily due to increases in rental charges from lease renewals and increased operating expense recoveries from triple net leased properties.

Lease revenues increased for acquired and disposed of properties for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , because we acquired 23 properties during and subsequent to March 31, 2019 , offset by a loss of lease revenues from two properties we sold during and subsequent to the three months ended March 31, 2019 pursuant to our capital recycling program.

Lease revenues increased for our properties with vacancy for the three months ended March 31, 2020 due to us earning a lease termination fee at one property, coupled with increased operating expense recoveries.

Lease revenues from same store properties increased for the three and six months ended June 30, 2020 from the comparable 2019 period, primarily due to increases in rental charges from lease renewals and increased operating expense recoveries from triple net leased properties.

Lease revenues increased for acquired and disposed of properties for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , because we acquired 21 properties during and subsequent to June 30, 2019 , partially offset by a loss of lease revenues from two properties we sold during and subsequent to the three and six months ended June 30, 2019 pursuant to our capital recycling program.

Lease revenues decreased for our properties with vacancy for the three and six months ended June 30, 2020 due to increased vacancy in our portfolio.

On January 1, 2020, we completed the integration of the accounting records of certain of our triple net leased third-party asset managed properties into our accounting system and paid out of our operating bank accounts.

1 unchanged sentence

See table below for a reconciliation of lease revenue for the three months ended March 31, 2020 , and the comparable 2019 period.

See table below for a reconciliation of lease revenue for the six months ended June 30, 2020 , and the comparable 2019 period.

Fixed rental payments consist of fixed rental charges that are contractually due us, and variable rental payments consist of operating expense recoveries that we collect to pay for property operating expenses incurred at certain properties.

Lease revenues relating to the 2019 reporting period have not been amended.

For the three months ended March 31,

For the three months ended June 30,

(Dollars in Thousands)

Lease revenue reconciliation

Fixed rental payments

Variable rental payments

Fixed lease payments

Variable lease payments

For the six months ended June 30,

(Dollars in Thousands)

Lease revenue reconciliation

Fixed lease payments

Variable lease payments

Operating Expenses

Depreciation and amortization increased for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , due to depreciation on capital projects completed subsequent to the three months ended March 31, 2019 , coupled with depreciation on the 23 properties acquired during and subsequent to the three months ended March 31, 2019 , partially offset by decreased depreciation on the two properties sold during and subsequent to the three months ended March 31, 2019 .

For the three months ended March 31,

Depreciation and amortization increased for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , due to depreciation on capital projects completed subsequent to the three and six months ended June 30, 2019 , coupled with depreciation on the 21 properties acquired during and subsequent to the three and six months ended June 30, 2019 , partially offset by decreased depreciation on the two properties sold during and subsequent to the three and six months ended June 30, 2019 .

For the three months ended June 30,

(Dollars in Thousands)

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Properties with Vacancy

For the six months ended June 30,

(Dollars in Thousands)

Property Operating Expenses

Same Store Properties

Acquired & Disposed Properties

Properties with Vacancy

Property operating expenses consist of franchise taxes, property management fees, insurance, ground lease payments, property maintenance and repair expenses paid on behalf of certain of our properties.

The increase in property operating expenses for same store properties for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , is a result of an increase in our property operating expenses at our triple net leased properties.

The increase in property operating expenses for acquired and disposed of properties for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , is primarily a result of increased property operating expenses from 23 properties acquired during and subsequent to March 31, 2019 , partially offset by a reduction of operating expenses from two properties sold during and subsequent to March 31, 2019 .

The increase in property operating expenses for properties with vacancy for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , is a result of two of our properties going vacant during the three months ended March 31, 2020 that were fully leased during the three months ended March 31, 2019 .

The base management fee paid to the Adviser increased for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , due to an increase in total equity over the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 .

The increase in property operating expenses for same store properties for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , is a result of an increase in our property operating expenses at our triple net leased properties.

The increase in property operating expenses for acquired and disposed of properties for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , is primarily a result of increased property operating expenses from 21 properties acquired during and subsequent to June 30, 2019 , partially offset by a reduction of operating expenses from two properties sold during and subsequent to June 30, 2019 .

The increase in property operating expenses for properties with vacancy for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , is a result of increased vacancy in our portfolio.

The base management fee paid to the Adviser increased for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , due to an increase in total equity over the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019 .

The calculation of the base management fee is described in detail above in “Advisory and Administration Agreements.”

The incentive fee paid to the Adviser increased for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , due to pre-incentive fee Core FFO increasing faster than the hurdle rate.

The incentive fee paid to the Adviser increased for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , due to pre-incentive fee Core FFO increasing faster than the hurdle rate.

The increase in FFO is a result of an increase in total operating revenues, partially offset by an increase in total operating expenses and interest expense.

The calculation of the incentive fee is described in detail above in “Advisory and Administration Agreements.”

The administration fee paid to the Administrator increased for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , due to our Administrator incurring greater costs that are allocated to the Company during the three months ended March 31, 2020 .

The administration fee paid to the Administrator decreased for the three months ended June 30, 2020 , as compared to the three months ended June 30, 2019 , due to our Administrator incurring fewer costs that are allocated to the Company.

The administration fee paid to the Administrator increased during the six months ended June 30, 2020 , as compared to the six months ended June 30, 2019 , due to our Administrator incurring greater costs that are allocated to the Company.

The calculation of the administration fee is described in detail above in “Advisory and Administration Agreements.”

General and administrative expenses increased for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , primarily as a result of an increase in legal and accounting fees coupled with an increase in shareholder related expenses.

General and administrative expenses decreased for the three months ended June 30, 2020 , as compared to the three months ended June 30, 2019 , primarily as a result of a decrease in due diligence expenses for potential acquisitions.

General and administrative expenses increased for the six months ended June 30, 2020 , as compared to the six months ended June 30, 2019 , primarily as a result of an increase in legal and accounting fees.

We recorded an impairment charge for our Blaine, Minnesota property during the three and six months ended June 30, 2020 , when our held and used impairment testing determined that the carrying value of this property was unrecoverable.

As a result, we recorded an impairment charge to write down the carrying value to fair market value.

We did not record an impairment charge during the three and six months ended June 30, 2019 .

Other Income and Expenses

Interest expense increased for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 .

This increase was primarily a result of our increased mortgage borrowings, coupled with increased borrowings on our Credit Facility subsequent to the three months ended March 31, 2019 , partially offset by a decrease in interest rates on our LIBOR based variable rate debt, compared to the three months ended March 31, 2019 .

Loss on sale of real estate, net, for the three months ended March 31, 2020 is attributable to one non-core office asset located in Charlotte, North Carolina being sold during the period.

Gain on sale of real estate, net, for the three months ended March 31, 2019 is attributable to one non-core office asset located in Maitland, Florida being sold during the period.

Interest expense decreased for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 .

This decrease was primarily a result of a decrease in interest rates on our LIBOR based variable rate debt, partially offset by increased interest expense due to higher mortgage borrowings and higher Credit Facility balances outstanding.

Loss on sale of real estate, net, for the six months ended June 30, 2020 is attributable to one non-core office asset located in Charlotte, North Carolina being sold during the period.

Gain on sale of real estate, net, for the six months ended June 30, 2019 is attributable to one non-core office asset located in Maitland, Florida being sold during the period.

Net (Loss) Income (Attributable) Available to Common Stockholders and Non-controlling OP Unitholders

Net loss attributable to common stockholders and Non-controlling OP Unitholders increased for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 , primarily due to the increase in interest expense due to increased mortgage and Term Loan borrowings, coupled with an increase in depreciation and amortization expense due to asset acquisition activity subsequent to March 31, 2019 , coupled with the gain on sale, net recognized during the three months ended March 31, 2019 , partially offset by an increase in lease revenues due to asset acquisition activity subsequent to March 31, 2019 .

Net loss attributable to common stockholders and Non-controlling OP Unitholders increased for the three and six months ended June 30, 2020 , as compared to the three and six months ended June 30, 2019 , primarily due to the increase in depreciation and amortization expense due to asset acquisition activity subsequent to June 30, 2019 , coupled with the impairment charge recognized during the three and six months ended June 30, 2020 , partially offset by an increase in lease revenues due to asset acquisition activity subsequent to June 30, 2019 , coupled with a decrease in interest expense due to a decrease in LIBOR on our variable rate debt.

Liquidity and Capital Resources

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our Revolver and issuing additional equity securities.

Our available liquidity as of March 31, 2020 , was $ 27.1 million , consisting of approximately $ 9.9 million in cash and cash equivalents and an available borrowing capacity of $17.2 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility increased to $29.5 million as of April 28, 2020 .

Our available liquidity as of June 30, 2020 , was $ 29.1 million , consisting of approximately $ 9.6 million in cash and cash equivalents and available borrowing capacity of $19.5 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility increased to $36.0 million as of July 27, 2020 .

Future Capital Needs

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Equity Capital

During the three months ended March 31, 2020 , we raised net proceeds of $27.9 million of common equity under our Common Stock ATM Program at a net weighted average per share price of $21.22 .

During the six months ended June 30, 2020 , we raised net proceeds of $28.4 million of common equity under our Common Stock ATM Program at a net weighted average per share price of $21.19 .

We used these proceeds to pay down outstanding debt and for other general corporate purposes.

We did not sell any shares of our Series E Preferred Stock pursuant to our Series E Preferred Stock Sales Agreement during the three months ended March 31, 2020 .

As of April 28, 2020 , we had the ability to raise up to $409.7 million of additional equity capital through the sale and issuance of securities that are registered under the 2019 Universal Shelf, in one or more future public offerings.

Of the $409.7 million of available capacity under our 2019 Universal Shelf, approximately $209.2 million is reserved for additional sales under our Common Stock ATM Program, and approximately $100.0 million is reserved for additional sales under our Series E Preferred Stock Sales Agreement as of April 28, 2020 .

We expect to continue to use our ATM programs as a source of liquidity for the remainder of 2020 .

As of April 28, 2020 , we had the ability to raise up to $800.0 million of additional equity capital through the sale and issuance of securities that are registered under the 2020 Universal Shelf, in one or more future public offerings.

Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our Series F Preferred Stock as of April 28, 2020 .

As of March 31, 2020 , we had 58 mortgage notes payable in the aggregate principal amount of $490.6 million , collateralized by a total of 74 properties with a remaining weighted average maturity of 4.9 years.

The weighted-average interest rate on the mortgage notes payable as of March 31, 2020 was 4.32% .

We raised net proceeds of $1.9 million from our Series E Preferred Stock pursuant to our Series E Preferred Stock Sales Agreement during the six months ended June 30, 2020 .

As of July 27, 2020 , we had the ability to raise up to $404.0 million of additional equity capital through the sale and issuance of securities that are registered under the 2019 Universal Shelf, in one or more future public offerings.

Of the $404.0 million of available capacity under our 2019 Universal Shelf, approximately $207.1 million is reserved for additional sales under our Common Stock ATM Program, and approximately $96.5 million is reserved for additional sales under our Series E Preferred Stock Sales Agreement as of July 27, 2020 .

We expect to continue to use our at-the-market programs as a source of liquidity for the remainder of 2020 .

As of July 27, 2020 , we had the ability to raise up to $800.0 million of additional equity capital through the sale and issuance of securities that are registered under the 2020 Universal Shelf, in one or more future public offerings.

Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our Series F Preferred Stock as of July 27, 2020 .

As of June 30, 2020 , we had 55 mortgage notes payable in the aggregate principal amount of $469.4 million , collateralized by a total of 70 properties with a remaining weighted average maturity of 4.8 years.

The weighted-average interest rate on the mortgage notes payable as of June 30, 2020 was 4.27% .

We continue to see banks and other non-bank lenders willing to issue mortgages.

Consequently, we are focused on obtaining mortgages through regional banks, non-bank lenders and the CMBS market.

As of March 31, 2020 , we had mortgage debt in the aggregate principal amount of $28.5 million payable during the remainder of 2020 and $39.3 million payable during 2021 .

The 2020 principal amount payable includes both amortizing principal payments and four balloon principal payments due during the remaining nine months of 2020 .

On April 24, 2020, we repaid $12.1 million of mortgage debt that was maturing in 2020, and $5.9 million of mortgage debt that was maturing in 2021.

As of June 30, 2020 , we had mortgage debt in the aggregate principal amount of $13.2 million payable during the remainder of 2020 and $33.6 million payable during 2021 .

The 2020 principal amount payable includes both amortizing principal payments and two balloon principal payments due during the remaining six months of 2020 .

We repaid one of the remaining balloon principal payments during July 2020.

We anticipate being able to refinance our mortgages that come due during the remainder of 2020 and 2021 with a combination of new debt and the issuance of additional equity securities.

In addition, we have raised substantial equity under our ATM programs and plan to continue to use these programs.

In addition, we have raised substantial equity under our at-the-market programs and plan to continue to use these programs.

Operating Activities

Net cash provided by operating activities during the three months ended March 31, 2020 , was $20.3 million , as compared to net cash provided by operating activities of $12.6 million for the three months ended March 31, 2019 .

This change was primarily a result of an increase in operating revenues from our 23 property acquisitions completed subsequent to March 31, 2019 , coupled with contractual lease revenue increases on the in-place portfolio, partially offset by an increase in general and administrative and interest expense.

Net cash provided by operating activities during the six months ended June 30, 2020 , was $35.4 million , as compared to net cash provided by operating activities of $29.0 million for the six months ended June 30, 2019 .

This change was primarily a result of an increase in operating revenues from our 21 property acquisitions completed during and subsequent to June 30, 2019 , coupled with contractual lease revenue increases on the in-place portfolio, partially offset by an increase in general and administrative expenses, base management fees and incentive fees.

The majority of cash from operating activities is generated from the lease revenues that we receive from our tenants.

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Investing Activities

Net cash used in investing activities during the three months ended March 31, 2020 , was $68.7 million , which primarily consisted of five property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of one property.

Net cash used in investing activities during the three months ended March 31, 2019 , was $0.3 million , which primarily consisted of two property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of one property.

Net cash used in investing activities during the six months ended June 30, 2020 , was $70.7 million , which primarily consisted of five property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of one property.

Net cash used in investing activities during the six months ended June 30, 2019 , was $41.9 million , which primarily consisted of six property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of one property.

Financing Activities

Net cash provided by financing activities during the three months ended March 31, 2020 , was $51.5 million , which primarily consisted of the issuance of $28.3 million of common equity, borrowings from our Term Loan of $37.7 million , and the issuance of $35.9 million of new mortgage debt, partially offset by the repayment of $3.2 million of mortgage principal and distributions paid to common, senior common and preferred shareholders.

Net cash used in financing activities for the three months ended March 31, 2019 , was $14.4 million , which primarily consisted of $6.7 million of mortgage principal repayments, a net $17.8 million decrease in borrowings on our Revolver, and distributions paid to common, senior common and preferred shareholders, partially offset by $10.6 million in new mortgage borrowings coupled with the issuance of $14.3 million of common equity.

Net cash provided by financing activities during the six months ended June 30, 2020 , was $38.3 million , which primarily consisted of the issuance of $30.8 million of common and preferred equity, borrowings from our Term Loan of $37.7 million , and the issuance of $35.9 million of new mortgage debt, partially offset by the repayment of $24.4 million of mortgage principal and distributions paid to common, senior common and preferred shareholders.

Net cash provided by financing activities for the six months ended June 30, 2019 , was $14.3 million , which primarily consisted of $41.1 million in new mortgage borrowings coupled with the issuance of $33.7 million of common equity, partially offset by $31.0 million of mortgage principal repayments, and distributions paid to common, senior common and preferred shareholders.

Credit Facility

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Bank National Association, The Huntington National Bank, Goldman Sachs Bank USA, and Wells Fargo Bank.

As of March 31, 2020 , there was $181.6 million outstanding under our Credit Facility at a weighted average interest rate of approximately 2.60% and $12.6 million outstanding under letters of credit at a weighted average interest rate of 1.65% .

As of April 28, 2020 , the maximum additional amount we could draw under the Credit Facility was $29.5 million .

We were in compliance with all covenants under the Credit Facility as of March 31, 2020 .

As of June 30, 2020 , there was $203.1 million outstanding under our Credit Facility at a weighted average interest rate of approximately 1.77% and $13.5 million outstanding under letters of credit at a weighted average interest rate of 1.65% .

As of July 27, 2020 , the maximum additional amount we could draw under the Credit Facility was $36.0 million .

We were in compliance with all covenants under the Credit Facility as of June 30, 2020 .

Contractual Obligations

The following table reflects our material contractual obligations as of March 31, 2020 (in thousands):

The following table reflects our material contractual obligations as of June 30, 2020 (in thousands):

Payments Due by Period

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Purchase Obligations (4)

Debt obligations represent borrowings under our Revolver, which represents $21.6 million of the debt obligation due in 2023, our Term Loan, which represents $160.0 million of the debt obligation due in 2024, and mortgage notes payable that were outstanding as of March 31, 2020 .

Debt obligations represent borrowings under our Revolver, which represents $43.1 million of the debt obligation due in 2023, our Term Loan, which represents $160.0 million of the debt obligation due in 2024, and mortgage notes payable that were outstanding as of June 30, 2020 .

This figure does not include $0.2 million of premiums and discounts, net and $5.4 million of deferred financing costs, net, which are reflected in mortgage notes payable, net, borrowings under Revolver, net and borrowings under Term Loan, net on the condensed consolidated balance sheets.

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The balance and interest rate on our Revolver and Term Loan is variable;

thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of March 31, 2020 .

thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of June 30, 2020 .

Operating lease obligations represent the ground lease payments due on four of our properties.

Purchase obligations consist of tenant and capital improvements at four of our properties.

Purchase obligations consist of tenant and capital improvements at five of our properties.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of March 31, 2020 .

We did not have any material off-balance sheet arrangements as of June 30, 2020 .

Funds from Operations

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We believe that net income is the most directly comparable GAAP measure to FFO, Basic EPS is the most directly comparable GAAP measure to Basic FFO per share, and that Diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share.

The following table provides a reconciliation of our FFO available to common stockholders for the three months ended March 31, 2020 and 2019 , respectively, to the most directly comparable GAAP measure, net income available to common stockholders, and a computation of basic and diluted FFO per weighted average share of common stock:

For the three months ended March 31,

The following table provides a reconciliation of our FFO available to common stockholders for the three and six months ended June 30, 2020 and 2019 , respectively, to the most directly comparable GAAP measure, net income available to common stockholders, and a computation of basic and diluted FFO per weighted average share of common stock:

For the three months ended June 30,

For the six months ended June 30,

(Dollars in Thousands, Except for Per Share Amounts)

Calculation of basic FFO per share of common stock and Non-controlling OP Unit

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Real estate depreciation and amortization

Impairment charge

Loss on sale of real estate, net

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Real estate depreciation and amortization

Impairment charge

Income impact of assumed conversion of senior common stock

9 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-Q

Item 2. Management’s Discussion and Analysis