What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-02-15 compared with 2021-02-16 · 62 added, 43 removed, 408 unchanged (20% of the section changed)

9 unchanged sentences

Some of our tenants and borrowers may have recently been either restructured using leverage, or acquired in a leveraged transaction.

Tenants and borrowers that are subject to significant debt obligations may be unable to make their rent or mortgage payments if there are adverse changes to their businesses or because of the impact of the COVID-19 pandemic specifically and recessionary conditions generally.

Tenants and borrowers that are subject to significant debt obligations may be unable to make their rent or mortgage payments if there are adverse changes to their businesses or because of the impact of the COVID-19 pandemic and rising interest rates specifically and recessionary conditions generally.

Tenants that have experienced leveraged restructurings or acquisitions will generally have substantially greater debt and substantially lower net worth than they had prior to the leveraged transaction.

43 unchanged sentences

Furthermore, multi-tenant properties expose us to the risk of increased operating expenses, which may occur when the actual cost of taxes, insurance and maintenance at the property exceeds the operating expenses paid by tenants and/or the amounts budgeted.

Illiquidity of real estate investments may make it difficult for us to sell properties in response to market conditions and could harm our financial condition and ability to make distributions to our stockholders.

Illiquidity of certain of our real estate investments may make it difficult for us to sell properties in response to market conditions and could harm our financial condition and ability to make distributions to our stockholders.

We focus our investments on industrial and office properties, a number of which include manufacturing facilities, special use storage or warehouse facilities and special use single or multi-tenant properties.

These types of properties are relatively illiquid compared to other types of real estate and financial assets.

This liquidity will limit our ability to quickly change our portfolio in response to changes in economic or other conditions.

To the extent the properties are not subject to net leases, some significant expenditures, such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment.

4 unchanged sentences

If compliance is possible, the safe harbor rules may restrict our ability to sell assets in the future and achieve liquidity that may be necessary to fund distributions.

Our real estate investments may include special use and single or multi-tenant properties that may be difficult to sell or re-lease upon tenant defaults, early lease terminations, or non-renewals.

We focus our investments on office and industrial properties, a number of which include manufacturing facilities, special use storage or warehouse facilities and special use single or multi-tenant properties.

These types of properties are relatively illiquid compared to other types of real estate and financial assets.

Additionally, certain of our real estate investments may include special use and single or multi-tenant properties, which may be difficult to sell or re-lease upon tenant defaults, early lease terminations, or non-renewals.

This illiquidity will limit our ability to quickly change our portfolio in response to changes in economic or other conditions.

With these properties, if the current lease is terminated or not renewed or, we may be required to renovate the property or to make rent concessions to lease the property to another tenant or sell the

In addition, in the event we are forced to sell the property, we may have difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been designed.

In addition, in the event we are forced to sell the property, we may have

difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been designed.

These and other limitations may affect our ability to sell or re-lease properties without adversely affecting returns to our stockholders.

19 unchanged sentences

We generally do not have fixed guidelines for industry concentration, but we are restricted from exceeding an industry concentration greater than 20% without approval of our investment committee.

As of December 31, 2020, 16.9% of our total lease revenue was earned from tenants in the Telecommunications industry, 12.5% was earned from tenants in the Diversified/Conglomerate Services industry, 12.1% was earned from tenants in the Healthcare industry, and 10.3% was earned from tenants in the Automobile industry.

As of December 31, 2021, 16.5% of our total lease revenue was earned from tenants in the Telecommunications industry, 13.5% was earned from tenants in the Diversified/Conglomerate Services industry, 11.1% was earned from tenants in the Healthcare industry, and 9.8% was earned from tenants in the Automotive industry.

As a result, a downturn in an industry in which we have invested a significant portion of our total assets could have a material adverse effect on us.

35 unchanged sentences

Some molds may produce airborne toxins or irritants.

If this were to occur, we could incur significant remedial costs and we may also be subject to material private damage claims and awards.

If this were to occur, we could incur significant remedial costs

and we may also be subject to material private damage claims and awards.

Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions.

17 unchanged sentences

Regulatory pressures and the burden of troubled and uncollectible loans has led some lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers.

If these market conditions recur, they may limit our ability and the ability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs, or may cause our tenants to incur increased costs associated with issuing debt instruments, which may materially affect our financial condition and results of operations and the value of our equity securities and our ability to sustain payment of distributions to stockholders at current levels.

If these market conditions recur or if interest rates fluctuate significantly, they may limit our ability and the ability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs, or may cause our tenants to incur increased costs associated with issuing debt instruments, which may materially affect our financial condition and results of operations and the value of our equity securities and our ability to sustain payment of distributions to stockholders at current levels.

In addition, it is possible that our ability to access the capital and credit markets may be limited or precluded by these or other factors at a time when we would like, or need, to do so, which would adversely impact our ability to refinance maturing debt and/or react to changing economic and business conditions.

6 unchanged sentences

We are also required to limit our distributions to stockholders to 96% of our FFO.

As of December 31, 2020, we were in compliance with these covenants.

December 31, 2021, we were in compliance with these covenants.

However, our continued compliance with these covenants depends on many factors, and could be impacted by current or future economic conditions, and thus there are no assurances that we will continue to comply with these covenants.

15 unchanged sentences

We intend to acquire additional properties by using our Credit Facility and by continuing to seek long-term mortgage financing, where we will borrow a portion of the purchase price of a potential acquisition and secure the loan with a mortgage on some or all of our existing real property.

We look to regional banks, insurance companies and other non-bank lenders, and, to a lesser extent, the CMBS market to issue mortgages to finance our real estate activities.

We look to regional banks, insurance companies and other non-bank lenders, and, to a lesser extent, the commercial mortgage backed securities (“CMBS”) market to issue mortgages to finance our real estate activities.

For the year ended December 31, 2021, we obtained approximately $21.5 million in long-term financing, which we used to acquire additional properties.

16 unchanged sentences

We are also exposed to the effects of interest rate changes as a result of holding cash and cash equivalents in short-term, interest-bearing investments.

We have entered into interest rate caps to attempt to manage our exposure to interest rate fluctuations on all our outstanding variable rate mortgages as well as the outstanding Term Loan component of our Credit Facility.

Additionally, increases in interest rates, or reduced access to credit markets due, among other things, to more stringent lending requirements or a high level of leverage, may make it difficult for us to refinance our mortgage debt as it matures or limit the availability of mortgage debt, thereby limiting our acquisition and/or refinancing activities.

2 unchanged sentences

Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt in our portfolio.

London Interbank Offered Rate (“LIBOR”) is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally.

LIBOR is expected to be phased out after 2021, when private-sector banks are no longer required to report the information used to set the rate.

LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally.

LIBOR is expected to be phased out in mid-2023, when private-sector banks are no longer required to report the information used to set the rate.

Without this data, LIBOR may no longer be published, or the lack of quality and quantity of data may cause the rate to no longer be representative of the market.

At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S.

Federal Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, is considering replacing U.S.

dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”).

As LIBOR is being phased out, the Secured Overnight Funding Rate (“SOFR”) is the accepted replacement benchmark rate.

Federal Reserve, in combination with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, recommended replacing U.S.

dollar LIBOR with SOFR.

SOFR is a more generic measure than LIBOR and considers the cost of borrowing cash overnight, collateralized by U.S.

2 unchanged sentences

The consequences of these developments with respect to LIBOR cannot be entirely predicted and span multiple future periods but could result in an increase in the cost of our variable rate debt, which could adversely impact our operating results and cash flows.

All of our variable rate debt is based upon the one month LIBOR rate.

We are currently monitoring the transition, as we cannot assess whether SOFR will become a standard rate for variable rate debt.

Any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based debt, or the value of our portfolio of LIBOR-indexed, floating-rate debt.

All of our variable rate debt is based upon the one month LIBOR and all of our lenders will be transitioning their LIBOR based loans to SOFR.

We are currently monitoring the transition as SOFR becomes the standard benchmark rate for variable rate debt.

During the transition further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based debt, or the value of our portfolio of LIBOR-indexed, floating-rate debt.

Risks related to the real estate industry

19 unchanged sentences

Risks related to our Adviser and Administrator

We are dependent upon our key personnel, who are employed by our Adviser or Administrator, as applicable, for our future success, particularly David Gladstone, Terry Lee Brubaker, Robert Cutlip, and Michael Sodo.

We are dependent on our senior management and other key management members to carry out our business and investment strategies.

Our future success depends to a significant extent on the continued service and coordination of our senior management team, particularly David Gladstone, our chairman and chief executive officer, Terry Lee Brubaker, our vice chairman and chief operating officer, Robert Cutlip, our president, and Michael Sodo, our chief financial officer.

The departure of any of our executive officers or key personnel could have a material adverse effect on our ability to implement our business strategy and to achieve our investment objectives.

Our future success depends to a significant extent on the continued service and coordination of our senior management team, particularly David Gladstone, our chairman and chief executive officer, Terry Lee Brubaker, our vice chairman and chief operating officer, Robert Cutlip and Arthur “Buzz” Cooper, our co-presidents, and Gary Gerson, our chief financial officer.

The unplanned departure of any of our executive officers or key personnel could have a material adverse effect on our ability to implement our business strategy and to achieve our investment objectives.

On January 13, 2022, Bob Cutlip notified the Company that he will be resigning as president of the Company on or about June 30, 2022.

Cutlip’s resignation is in connection with his planned retirement.

Our success depends on the performance of our Adviser and if our Adviser makes inadvisable investment or management decisions, our operations could be materially adversely impacted.

Our ability to achieve our investment objectives and to pay distributions to our stockholders is dependent upon the performance of our Adviser in evaluating potential investments, selecting and negotiating property purchases and dispositions, selecting tenants and borrowers, setting lease terms and determining financing arrangements.

tenants and borrowers, setting lease terms and determining financing arrangements.

Accomplishing these objectives on a cost-effective basis is largely a function of our Adviser’s marketing capabilities, management of the investment process, ability to provide competent, attentive and efficient services and our access to financing sources on acceptable terms.

6 unchanged sentences

At the same time, our Advisory Agreement permits our Adviser to conduct other commercial activities and provide management and advisory services to other entities, including, but not limited to, Gladstone Capital, Gladstone Investment, and Gladstone Land.

Moreover, with the exception of our chief financial officer, treasurer and president, all of our executive officers and directors are also executive officers and directors of Gladstone Capital and Gladstone Investment, which actively make loans to and invest in lower middle market companies, and with the exception of our chief financial officer and president, all of our executive officers and directors are also officers and directors of Gladstone Land, an agricultural REIT.

Moreover, with the exception of our chief financial officer, treasurer and co-presidents, all of our executive officers and directors are also executive officers and directors of Gladstone Capital and Gladstone Investment, which actively make loans to and invest in lower middle market companies, and with the exception of our chief financial officer and co-presidents, all of our executive officers and directors are also officers and directors of Gladstone Land, an agricultural REIT.

Further, our chief executive officer and chairman is on the board of managers of Gladstone Securities, an affiliated broker dealer that provides us with mortgage financing services pursuant to a contractual agreement and is the 100% indirect owner of and controls Gladstone Securities.

17 unchanged sentences

however, our Adviser is not required to issue any waiver.

Any waiver issued by our Adviser is a voluntary, unconditional and irrevocable waiver.

Any waiver issued by our Adviser is a voluntary, non-contractual, unconditional and irrevocable waiver.

For the year ended December 31, 2021, our Advisor issued a waiver of the incentive fee of $0.02 million.

For the years ended December 31, 2020, and 2019 our Adviser did not issue a full or partial waiver of the incentive fee.

67 unchanged sentences

Therefore, in the event of our bankruptcy, liquidation or reorganization, claims of our stockholders will be satisfied only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

The number of shares of preferred stock outstanding may increase as a result of the Series E Preferred ATM Program that we have in place, as well as bimonthly closings related to our Offering of our Series F Preferred Stock, which could adversely affect our business, financial condition and results of operations.

The number of outstanding shares of preferred stock may increase as a result of the Series E Preferred ATM Program currently in place, as well as bimonthly closings related to our Offering of our Series F Preferred Stock.

The number of shares of preferred stock outstanding may increase as a result of the Series E Preferred ATM Program that we have in place, as well as bimonthly closings related to our Offering of Series F Preferred Stock, which could adversely affect our business, financial condition and results of operations.

The issuance of additional shares of Preferred Stock could have significant consequences on our future operations, including:

32 unchanged sentences

• speculation in the press or investment community;

• the national and global political environment, including foreign relations and trading policies;

• the national and global political environment, including foreign relations, conflicts and trading policies;

• changes in regulatory policies or tax guidelines, particularly with respect to REITs;

39 unchanged sentences

We also rely extensively on computer systems to process transactions and manage our business.

Despite careful security and controls design, implementation, updating and independent third party verification, our information technology systems, and those of our third party providers, could become subject to cyber incidents.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources.

These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption.

These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems or those of our third party providers for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption.

The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships.

As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided to us by third-party service providers.

We have implemented processes, procedures and internal controls to help prevent, detect and mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, do not guarantee that a cyber-incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident.

We have implemented processes, procedures and internal controls to help prevent, detect and mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, do not guarantee that a cyber-incident will not occur, will be timely detected and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident.

The development and maintenance of these measures is also costly and requires ongoing monitoring, testing and updating as technologies and processes change, and efforts to overcome security measures become increasingly sophisticated.

Legislative or regulatory tax changes related to REITs could materially and adversely affect us.

1 unchanged sentence

No assurance can be given as to whether, when, or in what form, the U.S.

federal income tax laws applicable

to us and our stockholders may be enacted.

federal income tax laws applicable to us and our stockholders may be enacted.

Changes to the U.S.

1 unchanged sentence

federal tax laws could adversely affect an investment in our stock.

Disruptions in the financial markets and uncertain economic conditions resulting from the ongoing outbreak of COVID-19 could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing, service future debt obligations, or pay distributions to stockholders.

Disruptions in the financial markets and uncertain economic conditions resulting from the ongoing outbreak of COVID-19 and potential emergence of vaccine resistant strains could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing, service future debt obligations, or pay distributions to stockholders.

Currently, both the investing and leasing environments are highly competitive.

While there was an increase in the amount of capital flowing into the U.S.

real estate markets early in 2020, which resulted in an increase in real estate values in certain markets, the recent downturn and uncertainty regarding the economic and political environment has made businesses reluctant to make long-term commitments or changes in their business plans.

Recent uncertainty regarding the economic and political environment has made businesses reluctant to make long-term commitments or changes in their business plans.

Specifically, the ongoing and resurging outbreak of COVID-19, both in the U.S.

and globally, has created significant disruptions to financial markets, has resulted in business shutdowns and has led to recessionary conditions in the economy in the short term.

We expect the significance of the COVID-19 pandemic, including the extent of its effects on our financial and operational results, to be dictated by, among, other things, its nature, duration and scope, the success of efforts to contain the spread of COVID-19, including the adequate production and distribution of vaccines, and the impact of actions taken in response to the pandemic including travel bans and restrictions, quarantines, shelter in place orders, the promotion of social distancing and limitations on business activity, including business closures.

Even if a vaccine is widely distributed and accepted, there can be no assurance that the vaccine will ultimately be successful in limiting or stopping the spread of COVID-19.

At this point, the extent to which the COVID-19 pandemic may impact the United States and global economies and our business is uncertain, but pandemics or other significant public health events could have a material adverse effect on our business and results of operations.

and globally, has created significant disruptions to financial markets, has resulted in business shutdowns, labor and supply shortages and has led to inflationary conditions in the economy in the short term.

We expect the significance of the COVID-19 pandemic, including the extent of its effects on our financial and operational results, to be dictated by, among, other things, its nature, duration and scope, the success of efforts to contain the spread of COVID-19, including the adequate production, distribution, acceptance and efficacy of treatments, and the impact of actions taken in response to the pandemic including possible vaccine mandates, travel bans and restrictions, quarantines, shelter in place orders, the promotion of social distancing and limitations on business activity, including business closures.

At this point, the extent to which the COVID-19 pandemic may continue to impact the United States and global economies and our business is uncertain, but pandemics or other significant public health events could have a material adverse effect on our business and results of operations.

Volatility in global markets and changing political environments can cause fluctuations in the performance of the U.S.

6 unchanged sentences

Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.

The debt market remains sensitive to the macro-economic environment, such as Federal Reserve policy, market sentiment or regulatory factors affecting the banking and commercial mortgage backed securities ("CMBS") industries and the COVID-19 pandemic.

The debt market remains sensitive to the macro-economic environment, such as Federal Reserve policy, market sentiment or regulatory factors affecting the banking and CMBS industries and the COVID-19 pandemic.

We may experience more stringent lending criteria, which may affect our ability to finance certain property acquisitions or refinance any debt at maturity.

1 unchanged sentence

We expect to manage the current mortgage lending environment by considering alternative lending sources, including but not limited to securitized debt, fixed rate loans, short-term variable rate loans, assumed mortgage loans in connection with property acquisitions, interest rate cap or swap agreements, or any combination of the foregoing.

We are exposed to the potential impacts of climate change, which may result in unanticipated losses that could affect our business and financial condition.

We are also exposed to potential physical risks from possible changes in climate.

Our properties may be exposed to catastrophic weather events, such as severe storms, fires or floods.

If the frequency of extreme weather events increases, our exposure to these events could increase, putting our portfolio at risk.

Our business may be indirectly impacted by the effects of climate change, as well.

These indirect effects may include increases to the costs of electricity, fuel, water consumption, and waste disposal, as well as increasing the cost of (or making unavailable) property insurance on terms we find acceptable.

Together, these risks would require us to expend the necessary funds to adequately protect and repair our properties.

We do not currently consider ourselves to be materially exposed to regulatory risks related to climate change, because the operation of our properties typically does not generate a significant amount of greenhouse gas emissions or other regulated chemicals.

However, we may be adversely impacted as a real estate owner in the future by stricter energy efficiency standards or greenhouse gas regulations for the industrial building sectors.

Although such standards and regulations have not had any known material adverse effect on the Company to date, they could impact our tenants and other companies with which we do business or result in substantial costs to the Company, including compliance costs, construction costs, monitoring and reporting costs and capital expenditures for environmental control facilities and other new equipment.

We cannot give any assurance that

other such conditions do not exist or may not arise in the future.

The potential impacts of climate change on our real estate properties could adversely affect our ability to lease, develop or sell such properties or to borrow using such properties as collateral.

Unresolved Staff Comments.

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 1A. Risk Factors