What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-01 · 143 added, 272 removed, 287 unchanged (59% of the section changed)

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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 November 1, 2021:

As of May 4, 2022:

• we owned 133 properties totaling 16.6 million square feet of rentable space, located in 27 states;

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Business Environment

In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and 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 certain of our tenants, increased unemployment and underemployment levels, and are expected to have an adverse effect on office demand for space in the short term, at a minimum.

Since the onset of the COVID-19 pandemic in March 2020, authorities throughout the United States and the world have implemented at various time widespread measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, the promotion of social distancing and limitations on business activity.

Generally, certain restrictive measures that were implemented during certain periods of 2021 have been limited during the first part of 2022, and the prevalence and scale of closures and operating limitations are far less severe as compared to 2020.

These measures and the pandemic generally caused significant national and global economic disruption, including disrupted business operations, such as those of certain of our tenants, and continue to have an adverse effect on office demand for space in the short term, at a minimum.

Economic recovery in the United States and various other regions of the world has continued but may be threatened by the continued adverse effects of COVID-19 and other factors.

The demand for industrial space has continued due to the continuing growth of e-commerce and appears to be partially counterbalancing the adverse effects of COVID-19 on the commercial real estate industry.

However, the rising cost of construction materials and product delivery delays caused by supply chain disruption, and the apparent labor shortage we are facing nationally, have resulting in inflation and higher costs for both office and industrial construction projects.

Industrial absorption increased on a nominal basis in 2020, compared to 2019, according to research reports and continues to be strong through the third quarter of 2021.

Construction activity for the industrial sector remains strong as third quarter 2021 estimates have approximately $500.0 million of properties under construction with over 30% of that space pre-leased.

Investment sales volume across all product types, but especially office and retail, in recent months is lower year over year, as compared to 2020, as a direct result of COVID-19.

Research reports also report that the office sector experienced negative absorption for each of the first three quarters of 2021 and office space available for sublease has placed downward pressure on office rental rates.

Interest rates remain volatile in response to competing concerns about inflationary pressures and the spread and effect of COVID-19 variants.

The yield on the 10 year US Treasury Note has increased by 77% since the beginning of the year to its current 1.65%.

Since the beginning of the second quarter, it has ranged from 1.19% July and August to 1.73% at the beginning of April, a 54 basis point, 45% swing.

It has increased 39% since the beginning of August alone.

Despite this volatility, interest rates remain low by historical standards.

However, product delivery delays caused by supply chain disruption, and the apparent labor shortage we are facing nationally, have resulted in inflation and higher costs for both industrial and office construction projects.

Industrial absorption increased on a nominal basis in 2020, compared to 2019, according to research reports and continues to be strong through the fourth quarter of 2021 averaging approximately 100 million square feet of absorption each quarter.

Construction activity for the industrial sector remains strong as both third quarter and year end 2021 estimates have approximately $500.0 million of properties under construction with over 30% of that space pre-leased.

Research reports also reflect that the office sector experienced negative absorption for each of the first three quarters and only approximately 10 million square feet of positive absorption in the fourth quarter of 2021.

Office space available for sublease has increased and is placing downward pressure on office rental rates.

Interest rates remain volatile in response to competing concerns about inflationary pressures and the spread and effect of COVID-19 variants and are expected to increase.

The yield on the 10 year US Treasury Note has increased since the beginning of 2021, and finished 2021 at 1.51%, and has significantly increased during the first quarter of 2022.

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.

Global recessionary conditions may occur over the next 12-24 months as a direct result of the COVID-19 pandemic, although the actual impact and duration are unknown.

Global recessionary conditions may occur over the next 12-24 months in part by the COVID-19 pandemic and geopolitical conditions, although the actual timeline, impact and duration are unknown.

See “Impact of COVID-19 on Our Business,” below.

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, including adequate production, distribution and acceptance of vaccines, 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.

From a more macro-economic perspective, there continues to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the ongoing impact of COVID-19 on business and economic activity.

Impact of COVID-19 on Our Business

The extent to which the COVID-19 pandemic may impact our business, financial condition, liquidity, results of operations, funds from operations or prospects will depend on numerous evolving factors that we are not able to predict at this time, including the duration and long-term scope of the pandemic;

the adequate production, distribution and acceptance of vaccinations;

the spread and effect of COVID-19 variants;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

the impact on economic activity from the pandemic (such as the effect on market rental rates and commercial real estate values) and actions taken in response;

The extent to which the COVID-19 pandemic and subsequent inflationary pressures and supply chain disruption may impact our business, financial condition, liquidity, results of operations, funds from operations or prospects will depend on numerous evolving factors that we are not able to predict at this time, including the impact on economic activity from the pandemic (such as the effect on market rental rates and commercial real estate values) and actions taken in response;

the effect on our tenants and their businesses;

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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.

As of November 1, 2021, we have collected 100% of all outstanding September 2021 cash base rent obligations and approxima tely 100% of October 2021 cash base rent obligations.

We have received and may receive additional rent modification requests in future periods from our tenants.

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 and gas industries.

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

Additionally, our properties are located across 27 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 also have a cap on industry sector concentration to further diversify our portfolio and mitigate risk.

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 and to continue our industrial growth strategy.

As of May 4, 2022, we have collected 100% of all outstanding rent collections for calendar year 2021 and the first quarter of 2022.

In the past, we have received rent modification requests from our tenants, and we may receive additional requests in the future.

We believe we currently have adequate liquidity in the near term, and we believe the availability on our Credit Facility (defined in “Other Business Environment Considerations” below) is sufficient to cover all near-term debt obligations and operating expenses and to continue our industrial growth strategy.

We are in compliance with all of our debt covenants.

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We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our personnel, tenants and stockholders.

While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic, including the recent spread of COVID-19 variants, will have on our business, financial condition, liquidity, results of operations, funds from operations or prospects, we believe that it is important to share where we stand today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 continues.

While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic, will have on our business, financial condition, liquidity, results of operations, funds from operations or prospects, we

believe that it is important to share where we stand today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 continues.

Other Business Environment Considerations

The short-term and long-term economic implications of the Biden Administration’s economic program are unknown at this time, inclusive of any subsequent shift in policy, new regulations or the long-term impact of infrastructure spending and tax reform in the U.S.

Finally, the continuing uncertainty surrounding the ability of the federal government to address its fiscal condition in both the near and long term, particularly with the ongoing discussions regarding additional fiscal stimulus as well as other geopolitical issues relating to the global economic slowdown has increased domestic and global instability.

The short-term and long-term economic implications are unknown, in relation to recent world events, including inflation, supply chain disruptions, labor shortages, rapidly rising interest rates, the ongoing COVID-19 pandemic and associated government response in addition to any subsequent shift in policy, geopolitical conditions, new regulations or the long-term impact of social and infrastructure spending and tax reform in the U.S.

Finally, the continuing uncertainty surrounding the ability of the federal government to address its fiscal condition in both the near and long term, as well as other geopolitical issues relating to the global economic slowdown has increased domestic and global instability.

These developments could cause interest rates and borrowing costs to be volatile, which may adversely affect our ability to access both the equity and debt markets and could have an adverse impact on our tenants as well.

All of our variable rate debt is based upon one-month LIBOR, although LIBOR is currently anticipated to be phased out by June 2023.

LIBOR is expected to transition to a new standard rate, SOFR, which will incorporate repo data collected from multiple data sets.

All of our variable rate debt is based upon one-month London Interbank Offered Rate (“LIBOR”), although LIBOR is currently anticipated to be phased out by June 2023.

LIBOR is expected to transition to a new standard rate, Secured Overnight Financing Rate (“SOFR”), which will incorporate repo data collected from multiple data sets.

The intent is to adjust the SOFR to minimize differences between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR.

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.

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

During the transition further changes or reforms to the determination of 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.

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 six partially vacant buildings and two fully vacant buildings.

Our available vacant space at September 30, 2021 represents 2.3% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $2.6 million.

Currently, we have eight partially vacant buildings and two fully vacant buildings.

Our available vacant space at March 31, 2022 represents 3.0% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $3.6 million.

We continue to actively seek new tenants for these properties.

We believe our lease expiration schedule for 2 022 is quite manageable, as it equates to 4.2% of our lease revenue and the expirations are due to occur at the end of June, July, and October.

Property acquisitions since the beginning of 2019 have totaled nearly $375.0 million and all transactions were industrial in nature, with a weighted average lease term of 12.6 years and a current weighted average lease term today of 10.6 years.

Our ability to make new investments is highly dependent upon our ability to procure financing.

Our principal sources of financing generally include the issuance of equity securities, long-term mortgage loans secured by properties, borrowings under our $100.0 million senior unsecured revolving credit facility (“Revolver”), with KeyBank National Association (serving as a revolving lender, a letter of credit issuer and an administrative agent), which matures in July 2023, our $160.0 million term loan facility (“Term Loan A”), which matures in July 2024 and our $65.0 million term loan facility (“Term Loan B”), which matures in February 2026.

Our principal sources of financing generally include the issuance of equity securities, long-term mortgage loans secured by properties, borrowings under our $100.0 million senior unsecured revolving credit facility (“Revolver”), with KeyBank National Association (“KeyBank”), which matures in July 2023, our $160.0 million term loan facility (“Term Loan A”), which matures in July 2024 and our $65.0 million term loan facility (“Term Loan B”), which matures in February 2026.

We refer to the Revolver, Term Loan A and Term Loan B collectively herein as the Credit Facility.

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Recent Developments

Sale Activity

During the nine months ended September 30, 2021, we continued to execute our capital recycling program, whereby we sold properties outside of our core markets and redeployed proceeds to either fund property acquisitions located in our target secondary growth markets or repaid outstanding debt.

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

During the nine months ended September 30, 2021, we sold two non-core properties, located in Rancho Cordova, California and Champaign, Illinois, which are summarized in the table below (dollars in thousands):

Aggregate Square Footage Sold Aggregate Sales Price Aggregate Sales Costs Aggregate loss on Sale of Real Estate, net

81,758 $ 5,473 $ 367 $ (882)

Acquisition Activity

During the nine months ended September 30, 2021, we acquired eight industrial properties located in Findlay, Ohio, Baytown, Texas, Pacific, Missouri, and Peru, Illinois, which are summarized below (dollars in thousands):

Aggregate Square Footage Weighted Average Remaining Lease Term at Time of Acquisition Aggregate Purchase Price Aggregate Capitalized Acquisition Expenses Aggregate Annualized GAAP Fixed Lease Payments Aggregate Debt Issued

During the three months ended March 31, 2022, we acquired two industrial properties located in Wilkesboro, North Carolina and Oklahoma City, Oklahoma, which are summarized below (dollars in thousands):

136,000 10.2 years $ 13,463 $ 163 $ 876

On May 4, 2022, we purchased a 260,719 square foot, two property portfolio in Cleveland, Ohio and Fort Payne, Alabama, for $19.3 million.

These properties are fully leased to one tenant on a triple net basis with a remaining lease term of 11.4 years.

Leasing Activity

During and subsequent to the nine months ended September 30, 2021, we executed 14 leases, which are summarized below (dollars in thousands):

During and subsequent to the three months ended March 31, 2022, we executed four leases, which are summarized below (dollars in thousands):

Aggregate Square Footage Weighted Average Remaining Lease Term Aggregate Annualized GAAP Fixed Lease Payments Aggregate Tenant Improvement Aggregate Leasing Commissions

257,978 10.6 years $ 2,856 $ 3,771 $ 963

During the nine months ended September 30, 2021, we had eight lease contractions or terminations, which are summarized below (dollars in thousands):

Aggregate Square Footage Reduced Aggregate Square Footage Remaining Aggregate Accelerated Rent Aggregate Accelerated Rent Recognized through September 30, 2021

On May 2, 2022, we executed a lease for 29,505 square feet of vacant space in our Blaine, Minnesota property for 5.1 years, bringing the building to full occupancy.

During the three months ended March 31, 2022, we had one lease termination, which is detailed below (dollars in thousands):

Aggregate Square Footage Reduced Aggregate Accelerated Rent Aggregate Accelerated Rent Recognized through March 31, 2022

155,984 $ 2,138 $ 356

(1) We have signed leases with two replacement tenants for 211,408 square feet with no downtime.

Financing Activity

During the nine months ended September 30, 2021, we repaid one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):

Fixed Rate Debt Repaid Interest Rate on Fixed Rate Debt Repaid

$ 4,470 4.90%

On October 26, 2021, we repaid $3.2 million of fixed rate debt, collateralized by one property, at an interest rate of 4.92%.

During the nine months ended September 30, 2021, we issued one mortgage, collateralized by one property, which is summarized below (dollars in thousands):

Fixed Rate Debt Issued Interest Rate on Fixed Rate Debt

$ 5,500 (1) 3.24 %

(1) On January 22, 2021, we issued $5.5 million of floating rate debt swapped to fixed debt of 3.24% in connection with one property acquisition.

Legal Settlement

In August 2021, we reached separate legal settlements through which we recognized $2.4 million, net, recorded in other income on the condensed consolidated statement of operations and comprehensive income.

On April 22, 2022, we agreed to terms with the lender to extend the maturity date of $7.6 million of variable rate debt coming due for one year.

On April 27, 2022, we refinanced $14.8 million of fixed rate debt coming due on May 1, 2022 with a new $15.0 million note, collateralized by two properties, at a variable interest rate of SOFR plus 2.50%, subject to a 3.25% minimum, and a two year term.

On May 4, 2022, we issued $10.0 million of fixed rate debt in connection with the two property portfolio acquired on the same date, with a term of 5.0 years and interest rate of 4.0%.

Equity Activities

Series G Preferred Stock Offering

On June 28, 2021, we completed an underwritten public offering of 4,000,000 shares of our newly designated 6.00% Series G Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”) at a public offering price of $25.00 per share, raising $100.0 million in gross proceeds and approximately $96.6 million in net proceeds, after payment of underwriting discounts and commissions.

We used the net proceeds from this offering to voluntarily redeem all outstanding shares of our 7.00% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”).

Common Stock ATM Program

During the nine months ended September 30, 2021, we sold 1.2 million shares of common stock, raising $24.1 million in net proceeds under our At-the-Market Equity Offering Sales Agreements with sales agents Robert W.

During the three months ended March 31, 2022, we sold 0.9 million shares of common stock, raising $20.3 million in net proceeds under our At-the-Market Equity Offering Sales Agreements (the “Common Stock Sales Agreement”) 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 September 30, 2021, we had remaining capacity to sell up to $159.4 million of common stock under the Common Stock ATM Program.

Series D Preferred Stock Redemption

On June 30, 2021, we voluntarily redeemed all 3,509,555 outstanding shares of our Series D Preferred Stock at a redemption price of $25.1458333 per share, which represented the liquidation preference per share, plus accrued and unpaid dividends through June 30, 2021, for an aggregate redemption price of approximately $88.3 million.

In connection with this redemption, we recognized a $2.1 million decrease to net income available to common shareholders pertaining to the original issuance costs incurred upon issuance of our Series D Preferred Stock.

Preferred Series E ATM Program

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 did not sell any shares of our Series E Preferred Stock under the agreement during the nine months ended September 30, 2021.

As of September 30, 2021, we had remaining capacity to sell up to $92.8 million of Series E Preferred Stock under the Series E Preferred Stock Sales Agreement.

(“Fifth Third”), On February 22, 2022, we entered into Amendment No.

1 to our existing At-the-Market Equity Offering Sales Agreement (the “Common Stock Sales Agreement”), with Baird, Goldman Sachs, Stifel, BTIG, and Fifth Third (the “Common Stock Sales Agents”), dated December 3, 2019.

The amendment permits shares of common stock to be issued pursuant to the Common Stock Sales Agreement under the Company’s Registration Statement on Form S-3 (File No.

333-236143) and future registration statements on Form S-3 (the “Common Stock ATM Program”).

As of March 31, 2022, we had remaining capacity to sell up to $47.0 million of common stock pursuant to the Common Stock ATM Program under the 2020 Universal Shelf (as defined below).

Universal Shelf Registration Statements

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333-229209, and an amendment thereto on Form S-3/A on January 24, 2019 (collectively referred to as the “2019 Universal Shelf”).

The 2019 Universal Shelf became effective on February 13, 2019 and replaced our prior universal shelf registration statement.

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

As of September 30, 2021, we had the ability to issue up to $352.7 million of securities under the 2019 Universal Shelf.

The 2019 Universal Shelf allowed us to issue up to $500.0 million of securities and expired on February 13, 2022.

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

333-236143 (the “2020 Universal Shelf”).

The 2020 Universal Shelf was declared effective on February 11, 2020 and is in addition to the 2019 Universal Shelf.

The 2020 Universal Shelf was declared effective on February 11, 2020 and, at the time, was in addition to the 2019 Universal Shelf.

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 6.00% Series F Cumulative Redeemable Preferred Stock, par value $0.001 per share (the “Series F Preferred Stock”).

As of September 30, 2021, we had the ability to issue up to $691.7 million of securities under the 2020 Universal Shelf.

As of March 31, 2022, we had the ability to issue up to $671.8 million of securities under the 2020 Universal Shelf.

Series F Preferred Stock

On February 20, 2020, we filed with the SDAT 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 our 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 our 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.

We sold 217,422 shares of our Series F Preferred Stock, raising $4.9 million in net proceeds during the three and nine months ended September 30, 2021.

As of September 30, 2021, we had remaining capacity to sell up to $628.2 million of Series F Preferred Stock.

We sold 62,883 shares of our Series F Preferred Stock, raising $1.4 million in net proceeds during the three months ended March 31, 2022.

As of March 31, 2022, we had remaining capacity to sell up to $624.3 million of Series F Preferred Stock.

Non-controlling Interest in Operating Partnership

As of September 30, 2021 and December 31, 2020, we owned approximately 99.3% and 98.6%, re spectively, of the outstanding operating partnership units in the Operating Partnership (“OP Units”).

During the nine months ended September 30, 2021, we redeemed 246,039 OP Units for an equivalent amount of common stock.

As of September 30, 2021 and December 31, 2020, there were 256,994 and 503,033 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.

As of March 31, 2022 and December 31, 2021, we owned approximately 99.3% and 99.3%, re spectively, of the outstanding operating partnership units in the Operating Partnership (“OP Units”).

During the three months ended March 31, 2022, we redeemed 246,039 OP Units for an equivalent amount of common stock.

As of March 31, 2022 and December 31, 2021, there were 256,994 and 256,994 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.

Diversity of Our Portfolio

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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 nine months ended September 30, 2021, our largest tenant comprised only 2.8% of total lease revenue.

The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

For the three months ended September 30, For the nine months ended September 30,

2021 2020 2021 2020

Industry Classification Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue

For the three months ended March 31, 2022, our largest tenant comprised only 4.4% 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, 2022 and 2021 (dollars in thousands):

For the three months ended March 31,

Industry Classification Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue

Telecommunications $ 5,609 15.8 % $ 5,586 16.0 %

Automotive 4,636 13.0 2,721 7.8

Diversified/Conglomerate Services 4,537 12.8 4,690 13.5

Healthcare 3,984 11.2 4,248 12.3

Automotive 3,392 9.9 3,445 10.4 8,845 8.6 11,137 11.1

Diversified/Conglomerate Manufacturing 2,626 7.4 1,998 5.8

Banking 2,608 7.3 2,543 7.3

Buildings and Real Estate 2,338 6.6 2,343 6.8

Diversified/Conglomerate Manufacturing 1,866 5.4 1,694 5.1 5,748 5.6 4,562 4.5

Personal, Food & Miscellaneous Services 1,548 4.4 2,475 7.1

Information Technology 1,673 4.9 1,754 5.3 5,011 4.9 5,193 5.2

Beverage, Food & Tobacco 1,381 3.9 1,477 4.3

Chemicals, Plastics & Rubber 1,205 3.4 1,088 3.1

Information Technology 1,045 2.9 1,652 4.8

Machinery 976 2.7 991 2.9

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Printing & Publishing 229 0.6 348 1.0

Electronics 166 0.5 936 2.8 796 0.8 3,403 3.4

Education 204 0.6 201 0.6

Electronics 181 0.5 412 1.2

Home & Office Furnishings 123 0.5 121 0.3

Total $ 35,531 100.0 % $ 34,677 100.0 %

The tables below reflect the breakdown of total lease revenue by state for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

State Lease Revenue for the three months ended September 30, 2021 Percentage of Lease Revenue Number of Leases for the three months ended September 30, 2021 Lease Revenue for the three months ended September 30, 2020 Percentage of Lease Revenue Number of Leases for the three months ended September 30, 2020

Florida $ 4,191 12.2 % 10 $ 4,120 12.4 % 11

Pennsylvania 3,807 11.1 10 3,491 10.5 9

The tables below reflect the breakdown of total lease revenue by state for the three months ended March 31, 2022 and 2021 (dollars in thousands):

State Lease Revenue for the three months ended March 31, 2022 Percentage of Lease Revenue Number of Leases for the three months ended March 31, 2022 Lease Revenue for the three months ended March 31, 2021 Percentage of Lease Revenue Number of Leases for the three months ended March 31, 2021

Texas $ 5,167 14.5 % 14 $ 4,130 11.9 % 13

Ohio 3,671 10.7 15 3,429 10.3 14

Georgia 2,757 8.0 9 2,684 8.1 9

Utah 1,935 5.6 4 2,006 6.1 4

Alabama 1,634 4.8 5 897 2.7 3

Michigan 1,609 4.7 6 1,573 4.7 6

North Carolina 1,604 4.7 7 1,546 4.7 8

South Carolina 1,408 4.1 2 1,230 3.7 2

All Other States 7,917 23.0 48 7,319 22.2 47

Total $ 34,334 100.0 % 131 $ 33,142 100.0 % 128

State Lease Revenue for the nine months ended September 30, 2021 Percentage of Lease Revenue Number of Leases for the nine months ended September 30, 2021 Lease Revenue for the nine months ended September 30, 2020 Percentage of Lease Revenue Number of Leases for the nine months ended September 30, 2020

Florida 4,236 11.9 9 4,223 12.2 11

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Ohio 3,585 10.1 15 3,760 10.8 16

Texas 11,232 11.0 15 15,081 15.0 15

Georgia 2,908 8.2 10 2,669 7.7 9

Utah 5,763 5.6 4 5,941 5.9 4

North Carolina 1,887 5.3 9 1,850 5.3 7

Alabama 4,911 4.8 5 2,694 2.7 3

Michigan 1,609 4.5 6 1,573 4.5 6

Alabama 1,556 4.4 5 1,585 4.6 5

South Carolina 1,393 3.9 2 1,202 3.5 2

Utah 1,322 3.7 3 1,891 5.5 4

All Other States 8,135 23.0 49 7,973 23.0 46

$ 102,381 100.0 % 131 $ 100,287 100.0 % 128

Total $ 35,531 100.0 % 132 $ 34,677 100.0 % 129

Our Adviser and Administrator

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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.

Robert Cutlip, our co-president, also serves as 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.

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Gary Gerson, our chief financial officer, Mr.

Jay Beckhorn, our treasurer, and Mr.

Robert Cutlip, our president, all of our executive officers and all of our directors serve as either directors or executive officers, or both, of Gladstone Capital Corporation and Gladstone Investment Corporation.

Jay Beckhorn, our treasurer, and Messrs.

Robert Cutlip and Arthur “Buzz” Cooper, our co-presidents, all of our executive officers and all of our directors serve as either directors or executive officers, or both, of Gladstone Capital Corporation and Gladstone Investment Corporation.

In addition, with the exception of Mr.

Cutlip and Mr.

Gerson, all of our executive officers and all of our directors, serve as either directors or executive officers,

or both, of Gladstone Land Corporation.

Cutlip and Mr.

Cooper and Mr.

Gerson, all of our executive officers and all of our directors, serve as either directors or executive officers, or both, of Gladstone Land Corporation.

Cooper and Mr.

Gerson do not put forth any material efforts in assisting affiliated companies.

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David Gladstone, our chairman and chief executive officer.

Two of our executive officers, Mr.

Gladstone and Mr.

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

Our president, Mr.

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

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

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”).

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

The revised base management fee calculation began with the fee calculations for the quarter ended September 30, 2020.

Under the version of the Advisory Agreement in place prior to the July 14, 2020 amendment and restatement, the calculation of the annual base management fee equaled 1.5% of our Total Equity, which was 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), 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 amount.

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 and nine months ended September 30, 2021 or 2020.

No capital gain fee was recognized during the three months ended March 31, 2022 or 2021.

Termination Fee

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Securities and Exchange Commission (the “SEC”) on February 15, 2022 (our “2021 Form 10-K”).

There were no material changes to our critical accounting policies or estimates during the nine months ended September 30, 2021.

There were no material changes to our critical accounting policies or estimates during the three months ended March 31, 2022.

Results of Operations

The weighted average yield on our total portfolio, which was 7.9% and 8.2% as of September 30, 2021 and 2020, 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 7.4% and 8.1% as of March 31, 2022 and 2021, 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 and nine months ended September 30, 2021 and 2020 is below (dollars in thousands, except per share amounts) :

For the three months ended September 30,

A comparison of our operating results for the three months ended March 31, 2022 and 2021 is below (dollars in thousands, except per share amounts) :

For the three months ended March 31,

2022 2021 $ Change % Change

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General and administrative 997 656 341 52.0 %

Impairment charge — 1,184 (1,184) (100.0) %

Total operating expenses $ 25,658 $ 26,904 $ (1,246) (4.6) %

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Interest expense $ (6,586) $ (7,164) $ 578 (8.1) %

Gain on sale of real estate, net — 1,196 (1,196) (100.0) %

Loss on sale of real estate, net — (882) 882 (100.0) %

Other income 104 311 (207) (66.6) %

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Distributions attributable to senior common stock (116) (187) 71 (38.0) %

Loss on extinguishment of Series F preferred stock (5) — (5) 100.0 %

Net income (loss) available (attributable) to common stockholders and Non-controlling OP Unitholders $ 324 $ (2,996) $ 3,320 (110.8) %

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

For the nine months ended September 30,

2021 2020 $ Change % Change

Operating revenues

Lease revenue $ 102,381 $ 100,287 $ 2,094 2.1 %

Total operating revenues $ 102,381 $ 100,287 $ 2,094 2.1 %

Operating expenses

Depreciation and amortization $ 45,661 $ 42,076 $ 3,585 8.5 %

Property operating expenses 20,278 19,098 1,180 6.2 %

Base management fee 4,369 4,219 150 3.6 %

Incentive fee 3,540 3,301 239 7.2 %

Administration fee 1,016 1,194 (178) (14.9) %

General and administrative 2,540 2,406 134 5.6 %

Impairment charge — 2,905 (2,905) (100.0) %

Total operating expense before incentive fee waiver $ 77,404 $ 75,199 $ 2,205 2.9 %

Incentive fee waiver (16) — (16) 100.0 %

Total operating expenses $ 77,388 $ 75,199 $ 2,189 2.9 %

Other (expense) income

Interest expense $ (20,338) $ (20,411) $ 73 (0.4) %

(Loss) gain on sale of real estate, net (882) 1,184 (2,066) (174.5) %

Other income 2,884 209 2,675 1,279.9 %

Total other expense, net $ (18,336) $ (19,018) $ 682 (3.6) %

Net income $ 6,657 $ 6,070 $ 587 9.7 %

Distributions attributable to Series D, E, F, and G preferred stock (8,571) (8,137) (434) 5.3 %

Series D preferred stock offering costs write off (2,141) — (2,141) 100.0 %

Distributions attributable to senior common stock (534) (615) 81 (13.2) %

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (4,589) $ (2,682) $ (1,907) 71.1 %

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ (0.13) $ (0.08) $ (0.05) 62.5 %

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 41,954 $ 41,115 $ 839 2.0 %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) $ 42,488 $ 41,730 $ 758 1.8 %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted, as adjusted for comparability (1) $ 44,629 $ 41,730 $ 2,899 6.9 %

FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1) $ 1.15 $ 1.20 $ (0.05) (4.2) %

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1) $ 1.14 $ 1.19 $ (0.05) (4.2) %

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted, as adjusted for comparability (1) $ 1.20 $ 1.19 $ 0.01 0.8 %

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

Same Store Analysis

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Operating Revenues

For the three months ended September 30,

(Dollars in Thousands)

Lease Revenues 2021 2020 $ Change % Change

Same Store Properties $ 28,076 $ 27,480 $ 596 2.2 %

Acquired & Disposed Properties 3,783 2,664 1,119 42.0 %

Properties with Vacancy 2,475 2,998 (523) (17.4) %

$ 34,334 $ 33,142 $ 1,192 3.6 %

For the nine months ended September 30,

For the three months ended March 31,

(Dollars in Thousands)

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

Lease revenues from same store properties increased for the three and nine months ended September 30, 2021, primarily due to increased lease revenue from the amortization of tenant funded improvements, coupled with accelerated rent from tenants that have terminated their leases early.

One of the tenants that terminated early will remain in the building through October 2022, and we fully re-leased the space from two terminations with no downtime.

Lease revenues increased for acquired and disposed of properties for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, because we acquired 11 properties subsequent to September 30, 2020.

This increase was partially offset by a loss of lease revenues from six properties we sold subsequent to September 30, 2020.

Lease revenues decreased for our properties with vacancy for the three and nine months ended September 30, 2021 due to increased vacancy in our portfolio.

Lease revenues from same store properties decreased for the three months ended March 31, 2022, primarily due to accelerated rent recognized during the three months ended March 31, 2021 from two tenants that terminated their leases early, partially offset by increased rent from lease amendments executed subsequent to March 31, 2021.

We fully re-leased the space from the two terminations with no downtime.

Lease revenues increased for acquired and disposed of properties for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, because we acquired 12 properties subsequent to March 31, 2021.

This increase was partially offset by a loss of lease revenues from one property we sold subsequent to March 31, 2021.

Lease revenues increased for our properties with vacancy for the three months ended March 31, 2022 due to vacant space being leased.

Operating Expenses

Depreciation and amortization increased for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, due to depreciation on capital projects completed subsequent to the three and nine months ended September 30, 2020, coupled with depreciation on the 11 properties acquired subsequent to September 30, 2020.

This increase was partially offset by decreased depreciation on the six properties sold subsequent to September 30, 2020.

For the three months ended September 30,

(Dollars in Thousands)

Property Operating Expenses 2021 2020 $ Change % Change

Same Store Properties $ 4,704 $ 4,617 $ 87 1.9 %

Acquired & Disposed Properties 269 462 (193) (41.8) %

Properties with Vacancy 1,834 1,511 323 21.4 %

$ 6,807 $ 6,590 $ 217 3.3 %

For the nine months ended September 30,

Depreciation and amortization decreased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to accelerated depreciation and amortization related to two tenants with early lease terminations during the three months ended March 31, 2021, partially offset by an increase in depreciation on the 12 properties we acquired subsequent to March 31, 2021.

For the three months ended March 31,

(Dollars in Thousands)

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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 September 30, 2021, from the comparable 2020 period, is a result of increased insurance premiums for our same store portfolio.

The decrease in property operating expenses for same store properties for the

nine months ended September 30, 2021, from the comparable 2020 period, is a result of decreased property operating expenses incurred on behalf of our tenants due to COVID-19 restrictions that were initially instituted during late March 2020, but relaxed during the second quarter of 2021.

Prior to March 2020, our tenants were operating at full capacity with no operating restrictions, while in 2021, many tenants are working towards full occupancy.

The increase in property operating expenses for acquired and disposed of properties for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, is primarily a result of increased property operating expenses from 11 properties acquired subsequent to September 30, 2020, partially offset by a reduction of operating expenses from six properties sold subsequent to September 30, 2020.

The increase in property operating expenses for properties with vacancy for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, is a result of increased vacancy in our portfolio.

The base management fee paid to the Adviser increased for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, due to an increase in Gross Tangible Real Estate over the three and nine months ended September 30, 2021 as compared to the increase in Total Shareholders’ Equity and Gross Tangible Real Estate during the three and nine months ended September 30, 2020.

The increase in property operating expenses for same store properties for the three months ended March 31, 2022, from the comparable 2021 period, is a result of our tenants having more employees on site during the three months ended March 31, 2022 due to fewer COVID-19 restrictions in most states in the U.S.

The decrease in property operating expenses for acquired and disposed of properties for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, is primarily a result of our sale of two fully vacant properties during the three months ended March 31, 2021.

The increase in property operating expenses for properties with vacancy for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, is a result of our tenants having more employees on site during the three months ended March 31, 2022, from the comparable 2021 period due to fewer COVID-19 restrictions in most states in the U.S.

The base management fee paid to the Adviser increased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to an increase in Gross Tangible Real Estate over the three months ended March 31, 2022 as compared to the increase in Gross Tangible Real Estate during the three months ended March 31, 2021.

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 and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, due to a higher pre-incentive fee Core FFO.

The increase in Core FFO is a result of an increase in operating revenues, coupled with an increase in other income due to legal settlements of $2.4 million, net.

The incentive fee paid to the Adviser increased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to a higher pre-incentive fee Core FFO.

The increase in Core FFO is a result of an increase in operating revenues, coupled with a decrease in 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 September 30, 2021, as compared to the three months ended September 30, 2020, due to our Administrator incurring greater costs that are allocated to us.

The administration fee paid to the Administrator decreased for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, due to our Administrator incurring fewer costs that are allocated to us.

The administration fee paid to the Administrator increased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to our Administrator incurring greater costs that are allocated to us.

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

General and administrative expenses increased for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, primarily as a result of an increase in legal fees, professional service fees, and shareholder related expenses.

We did not recognize an impairment charge during the three and nine months ended September 30, 2021.

During the three months ended September 30, 2020, we recognized impairment charges on our Rancho Cordova, California and Champaign, Illinois assets, after our impairment testing determined the fair market value of these properties was below our respective carrying value, and the respective carrying value was unrecoverable.

During the nine months ended September 30, 2020, we recognized impairment charges on our Rancho Cordova, California, Champaign, Illinois and Blaine, Minnesota assets, after our impairment testing determined the fair market value of these properties was below our respective carrying value, and the respective carrying value was unrecoverable.

General and administrative expenses increased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily as a result of an increase in legal costs.

Other Income and Expenses

Interest expense increased for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.

This increase was primarily a result of us having higher outstanding balances on our Credit Facility.

Interest expense decreased for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.

This decrease was primarily a result of a decrease in interest rates on our LIBOR based variable rate debt, as the nine months ended September 30, 2021 had lower average LIBOR due to central banks having accommodating monetary policy, due to the COVID-19 pandemic, as compared to the nine months ended September 30, 2020.

Loss on sale of real estate, net, for the nine months ended September 30, 2021, is attributable to two non-core office assets located in Rancho Cordova, California and Champaign, Illinois, being sold during the period.

Gain on sale of real estate, net, for the nine months ended September 30, 2020 is attributable to one non-core office asset located in Charlotte, North Carolina and one non-core industrial asset located in Maple Heights, Ohio being sold during the period.

Other income increased for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020, primarily due to $2.4 million, net, legal settlements.

Interest expense decreased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.

This decrease was primarily a result of costs incurred to repay outstanding mortgage debt during the three months ended March 31, 2021, partially offset by an increase in interest expense on our Credit Facility due to higher outstanding balances.

We did not sell any properties during the three months ended March 31, 2022, and as a result, incurred no gain or loss.

Loss on sale of real estate, net, for the three months ended March 31, 2021, is attributable to two non-core office assets located in Rancho Cordova, California and Champaign, Illinois, being sold during the period.

Other income decreased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to a cancelled sale fee we earned during the three months ended March 31, 2021.

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

Net income available to common stockholders and Non-controlling OP Unitholders increased for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to the increase in operating revenues due to asset acquisition activity during and subsequent to September 30, 2020, coupled with an increase in other income from $2.4 million, net, in legal settlements.

Net loss attributable to common stockholders and Non-controlling OP Unitholders increased for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, primarily due to a loss on sale of real estate, net from two property sales, coupled with writing off Series D Preferred Stock offering costs in connection with the voluntary redemption of all outstanding shares of our Series D Preferred Stock, partially offset by an increase in operating revenues due to asset acquisition activity during and subsequent to September 30, 2020.

Net income available to common stockholders and Non-controlling OP Unitholders increased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to the increase in operating revenues due to asset acquisition activity during and subsequent to March 31, 2021, coupled with a decrease in interest expense due to costs incurred to repay outstanding mortgage debt during the three months ended March 31, 2021.

Liquidity and Capital Resources

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

Our available liquidity as of September 30, 2021, was $36.3 million, consisting of approximately $10.2 million in cash and cash equivalents and available borrowing capacity of $26.1 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility increased to $28.2 million as of November 1, 2021.

Our available liquidity as of March 31, 2022, was $35.2 million, consisting of approximately $9.6 million in cash and cash equivalents and available borrowing capacity of $25.6 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility decreased to $21.7 million as of May 4, 2022.

Future Capital Needs

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Equity Capital

On June 28, 2021, we completed an underwritten public offering of 4,000,000 shares of our newly designated Series G Preferred Stock at a public offering price of $25.00 per share, raising $100.0 million in gross proceeds and approximately $96.6 million in net proceeds, after payment of underwriting discounts and commissions.

We used the net proceeds from this offering to voluntarily redeem all outstanding shares of our Series D Preferred Stock.

During the nine months ended September 30, 2021, we raised net proceeds of $24.1 million of common equity under our Common Stock ATM Program at a net weighted average per share price of $20.08.

During the three months ended March 31, 2022, we raised net proceeds of $20.3 million of common equity under our Common Stock ATM Program at a net weighted average per share price of $21.51.

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

We did not sell any of our Series E Preferred Stock under our Series E Preferred Stock Sales Agreement during the nine months ended September 30, 2021.

We raised net proceeds of $4.9 million from sales of our Series F Preferred Stock during the nine months ended September 30, 2021.

As of November 1, 2021, we had the ability to raise up to $344.5 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 $344.5

million of available capacity under our 2019 Universal Shelf, approximately $151.2 million is reserved for additional sales under our Common Stock ATM Program, and approximately $92.8 million is reserved for additional sales under our Series E Preferred Stock Sales Agreement as of November 1, 2021.

We expect to continue to use our at-the-market programs as a source of liquidity for the remainder of 2021.

As of November 1, 2021, we had the ability to raise up to $690.8 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 $690.8 million of available capacity under our 2020 Universal Shelf, approximately $627.3 million is reserved for the sale of our Series F Preferred Stock as of November 1, 2021.

As of September 30, 2021, we had 53 mortgage notes payable in the aggregate principal amount of $451.0 million, collateralized by a total of 68 properties with a remaining weighted average maturity of 3.9 years.

The weighted-average interest rate on the mortgage notes payable as of September 30, 2021 was 4.19%.

We did not sell any of our Series E Preferred Stock under our

Series E Preferred Stock Sales Agreement during the three months ended March 31, 2022.

We raised net proceeds of $1.4 million from sales of our Series F Preferred Stock during the three months ended March 31, 2022.

As of May 4, 2022, we had the ability to raise up to $669.3 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 $669.3 million of available capacity under our 2020 Universal Shelf, approximately $45.0 million is reserved for additional sales under our Common Stock ATM Program, and approximately $623.8 million is res erved for the sale of our Series F Preferred Stock as of May 4, 2022.

We expect to continue to use our Common Stock ATM Program as a source of liquidity for the remainder of 2022.

As of March 31, 2022, we had 52 mortgage notes payable in the aggregate principal amount of $449.4 million, collateralized by a total of 67 properties with a remaining weighted average maturity of 3.7 years.

The weighted-average interest rate on the mortgage notes payable as of March 31, 2022 was 4.19%.

We continue to see banks and 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 September 30, 2021, we had mortgage debt in the aggregate principal amount of $13.6 million payable during the remainder of 2021 and $105.8 million payable during 2022.

The 2021 principal amount payable includes both amortizing principal payments and two balloon principal payments due during the remaining three months of 2021.

As of March 31, 2022, we had mortgage debt in the aggregate principal amount of $101.7 million payable during the remainder of 2022 and $72.7 million payable during 2023.

The 2022 principal amount payable includes both amortizing principal payments and nine balloon principal payments due during the remaining nine months of 2022.

We anticipate being able to refinance our mortgages that come due during 2022 and 2023 with a combination of new mortgage debt, availability under our Credit Facility and the issuance of additional equity securities.

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Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2021, was $53.7 million, as compared to net cash provided by operating activities of $52.4 million for the nine months ended September 30, 2020.

This change was primarily a result of an increase in operating revenues from our 11 property acquisitions completed subsequent to September 30, 2020, coupled with $2.4 million, net, in legal settlements, partially offset by an increase in unreimbursed property operating expenses, due to higher portfolio vacancy.

Net cash provided by operating activities during the three months ended March 31, 2022, was $17.2 million, as compared to net cash provided by operating activities of $16.9 million for the three months ended March 31, 2021.

This change was primarily a result of an increase in operating revenues from our 12 property acquisitions completed subsequent to March 31, 2021, coupled with a decrease in interest expense, partially offset by an increase in general and administrative expenses due to higher legal costs.

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 nine months ended September 30, 2021, was $46.0 million, which primarily consisted of eight property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of two properties.

Net cash used in investing activities during the nine months ended September 30, 2020, was $73.0 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 two properties.

Net cash used in investing activities during the three months ended March 31, 2022, was $17.6 million, which primarily consisted of two property acquisitions, coupled with capital improvements performed at certain of our properties.

Net cash used in investing activities during the three months ended March 31, 2021, was $6.5 million, which primarily consisted of one property acquisition, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of two properties.

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2021, was $8.6 million, which primarily consisted of the repayment of $14.3 million of outstanding mortgage debt, redemption of our Series D Preferred Stock, repayment of $51.8 million, net, on our Revolver, and distributions paid to common, senior common and preferred shareholders, partially offset by the issuance of $130.0 million of common and preferred equity, borrowings from our new Term Loan B of $65.0 million, and the issuance of $5.5 million of new mortgage debt.

Net cash provided by financing activities for the nine months ended September 30, 2020, was $24.4 million, which primarily consisted of $35.9 million in new mortgage borrowings coupled with the issuance of $39.6 million of equity, partially offset by $31.7 million of mortgage principal repayments, and distributions paid to common, senior common and preferred shareholders.

Net cash provided in financing activities during the three months ended March 31, 2022, was $1.9 million, which primarily consisted of the issuance of $22.2 million of common and preferred equity, partially offset by the repayment of $3.5 million of outstanding mortgage debt, and distributions paid to common, senior common and preferred shareholders.

Net cash used in financing activities for the three months ended March 31, 2021, was $11.8 million, which primarily consisted of $7.5 million of mortgage principal repayments, and distributions paid to common, senior common and preferred shareholders, partially offset by $5.5 million in new mortgage borrowings coupled with the issuance of $11.5 million of equity.

Credit Facility

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Term Loan A has a maturity date of July 2, 2024, and the Revolver has a maturity date of July 2, 2023.

The interest rate for the Credit Facility is equal to LIBOR plus a spread ranging from 125 to 215 basis points depending on our leverage.

The interest rate for the Credit Facility is equal to LIBOR plus a spread

ranging from 125 to 215 basis points depending on our leverage.

We entered into multiple interest rate cap agreements on Term Loan A, which cap LIBOR ranging from 2.50% to 2.75%, to hedge our exposure to variable interest rates.

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We incurred fees of approximately $0.5 million in connection with issuing Term Loan B.

As of September 30, 2021, there was $65.0 million outstanding under Term Loan B, and we used all net proceeds to repay all outstanding borrowings on the Revolver.

As of September 30, 2021, there was $227.1 million outstanding under our Credit Facility at a weighted average interest rate of approximately 1.97% and $18.7 million outstanding under letters of credit at a weighted average interest rate of 1.90%.

As of November 1, 2021, the maximum additional amount we could draw under the Credit Facility was $28.2 million.

We were in compliance with all covenants under the Credit Facility as of September 30, 2021.

As of March 31, 2022, there was $65.0 million outstanding under Term Loan B, and we used all net proceeds to repay all outstanding borrowings on the Revolver.

As of March 31, 2022, there was $259.6 million outstanding under our Credit Facility at a weighted average interest rate of approximately 2.35% and $20.5 million outstanding under letters of credit at a weighted average interest rate of 1.90%.

As of May 4, 2022, the maximum additional amount we could draw under the Credit Facility was $21.7 million.

We were in compliance with all covenants under the Credit Facility as of March 31, 2022.

For discussion on the impact COVID-19 has had on our liquidity and capital resources, refer to the Impact of COVID-19 on Our Business section under Business Environment.

Contractual Obligations

The following table reflects our material contractual obligations as of September 30, 2021 (in thousands):

The following table reflects our material contractual obligations as of March 31, 2022 (in thousands):

Payments Due by Period

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$ 801,416 $ 147,791 $ 345,337 $ 181,044 $ 127,244

(1) Debt obligations represent borrowings under our Revolver, which represents $2.1 million of the debt obligation due in 2023, our Term Loan A, which represents $160.0 million of the debt obligation due in 2024, our Term Loan B, which represents $65.0 million of the debt obligation due in 2026 and mortgage notes payable that were outstanding as of September 30, 2021.

(1) Debt obligations represent borrowings under our Revolver, which represents $34.6 million of the debt obligation due in 2023, our Term Loan A, which represents $160.0 million of the debt obligation due in 2024, our Term Loan B, which represents $65.0 million of the debt obligation due in 2026 and mortgage notes payable that were outstanding as of March 31, 2022.

This figure does not include $(0.1) million of premiums and (discounts), net and $3.5 million of deferred financing costs, net, which are reflected in mortgage notes payable, net and borrowings under Term Loan, net on the condensed consolidated balance sheets.

1 unchanged sentence

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

thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of September 30, 2021.

thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of March 31, 2022.

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

(4) Purchase obligations consist of tenant and capital improvements at nine of our properties.

(4) Purchase obligations consist of tenant and capital improvements at 12 of our properties.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of September 30, 2021.

We did not have any material off-balance sheet arrangements as of March 31, 2022.

Funds from Operations

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FFO does not represent cash flows from operating activities in accordance with GAAP, which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income.

FFO should not be considered an alternative to net income as an indication of our performance or to cash flows from operations as a measure of liquidity or ability to make distributions.

FFO should not be considered an alternative

to net income as an indication of our performance or to cash flows from operations as a measure of liquidity or ability to make distributions.

Comparison of FFO, using the NAREIT definition, to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.

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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.

We also present FFO available to our common stockholders and Non-controlling OP Unitholders as adjusted for comparability as an additional supplemental measure, as we believe it is more reflective of our core operating performance, and provides investors and analysts an additional measure to compare our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

FFO as adjusted for comparability is generally calculated as FFO available to common stockholders and Non-controlling OP Unitholders, excluding certain non-recurring and non-cash income and expense adjustments, which management believes are not reflective of the results within our operating real estate portfolio.

The following table provides a reconciliation of our FFO available to common stockholders for the three and nine months ended September 30, 2021 and 2020, 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 September 30, For the nine months ended September 30,

(Dollars in Thousands, Except for Per Share Amounts) (Dollars in Thousands, Except for Per Share Amounts)

2021 2020 2021 2020

The following table provides a reconciliation of our FFO available to common stockholders for the three months ended March 31, 2022 and 2021, 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,

(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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Distributions attributable to preferred and senior common stock (3,062) (3,034)

Series D preferred stock offering costs write off — — (2,141) —

Loss on extinguishment of Series F preferred stock (5) —

Net income (loss) available (attributable) to common stockholders and Non-controlling OP Unitholders $ 324 $ (2,996)

Real estate depreciation and amortization $ 14,689 $ 16,710

Impairment charge — 1,184 — 2,905

Loss on sale of real estate, net — 882

Gain on sale of real estate, net — (1,196) — (1,184)

FFO available to common stockholders and Non-controlling OP Unitholders - basic $ 15,013 $ 14,596

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Distributions attributable to preferred and senior common stock (3,062) (3,034)

Series D preferred stock offering costs write off — — (2,141) —

Loss on extinguishment of Series F preferred stock (5) —

Net income (loss) available (attributable) to common stockholders and Non-controlling OP Unitholders $ 324 $ (2,996)

Real estate depreciation and amortization $ 14,689 $ 16,710

Impairment charge — 1,184 — 2,905

Income impact of assumed conversion of senior common stock 116 187

Loss on sale of real estate, net — 882

Gain on sale of real estate, net — (1,196) — (1,184)

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions $ 15,129 $ 14,783

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Diluted FFO per weighted average share of common stock and Non-controlling OP Unit $ 0.39 $ 0.40

Calculation of diluted FFO per share of common stock and Non-controlling OP Unit, as adjusted for comparability

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions $ 16,390 $ 13,859 $ 42,488 $ 41,730

Series D preferred stock offering costs write off — — 2,141 —

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions, as adjusted for comparability $ 16,390 $ 13,859 $ 44,629 $ 41,730

Weighted average common shares and Non-controlling OP Units outstanding - diluted 37,558,558 35,219,610 37,166,404 35,027,872

Diluted FFO per weighted average share of common stock and Non-controlling OP Unit, as adjusted for comparability $ 0.44 $ 0.39 $ 1.20 $ 1.19

Distributions declared per share of common stock and Non-controlling OP Unit $ 0.37620 $ 0.37545

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