What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-01 compared with 2022-05-04 · 226 added, 127 removed, 303 unchanged (54% 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 May 4, 2022:

As of August 1, 2022:

• we owned 135 properties totaling 16.9 million square feet of rentable space, located in 27 states;

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Business Environment

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, 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.

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

Generally, year to date 2022 has seen the lifting of certain restrictive measures that were implemented during 2020 and 2021.

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

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 more significantly by continuing inflationary conditions, rising interest rates and the impact of ongoing or escalated geopolitical tensions and conflict.

The demand for industrial space has remained strong due to the continuing growth of e-commerce and reshoring of manufacturing operations, but appears to be only partially counterbalancing the adverse effects of COVID-19 on the commercial real estate industry.

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

Industrial absorption increased on a nominal basis in 2021, compared to 2020, according to research reports, and continues to be strong through the first quarter of 2022, averaging approximately 130 million square feet of absorption each quarter.

Construction activity for the industrial sector remains strong, as year-end 2021 estimates have approximately 500 million square feet 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 previous four quarters.

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 in part by the COVID-19 pandemic and geopolitical conditions, although the actual timeline, impact and duration are unknown.

Interest rates remain volatile in response to competing concerns about inflationary pressures and the spread and effect of COVID-19 variants, coupled with the threat of a near-term recession.

The yield on the 10-year US Treasury Note has increased significantly during the first half of 2022 to approximately 3%, which adversely affects interest rates on long-term financing.

After completing the 12th year of the current cycle, some national research firms are 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 24 months caused in part by inflation, the ongoing 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 ongoing impact of COVID-19 on business and economic activity.

From a more macro-economic perspective, there continue to be significant uncertainties associated with the current economic environment and increasing probability of near-term recession.

Impact of COVID-19 on Our Business

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

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

As of August 1, 2022, we have collected 100% of all outstanding rent collections for calendar year 2021 and the first half of 2022.

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

There are no outstanding COVID-19 related rent modifications in place.

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.

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

Currently, we have 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.

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

Our available vacant space at June 30, 2022 represents 2.7% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $4.2 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.

We believe our lease expiration schedule for the remainder of 2 022 is quite manageable, as it equates to only 4.3% of our lease revenue at June 30, 2022 .

Property acquisitions since the beginning of 2019 have totaled nearly $410.0 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 10.5 years.

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Acquisition Activity

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):

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

During the six months ended June 30, 2022, we acquired seven industrial properties located in Wilkesboro, North Carolina, Oklahoma City, Oklahoma, Cleveland, Ohio, Fort Payne, Alabama, and Wilmington, North Carolina, which are summarized below (dollars in thousands):

742,303 11.7 years $ 51,919 $ 519 $ 3,379 $ 20,000

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

During and subsequent to the six months ended June 30, 2022, we executed six 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

292,710 10.1 years $ 3,187 $ 3,823 $ 1,107

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

On July 22, 2022, we executed a lease for 41,225 square feet of vacant space in our Austin, Texas property for 5.7 years.

During the six months ended June 30, 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 June 30, 2022

155,984 $ 2,138 $ 891

Financing Activity

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%.

During the six months ended June 30, 2022, we repaid one mortgage, collateralized by four properties, which is detailed in the table below (dollars in thousands):

Fixed Rate Debt Repaid Interest Rate on Fixed Rate Debt Repaid

$ 14,812 6.10 %

On July 5, 2022, we repaid $3.6 million in fixed rate mortgage debt, collateralized by one property, at an interest rate of 5.05%.

On August 1, 2022, we repaid $6.6 million in fixed rate mortgage debt, collateralized by one property, at an interest rate of 4.53%.

During the six months ended June 30, 2022, we issued three mortgages, collateralized by seven properties, which is summarized in the table below (dollars in thousands):

Aggregate Fixed Rate Debt Issued Weighted Average Interest Rate on Fixed Rate Debt

$ 20,000 (1) 3.70 %

(1) We issued $10.0 million of fixed rate debt in connection with the two-property portfolio acquired on May 4, 2022 with a maturity date of May 4, 2027.

The interest rate is fixed at 4.0%.

We issued $10.0 million of fixed rate debt in connection with the three-property acquisition on May 12, 2022 with a maturity date of June 1, 2032.

The interest rate is fixed at 3.4%.

Variable Rate Debt Issued Interest Rate on Variable Rate Debt

$ 15,000 (1) SOFR + 2.50%

(1) We issued $15.0 million of variable rate debt in connection with refinancing mortgage debt at two properties with a new maturity date of April 27, 2024 and interest rate of SOFR plus 2.50%.

During the six months ended June 30, 2022, we extended the maturity date of two mortgages, collateralized by four properties, which is summarized in the table below (dollars in thousands):

Fixed Rate Debt Extended Interest Rate on Fixed Rate Debt Extended Extension Term

$ 3,585 5.13 % 1.0 year

Variable Rate Debt Extended Interest Rate on Variable Rate Debt Extended Extension Term

$ 7,059 LIBOR + 2.75% 1.0 year

On July 27, 2022, we extended the maturity date of $11.0 million in fixed rate mortgage debt, collateralized by one property, for 1.0 year at an interest rate of 5.50%.

Equity Activities

Common Stock ATM Program

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”), 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.

During the six months ended June 30, 2022, we sold 1.5 million shares of common stock, raising $31.7 million in net proceeds under our At-the-Market Equity Offering Sales Agreements (the “Common Stock Sales Agreement”) with sales agents Robert W.

Incorporated, Goldman Sachs & Co.

LLC, Stifel, Nicolaus & Company, Incorporated, BTIG, LLC, and Fifth Third Securities, Inc.

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”), 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).

As of June 30, 2022, we had remaining capacity to sell up to $35.5 million of common stock pursuant to the Common Stock ATM Program under the 2020 Universal Shelf (as defined below).

Universal Shelf Registration Statements

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

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 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, 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.

The 2020 Universal Shelf was declared effective on February 11, 2020.

The 2020 Universal Shelf allows us to issue up to $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”) and $63.0 million is reserved for our Common Stock ATM Program.

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

As of June 30, 2022, we had the ability to issue up to $658.7 million of securities under the 2020 Universal Shelf.

Series F Preferred Stock

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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 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.

We sold 126,028 shares of our Series F Preferred Stock, raising $2.9 million in net proceeds during the three and six months ended June 30, 2022.

As of June 30, 2022, we had remaining capacity to sell up to $622.6 million of Series F Preferred Stock.

Non-controlling Interest in Operating Partnership

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.

As of June 30, 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 six months ended June 30, 2021, we redeemed 246,039 OP Units for an equivalent amount of common stock.

As of June 30, 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 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

For the six months ended June 30, 2022, our largest tenant comprised only 4.3% of total lease revenue.

The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three and six months ended June 30, 2022 and 2021 (dollars in thousands):

For the three months ended June 30, For the six months ended June 30,

2022 2021 2022 2021

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

Telecommunications $ 5,747 15.8 % $ 5,580 16.7 % $ 11,356 15.8 % $ 11,165 16.3 %

Healthcare 4,075 11.2 3,686 11.0 9,275 12.9 5,453 8.0

Automotive 4,640 12.7 2,732 8.2 9,089 12.6 9,513 14.0

Diversified/Conglomerate Services 4,551 12.5 4,822 14.5 8,059 11.2 7,933 11.7

Healthcare 3,984 11.2 4,248 12.3

Buildings and Real Estate 2,315 6.4 2,289 6.9 5,419 7.5 3,882 5.7

Diversified/Conglomerate Manufacturing 2,795 7.7 1,883 5.6 5,218 7.3 5,117 7.5

Banking 2,610 7.2 2,576 7.7 4,657 6.5 4,634 6.8

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

Personal, Food & Miscellaneous Services 1,550 4.3 1,538 4.7 3,097 4.3 4,014 5.9

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

Chemicals, Plastics & Rubber 1,206 3.3 1,204 3.6 2,787 3.9 2,953 4.3

Information Technology 1,109 3.0 1,685 5.0 2,411 3.4 2,292 3.4

Beverage, Food & Tobacco 1,407 3.9 1,477 4.4 2,155 3.0 3,337 4.9

Personal & Non-Durable Consumer Products 1,104 3.0 617 1.8 1,963 2.7 1,235 1.8

Machinery 975 2.7 1,033 3.1 1,948 2.7 2,022 3.0

Containers, Packaging & Glass 1,009 2.8 617 1.8 1,879 2.6 1,210 1.8

Personal & Non-Durable Consumer Products 859 2.4 617 1.8

Childcare 573 1.6 572 1.7 1,145 1.6 1,146 1.7

Printing & Publishing 229 0.6 519 1.6 459 0.6 868 1.3

Education 204 0.6 201 0.6

Electronics 179 0.5 219 0.7 406 0.6 402 0.6

Education 202 0.6 201 0.6 361 0.5 630 0.9

Home & Office Furnishings 123 0.2 121 0.4 246 0.3 241 0.4

Total $ 36,399 100.0 % $ 33,371 100.0 % $ 71,930 100.0 % $ 68,047 100.0 %

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

The tables below reflect the breakdown of total lease revenue by state for the three and six months ended June 30, 2022 and 2021 (dollars in thousands):

State Lease Revenue for the three months ended June 30, 2022 Percentage of Lease Revenue Number of Leases for the three months ended June 30, 2022 Lease Revenue for the three months ended June 30, 2021 Percentage of Lease Revenue Number of Leases for the three months ended June 30, 2021

Texas $ 5,359 14.7 % 14 $ 3,302 9.9 % 14

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North Carolina 2,146 5.9 10 1,629 4.9 7

Michigan 1,609 4.5 6 1,573 4.5 6

Alabama 1,763 4.8 6 1,692 5.1 5

Michigan 1,608 4.4 6 1,585 4.7 6

South Carolina 1,418 3.9 2 1,551 4.6 2

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Total $ 36,399 100.0 % 136 $ 33,371 100.0 % 128

State Lease Revenue for the six months ended June 30, 2022 % of Lease Revenue Number of Leases for the six months ended June 30, 2022 Lease Revenue for the six months ended June 30, 2021 % of Lease Revenue Number of Leases for the six months ended June 30, 2021

Texas $ 10,524 14.6 % 14 $ 7,431 10.9 % 14

Florida 8,467 11.8 9 8,418 12.4 10

Pennsylvania 7,437 10.3 10 7,602 11.2 10

Ohio 7,137 9.9 16 7,615 11.2 15

Georgia 5,853 8.1 10 5,408 7.9 9

North Carolina 4,033 5.6 10 3,482 5.1 7

Alabama 3,319 4.6 6 3,277 4.8 5

Michigan 3,215 4.5 6 3,158 4.6 6

South Carolina 2,811 3.9 2 2,754 4.0 2

Utah 2,648 3.8 3 3,827 5.6 4

All Other States 16,486 22.9 50 15,075 22.3 46

$ 71,930 100.0 % 136 $ 68,047 100.0 % 128

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 co-president, also serves as executive vice president of commercial and industrial real estate of our Adviser.

Arthur “Buzz” Cooper, our current sole president (as Mr.

Bob Cutlip, our previous other co-president with Mr.

Cooper, retired on June 30, 2022), 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 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.

Jay Beckhorn, our treasurer, and Mr.

Cooper, 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.

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.

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.

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Core FFO (as defined in the Advisory Agreement) is GAAP net income (loss) available to common stockholders, excluding the incentive fee, depreciation and amortization, any realized and unrealized gains, losses or other non-cash items recorded in net income (loss) available to common stockholders for the period, and one-time events pursuant to changes in GAAP.

The Incentive Fee is used by the Adviser primarily for performance-based compensation related to certain of its employees.

Capital Gain Fee

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

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

No capital gain fee was recognized during the three and six months ended June 30, 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 three months ended March 31, 2022.

There were no material changes to our critical accounting policies or estimates during the six months ended June 30, 2022.

Results of Operations

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 on our total portfolio, which was 7.6% and 8.0% as of June 30, 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 months ended March 31, 2022 and 2021 is below (dollars in thousands, except per share amounts) :

For the three months ended March 31,

A comparison of our operating results for the three and six months ended June 30, 2022 and 2021 is below (dollars in thousands, except per share amounts) :

For the three months ended June 30,

2022 2021 $ Change % Change

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General and administrative 958 1,073 (115) (10.7) %

Impairment charge 1,374 — 1,374 100.0 %

Total operating expense before incentive fee waiver $ 27,825 $ 25,003 $ 2,822 11.3 %

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

Total operating expenses $ 27,825 $ 24,987 $ 2,838 11.4 %

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Interest expense $ (7,121) $ (6,486) $ (635) 9.8 %

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

Other income 119 223 (104) (46.6) %

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Distributions attributable to Series D, E, F, and G preferred stock (2,967) (2,856) (111) 3.9 %

Series D Preferred Stock offering costs write off — (2,141) 2,141 (100.0) %

Distributions attributable to senior common stock (114) (177) 63 (35.6) %

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) %

Net income (loss) available (attributable) to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ 0.01 $ (0.08) $ 0.09 (112.5) %

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,509) $ (3,053) $ 1,544 (50.6) %

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ (0.04) $ (0.08) $ 0.04 (50.0) %

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 15,084 $ 11,138 $ 3,946 35.4 %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) $ 15,198 $ 11,315 $ 3,883 34.3 %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted, as adjusted for comparability (1) $ 15,198 $ 13,456 $ 1,742 12.9 %

FFO per weighted average share of common stock and Non-controlling OP Units - basic (1) $ 0.39 $ 0.30 $ 0.09 30.0 %

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$ 0.09 30.0 %

FFO per weighted average share of common stock and Non-controlling OP Units - diluted, as adjusted for comparability (1) $ 0.39 $ 0.36

(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 six months ended June 30,

2022 2021 $ Change % Change

Operating revenues

Lease revenue $ 71,930 $ 68,047 $ 3,883 5.7 %

Total operating revenues $ 71,930 $ 68,047 $ 3,883 5.7 %

Operating expenses

Depreciation and amortization $ 29,907 $ 30,901 $ (994) (3.2) %

Property operating expenses 13,582 13,471 111 0.8 %

Base management fee 3,124 2,896 228 7.9 %

Incentive fee 2,679 2,274 405 17.8 %

Administration fee 861 634 227 35.8 %

General and administrative 1,955 1,729 226 13.1 %

Impairment charge 1,374 — 1,374 100.0 %

Total operating expense before incentive fee waiver $ 53,482 $ 51,905 $ 1,577 3.0 %

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

Total operating expenses $ 53,482 $ 51,889 $ 1,593 3.1 %

Other (expense) income

Interest expense $ (13,706) $ (13,650) $ (56) 0.4 %

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

Other income 223 534 (311) (58.2) %

Total other expense, net $ (13,483) $ (13,998) $ 515 (3.7) %

Net income $ 4,965 $ 2,160 $ 2,805 129.9 %

Distributions attributable to Series D, E, F, and G preferred stock (5,913) (5,703) (210) 3.7 %

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

Distributions attributable to senior common stock (230) (364) 134 (36.8) %

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

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,183) $ (6,048) $ 4,865 (80.4) %

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ (0.03) $ (0.17) $ 0.14 (82.4) %

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 30,098 $ 25,735 $ 4,363 17.0 %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) $ 30,328 $ 26,099 $ 4,229 16.2 %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted, as adjusted for comparability (1) $ 30,328 $ 28,240 $ 2,088 7.4 %

FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1) $ 0.78 $ 0.71 $ 0.07 9.9 %

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1) $ 0.78 $ 0.71

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted, as adjusted for comparability (1) $ 0.78 $ 0.76 $ 0.02 2.6 %

(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 March 31,

For the three months ended June 30,

(Dollars in Thousands)

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$ 36,399 $ 33,371 $ 3,028 9.1 %

For the six months ended June 30,

(Dollars in Thousands)

Lease Revenues 2022 2021 $ Change % Change

Same Store Properties $ 57,124 $ 57,729 $ (605) (1.0) %

Acquired & Disposed Properties 6,193 2,866 3,327 116.1 %

Properties with Vacancy 8,613 7,452 1,161 15.6 %

$ 71,930 $ 68,047 $ 3,883 5.7 %

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

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.

Lease revenues from same store properties increased for the three months ended June 30, 2022, primarily due to accelerated rent recognized during the three months ended June 30, 2022 from one tenant that terminated their lease early.

Lease revenues from same store properties decreased for the six months ended June 30, 2022, primarily due to accelerated rent recognized during the six months ended June 30, 2021 from two tenants that terminated their leases early, partially offset by increased rent from lease amendments executed subsequent to June 30, 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.

Lease revenues increased for acquired and disposed of properties for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, because we acquired 16 properties subsequent to June 30, 2021.

This increase was partially offset by a loss of lease revenues from one property we sold subsequent to June 30, 2021.

Lease revenues increased for our properties with vacancy for the three and six months ended June 30, 2022 due to vacant space being leased.

Operating Expenses

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,

Depreciation and amortization expense increased for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, due to an increase in depreciation and amortization expense on the 16 properties acquired subsequent to June 30, 2021.

Depreciation and amortization expense decreased for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to accelerated depreciation and amortization related to two tenants with early lease terminations during the six months ended June 30, 2021, partially offset by an increase in depreciation and amortization expense on the 16 properties we acquired subsequent to June 30, 2021.

For the three months ended June 30,

(Dollars in Thousands)

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$ 6,959 $ 6,910 $ 49 0.7 %

For the six months ended June 30,

(Dollars in Thousands)

Property Operating Expenses 2022 2021 $ Change % Change

Same Store Properties $ 8,622 $ 8,482 $ 140 1.7 %

Acquired & Disposed Properties 629 560 69 12.3 %

Properties with Vacancy 4,331 4,429 (98) (2.2) %

$ 13,582 $ 13,471 $ 111 0.8 %

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

The increase in property operating expenses for same store properties for the three months ended March 31, 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 decrease in property operating expenses for same store properties for the three months ended June 30, 2022, from the comparable 2021 period, is a result of reduced real estate tax expense during the period, partially offset by general cost increases due to the inflationary environment during the three months ended June 30, 2022.

The increase in property operating expenses for same store properties for the six months ended June 30, 2022, from the comparable 2021 period, is a result of general cost increases due to the inflationary environment during the six months ended June 30, 2022.

The increase in property operating expenses for acquired and disposed of properties for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, is primarily a result of our 16 property acquisitions subsequent to June 30, 2021, partially offset by the sale of one property subsequent to June 30, 2021.

The decrease in property operating expenses for properties with vacancy for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, is a result of reduced real estate tax expense during the period, partially offset by general cost increases due to the inflationary environment during the three and six months ended June 30, 2022.

The base management fee paid to the Adviser increased for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, due to an increase in Gross Tangible Real Estate over the three and six months ended June 30, 2022 as compared to the increase in Gross Tangible Real Estate during the three and six months ended June 30, 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 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 incentive fee paid to the Adviser increased for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, due to a higher pre-incentive fee Core FFO.

The increase in Core FFO is a result of an increase in operating revenues.

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

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

The administration fee paid to the Administrator increased for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 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 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.

General and administrative expenses decreased for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily as a result of a decrease in legal costs.

General and administrative expenses increased for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily as a result of an increase in accounting fees and shareholder related expenses, partially offset by a decrease in legal costs.

Other Income and Expenses

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 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.

Interest expense increased for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021.

This increase was primarily a result of increased interest costs on variable rate debt, as global interest rates have increased to counteract growing inflation.

We did not sell any properties during the six months ended June 30, 2022, and as a result, incurred no gain or loss.

Loss on sale of real estate, net, for the three and six months ended June 30, 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 and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, primarily due to a cancelled sale fee we earned during the three and six months ended June 30, 2021.

Net Loss Attributable to Common Stockholders and Non-controlling OP Unitholders

Net loss attributable to common stockholders and Non-controlling OP Unitholders decreased for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, primarily due to the increase in operating revenues due to asset acquisition activity during and subsequent to June 30, 2021, partially offset by an increase in interest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion.

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 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.

Our available liquidity as of June 30, 2022, was $29.1 million, consisting of approximately $10.7 million in cash and cash equivalents and available borrowing capacity of $18.4 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility increased to $34.6 million as of August 1, 2022.

Future Capital Needs

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Equity Capital

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.

During the six months ended June 30, 2022, we raised net proceeds of $31.7 million of common equity under our Common Stock ATM Program at a net weighted average per share price of $20.84.

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 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 did not sell any of our Series E Preferred Stock under our Series E Preferred Stock Sales Agreement during the six months ended June 30, 2022.

We raised net proceeds of $2.9 million from sales of our Series F Preferred Stock during the six months ended June 30, 2022.

As of August 1, 2022, we had the ability to raise up to $650.7 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 $650.7 million of available capacity under our 2020 Universal Shelf, approximately $28.0 million is reserved for additional sales under our Common Stock ATM Program, and approximately $622.2 million is res erved for the sale of our Series F Preferred Stock as of August 1, 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%.

As of June 30, 2022, we had 54 mortgage notes payable in the aggregate principal amount of $465.8 million, collateralized by a total of 70 properties with a remaining weighted average maturity of 3.7 years.

The weighted-average interest rate on the mortgage notes payable as of June 30, 2022 was 4.18%.

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 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.

As of June 30, 2022, we had mortgage debt in the aggregate principal amount of $72.9 million payable during the remainder of 2022 and $83.6 million payable during 2023.

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

Net cash provided by operating activities during the six months ended June 30, 2022, was $34.6 million, as compared to net cash provided by operating activities of $34.4 million for the six months ended June 30, 2021.

This change was primarily a result of an increase in operating revenues from our 16 property acquisitions completed subsequent to June 30, 2021, partially offset by an increase in interest expense due to higher interest rates on variable rate debt.

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

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Investing Activities

Net cash used in investing activities during the three months ended March 31, 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.

Net cash used in investing activities during the six months ended June 30, 2022, was $57.8 million, which primarily consisted of seven property acquisitions, coupled with capital improvements performed at certain of our properties.

Net cash used in investing activities during the six months ended June 30, 2021, was $17.1 million, which primarily consisted of two property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of two properties.

Financing Activities

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.

Net cash provided in financing activities during the six months ended June 30, 2022, was $25.3 million, which primarily consisted of the issuance of $35.3 million of common and preferred equity, partially offset by the repayment of $22.0 million of outstanding mortgage debt, and distributions paid to common, senior common and preferred shareholders.

Net cash used in financing activities for the six months ended June 30, 2021, was $14.1 million, which primarily consisted of $10.9 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 $120.8 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 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.

As of June 30, 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 June 30, 2022, there was $272.0 million outstanding under our Credit Facility at a weighted average interest rate of approximately 3.68% and $19.5 million outstanding under letters of credit at a weighted average interest rate of 1.90%.

As of August 1, 2022, the maximum additional amount we could draw under the Credit Facility was $34.6 million.

We were in compliance with all covenants under the Credit Facility as of June 30, 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 March 31, 2022 (in thousands):

The following table reflects our material contractual obligations as of June 30, 2022 (in thousands):

Payments Due by Period

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$ 839,176 $ 186,487 $ 337,990 $ 179,253 $ 135,446

(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.

(1) Debt obligations represent borrowings under our Revolver, which represents $47.0 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 June 30, 2022.

This figure does not include $(0.1) million of premiums and (discounts), net and $3.7 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.

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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 March 31, 2022.

thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of June 30, 2022.

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

1 unchanged sentence

Off-Balance Sheet Arrangements

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

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

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)

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 six months ended June 30, 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 June 30, For the six months ended June 30,

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

2022 2021 2022 2021

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 (3,081) (3,033) (6,143) (6,067)

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

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

1 unchanged sentence

Real estate depreciation and amortization $ 15,219 $ 14,191 $ 29,907 $ 30,901

Impairment charge 1,374 — 1,374 —

Loss on sale of real estate, net — — — 882

7 unchanged sentences

Distributions attributable to preferred and senior common stock (3,081) (3,033) (6,143) (6,067)

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

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

1 unchanged sentence

Real estate depreciation and amortization $ 15,219 $ 14,191 $ 29,907 $ 30,901

Impairment charge 1,374 — 1,374 —

Income impact of assumed conversion of senior common stock 114 177 230 364

6 unchanged sentences

Diluted FFO per weighted average share of common stock and Non-controlling OP Unit $ 0.39 $ 0.30 $ 0.78 $ 0.71

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 $ 15,198 $ 11,315 $ 30,328 $ 26,099

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

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions, as adjusted for comparability $ 15,198 $ 13,456 $ 30,328 $ 28,240

Weighted average common shares and Non-controlling OP Units outstanding - diluted 39,365,991 37,209,799 38,946,771 36,992,330

Diluted FFO per weighted average share of common stock and Non-controlling OP Unit, as adjusted for comparability $ 0.39 $ 0.36 $ 0.78 $ 0.76

Distributions declared per share of common stock and Non-controlling OP Unit $ 0.37620 $ 0.37545 $ 0.75240 $ 0.75090

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