GLADSTONE COMMERCIAL CORP 10-Q

Item 1. Financial Statements Gladstone Commercial Corporation Condensed Consolidated Balance Sheets (Dollars in Thousands, Except Share and Per Share Data) (Unaudited) September 30, 2022 December 31, 2021 ASSETS Real estate, at cost $ 1,279,455 $ 1,225,258 Less: accumulated depreciation 284,802 266,672 Total real estate, net 994,653 958,586 Lease intangibles, net 112,993 114,494 Real estate and related assets held for sale 11,434 — Cash and cash equivalents 13,540 7,956 Restricted cash 4,146 5,222 Funds held in escrow 9,464 7,304 Right-of-use assets from operating leases 5,189 5,361 Deferred rent receivable, net 38,935 39,066 Other assets 19,314 5,363 TOTAL ASSETS $ 1,209,668 $ 1,143,352 LIABILITIES, MEZZANINE EQUITY AND EQUITY LIABILITIES Mortgage notes payable, net (1) $ 367,618 $ 449,944 Borrowings under Revolver 7,750 33,550 Borrowings under Term Loan A, Term Loan B and Term Loan C, net 366,395 224,032 Deferred rent liability, net 40,701 26,770 Operating lease liabilities 5,360 5,509 Asset retirement obligation 4,501 3,769 Accounts payable and accrued expenses 10,904 6,736 Liabilities related to assets held for sale 16 — Due to Adviser and Administrator (1) 3,704 3,431 Other liabilities 15,072 16,788 TOTAL LIABILITIES $ 822,021 $ 770,529 Commitments and contingencies (2) MEZZANINE EQUITY Series E and G redeemable preferred stock, net, par value $ 0.001 per share; $ 25 per share liquidation preference; 10,760,000 shares authorized; and 7,061,448 and 7,061,448 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3) $ 170,261 $ 170,261 TOTAL MEZZANINE EQUITY $ 170,261 $ 170,261 EQUITY Senior common stock, par value $ 0.001 per share; 950,000 shares authorized; and 431,064 and 600,061 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3) $ 1 $ 1 Common stock, par value $ 0.001 per share, 62,292,200 and 62,290,000 shares authorized; and 39,607,009 and 37,473,587 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3) 39 37 Series F redeemable preferred stock, par value $ 0.001 per share; $ 25 per share liquidation preference; 25,997,800 and 26,000,000 shares authorized and 597,616 and 422,920 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3) 1 — Additional paid in capital 717,098 671,134 Accumulated other comprehensive income 12,366 ( 1,346 ) Distributions in excess of accumulated earnings ( 514,057 ) ( 468,523 ) TOTAL STOCKHOLDERS' EQUITY $ 215,448 $ 201,303 OP Units held by Non-controlling OP Unitholders (3) 1,938 1,259 TOTAL EQUITY $ 217,386 $ 202,562 TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY $ 1,209,668 $ 1,143,352 (1) Refer to Note 2 “Related-Party Transactions” (2) Refer to Note 7 “Commitments and Contingencies” (3) Refer to Note 8 “Equity and Mezzanine Equity” The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Gladstone Commercial Corporation Condensed Consolidated Statements of Operations and Comprehensive Income (Dollars in Thousands, Except Share and Per Share Data) (Unaudited) For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Operating revenues Lease revenue $ 39,834 $ 34,334 $ 111,764 $ 102,381 Total operating revenues $ 39,834 $ 34,334 $ 111,764 $ 102,381 Operating expenses Depreciation and amortization $ 15,764 $ 14,760 $ 45,672 $ 45,661 Property operating expenses 6,536 6,807 20,118 20,278 Base management fee (1) 1,603 1,472 4,727 4,369 Incentive fee (1) 1,513 1,266 4,193 3,540 Administration fee (1) 481 382 1,342 1,016 General and administrative 833 811 2,788 2,540 Impairment charge 10,718 — 12,092 — Total operating expense before incentive fee waiver $ 37,448 $ 25,498 $ 90,932 $ 77,404 Incentive fee waiver (1) — — — ( 16 ) Total operating expenses $ 37,448 $ 25,498 $ 90,932 $ 77,388 Other income (expense) Interest expense $ ( 9,107 ) $ ( 6,688 ) $ ( 22,813 ) $ ( 20,338 ) Gain (loss) on sale of real estate, net 8,902 — 8,902 ( 882 ) Other income 316 2,350 538 2,884 Total other income (expense), net $ 111 $ ( 4,338 ) $ ( 13,373 ) $ ( 18,336 ) Net income $ 2,497 $ 4,498 $ 7,459 $ 6,657 Net loss (income) attributable (available) to OP Units held by Non-controlling OP Unitholders 4 ( 21 ) 12 42 Net income attributable to the Company $ 2,501 $ 4,477 $ 7,471 $ 6,699 Distributions attributable to Series D, E, F, and G preferred stock ( 2,987 ) ( 2,868 ) ( 8,900 ) ( 8,571 ) Series D preferred stock offering costs write off — — — ( 2,141 ) Distributions attributable to senior common stock ( 114 ) ( 170 ) ( 344 ) ( 534 ) Loss on extinguishment of Series F preferred stock — — ( 5 ) — Net (loss) income (attributable) available to common stockholders $ ( 600 ) $ 1,439 $ ( 1,778 ) $ ( 4,547 ) (Loss) income per weighted average share of common stock - basic & diluted (Loss) income (attributable) available to common shareholders $ ( 0.02 ) $ 0.04 $ ( 0.05 ) $ ( 0.13 ) Weighted average shares of common stock outstanding Basic and Diluted 39,504,734 36,768,779 38,723,581 36,296,414 Earnings per weighted average share of senior common stock $ 0.26 $ 0.26 $ 0.78 $ 0.78 Weighted average shares of senior common stock outstanding - basic 431,064 642,742 438,556 680,878 Comprehensive income Change in unrealized gain related to interest rate hedging instruments, net $ 6,790 $ 421 $ 13,660 $ 2,125 Other Comprehensive gain 6,790 421 13,660 2,125 Net income $ 2,497 $ 4,498 $ 7,459 $ 6,657 Comprehensive income $ 9,287 $ 4,919 $ 21,119 $ 8,782 Comprehensive loss (income) attributable (available) to OP Units held by Non-controlling OP Unitholders 4 ( 21 ) 12 42 Total comprehensive income available to the Company $ 9,291 $ 4,898 $ 21,131 $ 8,824 (1) Refer to Note 2 “Related-Party Transactions” The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Gladstone Commercial Corporation Condensed Consolidated Statements of Cash Flows (Dollars in Thousands) (Unaudited) For the nine months ended September 30, 2022 2021 Cash flows from operating activities: Net income $ 7,459 $ 6,657 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45,672 45,661 Impairment charge 12,092 — (Gain) loss on sale of real estate, net ( 8,902 ) 882 Amortization of deferred financing costs 3,066 1,175 Amortization of deferred rent asset and liability, net ( 2,483 ) ( 2,702 ) Amortization of discount and premium on assumed debt, net 36 40 Asset retirement obligation expense 68 78 Amortization of right-of-use asset from operating leases and operating lease liabilities, net 23 34 Operating changes in assets and liabilities (Increase) decrease in other assets ( 1,476 ) 114 Decrease in deferred rent receivable ( 1,192 ) ( 1,907 ) Increase in accounts payable and accrued expenses 3,388 4,071 Increase in amount due to Adviser and Administrator 273 228 Increase in other liabilities 598 1,016 Tenant inducement payments — ( 20 ) Leasing commissions paid ( 1,724 ) ( 1,634 ) Net cash provided by operating activities $ 56,898 $ 53,693 Cash flows from investing activities: Acquisition of real estate and related intangible assets $ ( 95,882 ) $ ( 45,879 ) Improvements of existing real estate ( 2,490 ) ( 4,752 ) Proceeds from sale of real estate 26,847 5,106 Receipts from lenders for funds held in escrow 3,529 1,948 Payments to lenders for funds held in escrow ( 5,689 ) ( 1,691 ) Receipts from tenants for reserves 1,513 3,035 Payments to tenants from reserves ( 3,106 ) ( 3,223 ) Deposits on future acquisitions ( 258 ) ( 500 ) Net cash used in investing activities $ ( 75,536 ) $ ( 45,956 ) Cash flows from financing activities: Proceeds from issuance of equity $ 45,232 $ 129,992 Offering costs paid ( 895 ) ( 4,304 ) Redemption of Series F preferred stock ( 55 ) — Redemption of Series D perpetual preferred stock — ( 87,739 ) Borrowings under mortgage notes payable 56,313 5,500 Payments for deferred financing costs ( 5,202 ) ( 614 ) Principal repayments on mortgage notes payable ( 138,889 ) ( 14,336 ) Borrowings from revolving credit facility 87,250 19,100 Repayments on revolving credit facility ( 113,050 ) ( 70,900 ) Borrowings on term loan 150,000 65,000 Repayments on term loan ( 5,000 ) — Increase (decrease) in security deposits 464 83 Distributions paid for common, senior common, preferred stock and Non-controlling OP Unitholders ( 53,022 ) ( 50,393 ) Net cash provided by (used in) financing activities $ 23,146 $ ( 8,611 ) Net increase in cash, cash equivalents, and restricted cash $ 4,508 $ ( 874 ) Cash, cash equivalents, and restricted cash at beginning of period $ 13,178 $ 16,076 Cash, cash equivalents, and restricted cash at end of period $ 17,686 $ 15,202 6 Table of Contents SUPPLEMENTAL AND NON-CASH INFORMATION Tenant funded fixed asset improvements included in deferred rent liability, net $ 16,668 $ 4,905 Acquisition of real estate and related intangible assets $ — $ 300 Unrealized gain related to interest rate hedging instruments, net $ 13,660 $ 2,125 Capital improvements and leasing commissions included in accounts payable and accrued expenses $ 1,142 $ 539 Increase in asset retirement obligation assumed in acquisition $ 718 $ — Non-controlling OP Units issued in connection with acquisition $ 2,393 $ — Series D Preferred Stock offering cost write off $ — $ 2,141 Dividends paid on Series F Preferred Stock via additional share issuances $ 284 $ — The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (dollars in thousands): For the nine months ended September 30, 2022 2021 Cash and cash equivalents $ 13,540 $ 10,230 Restricted cash 4,146 4,972 Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows $ 17,686 $ 15,202 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents Gladstone Commercial Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization, Basis of Presentation and Significant Accounting Policies Gladstone Commercial Corporation is a real estate investment trust (“REIT”) that was incorporated under the General Corporation Law of the State of Maryland on February 14, 2003. We focus on acquiring, owning and managing primarily office and industrial properties. Subject to certain restrictions and limitations, our business is managed by Gladstone Management Corporation, a Delaware corporation (the “Adviser”), and administrative services are provided by Gladstone Administration, LLC, a Delaware limited liability company (the “Administrator”), each pursuant to a contractual arrangement with us. Our Adviser and Administrator collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Gladstone Commercial Corporation conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership (the “Operating Partnership”). All references herein to “we,” “our,” “us” and the “Company” mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where it is made clear that the term means only Gladstone Commercial Corporation. Interim Financial Information Our interim financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data presented herein was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period, have been included. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2022. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events such as the coronavirus (“COVID-19”) pandemic, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Significant Accounting Policies The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates. A summary of all of our significant accounting policies is provided in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes to our critical accounting policies during the three and nine months ended September 30, 2022. 8 Table of Contents 2. Related-Party Transactions Gladstone Management and Gladstone Administration We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. Two of our executive officers, Mr. Gladstone and Mr. Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Our president, Mr. Arthur “Buzz” Cooper, is also executive vice president of commercial and industrial real estate of our Adviser. Mr. Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president, general counsel and secretary, as well as executive vice president of administration of our Adviser. We have entered into an advisory agreement with our Adviser, as amended from time to time (the “Advisory Agreement”), and an administration agreement with our Administrator (the “Administration Agreement”). The services and fees under the Advisory Agreement and Administration Agreement are described below. As of September 30, 2022 and December 31, 2021, $ 3.7 million and $ 3.4 million, respectively, were collectively due to our Adviser and Administrator. Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreements with our Adviser and Administrator each July. During their July 2022 meeting, our Board of Directors reviewed and renewed each of the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2023. Base Management Fee On July 14, 2020, we amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between us and the Adviser (the “Sixth Amended Advisory Agreement”), which replaced the previous calculation of the base management fee with a calculation based on Gross Tangible Real Estate. The revised base management fee is payable quarterly in arrears and calculated at an annual rate of 0.425 % ( 0.10625 % per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Sixth Amended Advisory Agreement as the current gross value of our property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Advisory Agreement remains unchanged. For the three and nine months ended September 30, 2022, we recorded a base management fee of $ 1.6 million and $ 4.7 million, respectively. For the three and nine months ended September 30, 2021, we recorded a base management fee of $ 1.5 million and $ 4.4 million, respectively. Incentive Fee Pursuant to the Advisory Agreement, the calculation of the incentive fee rewards the Adviser in circumstances where our quarterly Core FFO (defined at the end of this paragraph), before giving effect to any incentive fee, or pre-incentive fee Core FFO, exceeds 2.0 % quarterly, or 8.0 % annualized, of adjusted total stockholders’ equity (after giving effect to the base management fee but before giving effect to the incentive fee). We refer to this as the hurdle rate. The Adviser will receive 15.0 % of the amount of our pre-incentive fee Core FFO that exceeds the hurdle rate. However, in no event shall the incentive fee for a particular quarter exceed by 15.0 % (the cap) the average quarterly incentive fee paid by us for the previous four quarters (excluding quarters for which no incentive fee was paid). Core FFO (as defined in the Advisory Agreement) is GAAP net (loss) income (attributable) 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 (loss) income (attributable) 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. For the three and nine months ended September 30, 2022, we recorded an incentive fee of $ 1.5 million and $ 4.2 million, respectively. For the three and nine months ended September 30, 2021, we recorded an incentive fee of $ 1.3 million and $ 3.5 million, respectively, partially offset by credits related to non-contractual, unconditional, and irrevocable waivers issued by the Advisor of $ 0 and $ 0.02 million, respectively. The Adviser did no t waive any portion of the incentive fee for the three and nine months ended September 30, 2022. Capital Gain Fee Under the Advisory Agreement, we will pay to the Adviser a capital gain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. 9 Table of Contents For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property (equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements) of the disposed property. 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, 2022 or 2021. Termination Fee The Advisory Agreement includes a termination fee clause whereby, in the event of our termination of the agreement without cause (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24 -month period prior to such termination. A termination fee is also payable if the Adviser terminates the Advisory Agreement after we have defaulted and applicable cure periods have expired. The Advisory Agreement may also be terminated for cause by us (with 30 days’ prior written notice and the vote of at least two-thirds of our independent directors), with no termination fee payable. Cause is defined in the agreement to include if the Adviser breaches any material provisions thereof, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds. Administration Agreement Under the terms of the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under contractual agreements. We believe that the methodology of allocating the Administrator’s total expenses by approximate percentage of time services were performed among all companies serviced by our Administrator more closely approximates fees paid to actual services performed. For the three and nine months ended September 30, 2022, we recorded an administration fee of $ 0.5 million and $ 1.3 million, respectively. For the three and nine months ended September 30, 2021, we recorded an administration fee of $ 0.4 million and $ 1.0 million, respectively. Gladstone Securities Gladstone Securities, LLC (“Gladstone Securities”), is a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities. Mortgage Financing Arrangement Agreement We entered into an agreement with Gladstone Securities, effective June 18, 2013, for it to act as our non-exclusive agent to assist us with arranging mortgage financing for properties we own. In connection with this engagement, Gladstone Securities will, from time to time, continue to solicit the interest of various commercial real estate lenders or recommend to us third party lenders offering credit products or packages that are responsive to our needs. We pay Gladstone Securities a financing fee in connection with the services it provides to us for securing mortgage financing on any of our properties. The amount of these financing fees, which are payable upon closing of the financing, are based on a percentage of the amount of the mortgage, generally ranging from 0.15 % to a maximum of 1.00 % of the mortgage obtained. The amount of the financing fees may be reduced or eliminated, as determined by us and Gladstone Securities, after taking into consideration various factors, including, but not limited to, the involvement of any third-party brokers and market conditions. We paid financing fees to Gladstone Securities of $ 0.1 million and $ 0.3 million during the three and nine months ended September 30, 2022, respectively, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.29 % and 0.32 %, respectively, of the mortgage principal secured. We paid financing fees to Gladstone Securities of $ 14,000 during the nine months ended September 30, 2021, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.25 % of the mortgage principal secured. Our Board of Directors renewed the agreement for an additional year, through August 31, 2023, at its July 2022 meeting. 10 Table of Contents Dealer Manager Agreement On February 20, 2020 we entered into a dealer manager agreement (the “Dealer Manager Agreement”), whereby Gladstone Securities will act as the exclusive dealer manager in connection with our offering (the “Offering”) of up to (i) 20,000,000 shares of 6.00 % Series F Cumulative Redeemable Preferred Stock, par value $ 0.001 per share (the “Series F Preferred Stock”), on a “reasonable best efforts” basis (the “Primary Offering”), and (ii) 6,000,000 shares of Series F Preferred Stock pursuant to our distribution reinvestment plan (the “DRIP”) to those holders of the Series F Preferred Stock who participate in such DRIP. The Series F Preferred Stock is registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-236143), as the same may be amended and/or supplemented (the “Registration Statement”), under the Securities Act of 1933, as amended, and will be offered and sold pursuant to a prospectus supplement, dated February 20, 2020, and a base prospectus dated February 11, 2020 relating to the Registration Statement (the “Prospectus”). Under the Dealer Manager Agreement, Gladstone Securities, as dealer manager, will provide certain sales, promotional and marketing services to us in connection with the Offering, and we will pay Gladstone Securities (i) selling commissions of 6.0 % of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Selling Commissions”), and (ii) a dealer manager fee of 3.0 % of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Dealer Manager Fee”). No Selling Commissions or Dealer Manager Fee shall be paid with respect to shares sold pursuant to the DRIP. Gladstone Securities may, in its sole discretion, re-allow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $ 0.1 million and $ 0.4 million to Gladstone Securities during the three and nine months ended September 30, 2022, respectively, in connection with the Offering. We paid fees of $ 0.4 million and $ 0.5 million to Gladstone Securities during the three and nine months ended September 30, 2021, respectively, in connection with the Offering. 3. (Loss) Earnings Per Share of Common Stock The following tables set forth the computation of basic and diluted (loss) earnings per share of common stock for the three and nine months ended September 30, 2022 and 2021. The operating partnership units in the Operating Partnership (“OP Units”) held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”) (which may be redeemed for shares of common stock) have been excluded from the diluted (loss) earnings per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of (loss) earnings would also be added back to net (loss) income. Net (loss) income figures are presented net of such non-controlling interests in the (loss) earnings per share calculation. We computed basic (loss) earnings per share for the three and nine months ended September 30, 2022 and 2021 using the weighted average number of shares outstanding during the respective periods. Diluted (loss) earnings per share for the three and nine months ended September 30, 2022 and 2021 reflects additional shares of common stock related to our convertible senior common stock (the “Senior Common Stock”), if the effect of conversion would be dilutive, that would have been outstanding if such dilutive potential shares of common stock had been issued, as well as an adjustment to net (loss) income (attributable) available to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts). For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Calculation of basic (loss) earnings per share of common stock: Net (loss) income (attributable) available to common stockholders $ ( 600 ) $ 1,439 $ ( 1,778 ) $ ( 4,547 ) Denominator for basic weighted average shares of common stock (1) 39,504,734 36,768,779 38,723,581 36,296,414 Basic (loss) earnings per share of common stock $ ( 0.02 ) $ 0.04 $ ( 0.05 ) $ ( 0.13 ) Calculation of diluted (loss) earnings per share of common stock: Net (loss) income (attributable) available to common stockholders $ ( 600 ) $ 1,439 $ ( 1,778 ) $ ( 4,547 ) Net (loss) income (attributable) available to common stockholders plus assumed conversions (2) $ ( 600 ) $ 1,439 $ ( 1,778 ) $ ( 4,547 ) Denominator for basic weighted average shares of common stock (1) 39,504,734 36,768,779 38,723,581 36,296,414 Effect of convertible Senior Common Stock (2) — — — — Denominator for diluted weighted average shares of common stock (2) 39,504,734 36,768,779 38,723,581 36,296,414 Diluted (loss) earnings per share of common stock $ ( 0.02 ) $ 0.04 $ ( 0.05 ) $ ( 0.13 ) (1) The weighted average number of OP Units held by Non-controlling OP Unitholders was 273,072 and 262,412 for the three and nine months ended September 30, 2022, respectively, and 256,994 and 337,205 for the three and nine months ended September 30, 2021, respectively. 11 Table of Contents (2) We excluded convertible shares of Senior Common Stock of 363,246 and 532,785 from the calculation of diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, respectively, because they were anti-dilutive. 4. Real Estate and Intangible Assets Real Estate The following table sets forth the components of our investments in real estate as of September 30, 2022 and December 31, 2021, respectively, excluding real estate held for sale as of September 30, 2022 (dollars in thousands): September 30, 2022 December 31, 2021 Real estate: Land (1) $ 147,706 $ 149,773 Building and improvements 1,064,363 1,004,362 Tenant improvements 67,386 71,123 Accumulated depreciation ( 284,802 ) ( 266,672 ) Real estate, net $ 994,653 $ 958,586 (1) This amount includes $ 4,436 of land value subject to land lease agreements which we may purchase at our option for a nominal fee. Real estate depreciation expense on building and tenant improvements was $ 11.0 million and $ 31.1 million for the three and nine months ended September 30, 2022, respectively. Real estate depreciation expense on building and tenant improvements was $ 9.8 million and $ 30.0 million for the three and nine months ended September 30, 2021, respectively. Acquisitions We acquired 11 industrial properties during the nine months ended September 30, 2022, and eight industrial properties during the nine months ended September 30, 2021. The acquisitions are summarized below (dollars in thousands): Nine Months Ended Aggregate Square Footage Weighted Average Lease Term Aggregate Purchase Price Aggregate Capitalized Acquisition Costs September 30, 2022 (1) 1,105,006 13.8 years $ 98,276 $ 776 September 30, 2021 (2) 367,716 15.5 years $ 46,225 $ 370 (1) On February 24, 2022, we acquired an 80,000 square foot property in Wilkesboro, North Carolina for $ 7.5 million. The property is fully leased to one tenant and had 12.7 years of remaining lease term at the time we acquired the property. On March 11, 2022, we acquired a 56,000 square foot property in Oklahoma City, Oklahoma for $ 6.0 million. The property is fully leased to one tenant and had 7.0 years of remaining lease term at the time we acquired the property. On May 4, 2022, we acquired a two -property, 260,719 square foot portfolio in Cleveland, Ohio and Fort Payne, Alabama for $ 19.5 million. The properties are fully leased to one tenant and had 11.4 years of remaining lease term at the time we acquired the properties. On May 12, 2022, we acquired a three -property, 345,584 square foot portfolio in Wilmington, North Carolina for $ 18.9 million. The properties are fully leased to one tenant and had 13.1 years of remaining lease term at the time we acquired the properties. On August 5, 2022, we acquired a two -property, 246,000 square foot portfolio in Bridgeton, New Jersey and Vineland, New Jersey for $ 32.7 million. The properties are fully leased to one tenant and had 15.1 years of remaining lease term at the time we acquired the properties. On September 16, 2022, we acquired a 67,328 square foot property in Jacksonville, Florida for $ 8.1 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On September 20, 2022, we acquired a 49,375 square foot property in Fort Payne, Alabama for $ 5.6 million. The property is fully leased to one tenant and had 14.8 years of remaining lease term at the time we acquired the property. (2) On January 22, 2021, we acquired a 180,152 square foot property in Findlay, Ohio for $ 11.1 million. The property is fully leased to one tenant and had 14.2 years of remaining lease term at the time we acquired the property. On June 17, 2021, we acquired a 25,200 square foot property in Baytown, Texas for $ 8.2 million. The property is fully leased to one tenant and had 12.6 years of remaining lease term at the time we acquired the property. On July 21, 2021, we acquired an 80,604 square foot, four -property portfolio in Pacific, Missouri for $ 22.1 million. These properties are fully leased to one tenant for 17.4 years at time we acquired the portfolio. On August 20, 2021, we acquired an 81,760 square foot, two -property portfolio in Peru, Illinois for $ 4.8 million. These properties are fully leased to one tenant for 15.0 years at time we acquired the portfolio. 12 Table of Contents We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the nine months ended September 30, 2022 and 2021, respectively, as follows (dollars in thousands): Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Acquired assets and liabilities Purchase price Purchase price Land $ 5,949 $ 4,116 Building 77,903 33,113 Tenant Improvements 1,468 860 In-place Leases 4,907 3,336 Leasing Costs 5,387 3,198 Customer Relationships 2,937 1,458 Above Market Leases 328 (1) 410 (1) Below Market Leases ( 603 ) (2) ( 266 ) Total Purchase Price $ 98,276 $ 46,225 (1) This amount includes $ 9 and $ 46 of loans receivable included in Other assets on the condensed consolidated balance sheets, respectively. (2) This amount includes $ 32 of prepaid rent included in Other liabilities on the condensed consolidated balance sheets. Future Lease Payments Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the three months ending December 31, 2022 and each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of September 30, 2022 (dollars in thousands): Year Tenant Lease Payments Three Months Ending 2022 $ 30,721 2023 115,501 2024 110,495 2025 106,966 2026 99,570 2027 82,711 Thereafter 343,771 In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant directly, or reimbursed to us from the tenant; however, we would be required to pay operating expenses on the respective properties in the event the tenants fail to pay them. Lease Revenue Reconciliation The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the three and nine months ended September 30, 2022 and 2021, respectively (dollars in thousands): For the three months ended September 30, (Dollars in Thousands) Lease revenue reconciliation 2022 2021 $ Change % Change Fixed lease payments $ 35,752 $ 30,230 $ 5,522 18.3 % Variable lease payments 4,082 4,104 ( 22 ) ( 0.5 ) % $ 39,834 $ 34,334 $ 5,500 16.0 % 13 Table of Contents For the nine months ended September 30, (Dollars in Thousands) Lease revenue reconciliation 2022 2021 $ Change % Change Fixed lease payments $ 98,961 $ 90,331 $ 8,630 9.6 % Variable lease payments 12,803 12,050 753 6.2 % $ 111,764 $ 102,381 $ 9,383 9.2 % Intangible Assets The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of September 30, 2022 and December 31, 2021, respectively, excluding real estate held for sale as of September 30, 2022 (dollars in thousands): September 30, 2022 December 31, 2021 Lease Intangibles Accumulated Amortization Lease Intangibles Accumulated Amortization In-place leases $ 105,827 $ ( 63,850 ) $ 105,891 $ ( 62,604 ) Leasing costs 84,802 ( 45,430 ) 81,487 ( 43,982 ) Customer relationships 71,090 ( 39,446 ) 71,922 ( 38,220 ) $ 261,719 $ ( 148,726 ) $ 259,300 $ ( 144,806 ) Deferred Rent Receivable/(Liability) Accumulated (Amortization)/Accretion Deferred Rent Receivable/(Liability) Accumulated (Amortization)/Accretion Above market leases $ 15,371 $ ( 11,707 ) $ 15,538 $ ( 11,520 ) Below market leases and deferred revenue ( 64,907 ) 24,206 ( 48,241 ) 21,471 f Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $ 4.7 million and $ 14.5 million for the three and nine months ended September 30, 2022, respectively, and $ 5.0 million and $ 15.7 million for the three and nine months ended September 30, 2021, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income. Total amortization related to above-market lease values was $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2022, respectively, and $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2021, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $ 1.5 million and $ 3.1 million for the three and nine months ended September 30, 2022, respectively, and $ 0.9 million and $ 3.3 million for the three and nine months ended September 30, 2021, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the nine months ended September 30, 2022 and 2021, respectively, were as follows: Intangible Assets & Liabilities 2022 2021 In-place leases 14.2 15.0 Leasing costs 14.2 15.0 Customer relationships 20.2 21.2 Above market leases 15.7 14.0 Below market leases 13.0 17.4 All intangible assets & liabilities 15.7 16.5 5. Real Estate Dispositions, Held for Sale and Impairment Charges Real Estate Dispositions 14 Table of Contents During the nine months ended September 30, 2022, 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 in our target, secondary growth markets, or repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available, and use the sales proceeds to acquire properties in our target, secondary growth markets, or pay down outstanding debt. During the nine months ended September 30, 2022, we sold three non-core properties, located in Jupiter, Florida, Parsippany, New Jersey, and Boston Heights, Ohio. Aggregate Square Footage Sold Aggregate Sales Price Aggregate Sales Costs Aggregate Impairment Charge for the Nine Months Ended September 30, 2022 Aggregate Gain on Sale of Real Estate, net 145,111 $ 28,000 $ 1,153 $ 1,374 $ 8,902 Our dispositions during the nine months ended September 30, 2022 were not classified as discontinued operations because they did not represent a strategic shift in operations, nor will such dispositions have a major effect on our operations and financial results. Accordingly, the operating results of these properties are included within continuing operations for all periods reported. The table below summarizes the components of operating income from the real estate and related assets disposed of during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands): For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Operating revenue $ 3,505 $ 730 $ 4,961 $ 2,442 Operating expense 51 442 2,215 1,506 Other income (expense), net 8,902 (1) ( 36 ) 8,857 (1) 42 Income from real estate and related assets sold $ 12,356 $ 252 $ 11,603 $ 978 (1) Includes an $ 8.9 million gain on sale of real estate, net, on three property sales. Real Estate Held for Sale At September 30, 2022, we had two properties classified as held for sale, located in Columbus, Ohio and Allen, Texas. We consider these assets to be non-core to our long term strategy. At December 31, 2021, we did no t have any properties classified as held for sale. The table below summarizes the components of the assets and liabilities held for sale at September 30, 2022 reflected on the accompanying condensed consolidated balance sheets (dollars in thousands): September 30, 2022 Assets Held for Sale Total real estate held for sale $ 9,979 Lease intangibles, net 680 Deferred rent receivable, net 775 Total Assets Held for Sale $ 11,434 Liabilities Held for Sale Asset retirement obligation $ 16 Total Liabilities Held for Sale $ 16 Impairment Charges We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the nine months ended September 30, 2022 and identified one held and used asset, located in Columbia, South Carolina, which was impaired by $ 10.7 million. In performing our impairment testing, the undiscounted cash flow for this asset was below the carrying value. We engaged a third party expert to determine the fair value for this asset, which was calculated using level 3 inputs. As part of their analysis, a sales comparison approach was used with the value per square foot range between $ 9.87 per 15 Table of Contents square foot and $ 55.48 per square foot, with a weighted average of $ 30.72 per square foot. As a result, we recorded an impairment charge to the carrying value, to record this property at the appraised value of $ 4.5 million. We evaluated our held for sale assets to determine if any of these assets were impaired during the nine months ended September 30, 2022, and identified one held for sale asset, located in Parsippany, New Jersey, which was impaired by $ 1.4 million. In performing our held for sale assessment, the carrying value of this asset was above the fair value, less costs of sale. As a result, we impaired this property to equal the fair market value less costs of sale. The property was sold during the nine months ended September 30, 2022. We did not recognize an impairment charge during the nine months ended September 30, 2021. Fair market value for this asset was calculated using Level 3 inputs (defined in Note 6 “Mortgage Notes Payable and Credit Facility”), which were determined using a negotiated sales price from an executed purchase and sale agreement with a third party. We continue to evaluate our properties on a quarterly basis for changes that could create the need to record impairment. Future impairment losses may result, and could be significant, should market conditions deteriorate in the markets in which we hold our assets or should we be unable to secure leases at terms that are favorable to us, which could impact the estimated cash flow of our properties over the period in which we plan to hold our properties. Additionally, changes in management’s decisions to either own and lease long-term or sell a particular asset will have an impact on this analysis. 6. Mortgage Notes Payable and Credit Facility Our $ 125.0 million unsecured revolving credit facility (“Revolver”), $ 160.0 million term loan facility (“Term Loan A”), $ 60.0 million term loan facility (“Term Loan B”), and $ 150.0 million term loan facility (“Term Loan C”), are collectively referred to herein as the Credit Facility. Our mortgage notes payable and Credit Facility as of September 30, 2022 and December 31, 2021 are summarized below (dollars in thousands): Encumbered properties at Carrying Value at Stated Interest Rates at Scheduled Maturity Dates at September 30, 2022 September 30, 2022 December 31, 2021 September 30, 2022 September 30, 2022 Mortgage and other secured loans: Fixed rate mortgage loans 50 $ 370,291 $ 436,530 (1) (2) Variable rate mortgage loans — — 16,338 N/A (2) Premiums and discounts, net — ( 94 ) ( 130 ) N/A N/A Deferred financing costs, mortgage loans, net — ( 2,579 ) ( 2,794 ) N/A N/A Total mortgage notes payable, net 50 $ 367,618 $ 449,944 (3) Variable rate revolving credit facility 82 (6) $ 7,750 $ 33,550 SOFR + 1.50 % (4) 8/18/2026 Total revolver 82 $ 7,750 $ 33,550 Variable rate term loan facility A — (6) $ 160,000 $ 160,000 SOFR + 1.45 % (4) 8/18/2027 Variable rate term loan facility B — (6) 60,000 65,000 SOFR + 1.45 % (4) 2/11/2026 Variable rate term loan facility C — (6) 150,000 — SOFR + 1.45 % (4) 2/18/2028 Deferred financing costs, term loan facility — ( 3,605 ) ( 968 ) N/A N/A Total term loan, net N/A $ 366,395 $ 224,032 Total mortgage notes payable and credit facility 132 $ 741,763 $ 707,526 (5) (1) Interest rates on our fixed rate mortgage notes payable vary from 2.80 % to 6.63 %. (2) We have 44 mortgage notes payable with maturity dates ranging from December 6, 2022 through August 1, 2037. (3) The weighted average interest rate on the mortgage notes outstanding as of September 30, 2022 was approximately 4.19 %. 16 Table of Contents (4) As of September 30, 2022, Secured Overnight Financing Rate (“SOFR”) was approximately 2.98 %. (5) The weighted average interest rate on all debt outstanding as of September 30, 2022 was approximately 4.31 %. (6) The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 82 unencumbered properties as of September 30, 2022. N/A - Not Applicable Mortgage Notes Payable As of September 30, 2022, we had 44 mortgage notes payable, collateralized by a total of 50 properties with a net book value of $ 556.7 million. We have limited recourse liabilities that could result from any one or more of the following circumstances: a borrower voluntarily filing for bankruptcy, improper conveyance of a property, fraud or material misrepresentation, misapplication or misappropriation of rents, security deposits, insurance proceeds or condemnation proceeds, or physical waste or damage to the property resulting from a borrower’s gross negligence or willful misconduct. As of September 30, 2022, we did not have any mortgages subject to recourse. We will also indemnify lenders against claims resulting from the presence of hazardous substances or activity involving hazardous substances in violation of environmental laws on a property. During the nine months ended September 30, 2022, we repaid 13 mortgages, collateralized by 27 properties, which is summarized in the table below (dollars in thousands): . Aggregate Fixed Rate Debt Repaid Weighted Average Interest Rate on Fixed Rate Debt Repaid $ 97,843 4.75 % Aggregate Variable Rate Debt Repaid Weighted Average Interest Rate on Variable Rate Debt Repaid $ 30,336 LIBOR/SOFR + 2.50 % (1) (1) As of September 30, 2022, Secured Overnight Financing Rate (“SOFR”) was approximately 2.98 %. During the nine months ended September 30, 2022, we issued five mortgages, collateralized by 10 properties, which is summarized in the table below (dollars in thousands): . Aggregate Fixed Rate Debt Issued Weighted Average Interest Rate on Fixed Rate Debt $ 41,313 (1) 4.39 % (1) We issued $ 10.0 million of fixed rate debt with a maturity date of May 4, 2027, in connection with the two -property portfolio acquired on May 4, 2022. The interest rate is fixed at 4.00 %. We issued $ 10.0 million of fixed rate debt with a maturity date of June 1, 2032, in connection with the three -property acquisition on May 12, 2022. The interest rate is fixed at 3.40 %. We issued $ 16.9 million of fixed rate debt with a maturity date of August 1, 2027, in connection with the two -property acquisition on August 5, 2022. The interest rate is fixed at 4.95 %. We issued $ 4.4 million of swapped to fixed rate debt with a maturity date of September 16, 2029, in connection with the property acquisition on September 16, 2022. The interest rate is swapped to a fixed rate of 5.39 %. 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 %. This mortgage was repaid on August 18, 2022. During the nine months ended September 30, 2022, we extended the maturity date of three mortgages, collateralized by five properties, which is summarized in the table below (dollars in thousands): Aggregate Fixed Rate Debt Extended Weighted Average Interest Rate on Fixed Rate Debt Extended Extension Term $ 14,633 5.41 % 1.0 year 17 Table of Contents Variable Rate Debt Extended Interest Rate on Variable Rate Debt Extended Extension Term $ 7,059 (1) LIBOR + 2.75 % 1.0 year (1) We repaid this mortgage on August 18, 2022. We made payments of $ 5.6 million and $ 6.2 million for deferred financing costs during the three and nine months ended September 30, 2022. We did not make any payments for deferred financing costs during the three months ended September 30, 2021, but made payments of $ 0.6 million for deferred financing costs during the nine months ended September 30, 2021. Scheduled principal payments of mortgage notes payable for the three months ending December 31, 2022, and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands): Year Scheduled Principal Payments Three Months Ending December 31, 2022 $ 16,030 2023 66,120 2024 20,420 2025 38,802 2026 42,258 2027 94,717 Thereafter 91,944 Total $ 370,291 (1) (1) This figure does not include $( 0.1 ) million of premiums and (discounts), net, and $ 2.6 million of deferred financing costs, which are reflected in mortgage notes payable, net on the condensed consolidated balance sheets. We believe we will be able to address all mortgage notes payable maturing over the next 12 months through a combination of refinancing our existing indebtedness, cash from operations, proceeds from one or more equity offerings and availability on our Credit Facility. Interest Rate Cap and Interest Rate Swap Agreements We have entered into interest rate cap agreements that cap the interest rate on certain of our variable-rate debt and we have assumed or entered into interest rate swap agreements in which we hedged our exposure to variable interest rates by agreeing to pay fixed interest rates to our respective counterparty. We have adopted the fair value measurement provisions for our financial instruments recorded at fair value. The fair value guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Generally, we will estimate the fair value of our interest rate caps and interest rate swaps, in the absence of observable market data, using estimates of value including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At September 30, 2022 and December 31, 2021, our interest rate cap agreements and interest rate swaps were valued using Level 2 inputs. The fair value of the interest rate cap agreements is recorded in other assets on our accompanying condensed consolidated balance sheets. We record changes in the fair value of the interest rate cap agreements quarterly based on the current market valuations at quarter end. If the interest rate cap qualifies for hedge accounting, the change in the estimated fair value is recorded to accumulated other comprehensive income to the extent that it is effective, with any ineffective portion recorded to interest expense in our condensed consolidated statements of operations and comprehensive income. If the interest rate cap does not qualify for hedge accounting, or if it is determined the hedge is ineffective, any change in the fair value is recognized in interest expense in our consolidated statements of operations and comprehensive income. The following table summarizes the interest rate caps at September 30, 2022 and December 31, 2021 (dollars in thousands): 18 Table of Contents September 30, 2022 December 31, 2021 Aggregate Cost Aggregate Notional Amount Aggregate Fair Value Aggregate Notional Amount Aggregate Fair Value $ 1,228 (1) $ 225,000 $ 4,843 $ 233,632 $ 324 (1) We have entered into various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 1.50 % to 2.75 %. We have assumed or entered into interest rate swap agreements in connection with certain of our mortgage financings and Credit Facility, whereby we will pay our counterparty a fixed rate interest rate on a monthly basis and receive payments from our counterparty equivalent to the stipulated floating rate. The fair value of our interest rate swap agreements is recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate swaps as cash flow hedges, and we record changes in the fair value of the interest rate swap agreement to accumulated other comprehensive income on the condensed consolidated balance sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. The following table summarizes our interest rate swaps at September 30, 2022 and December 31, 2021 (dollars in thousands): September 30, 2022 December 31, 2021 Aggregate Notional Amount Aggregate Fair Value Asset Aggregate Fair Value Liability Aggregate Notional Amount Aggregate Fair Value Asset Aggregate Fair Value Liability $ 230,136 $ 8,868 $ ( 66 ) $ 73,212 $ 841 $ ( 1,217 ) The following table presents the impact of our derivative instruments in the condensed consolidated financial statements (dollars in thousands): Amount of gain (loss), net, recognized in Comprehensive Income Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Derivatives in cash flow hedging relationships Interest rate caps $ 1,758 $ ( 49 ) $ 4,520 $ ( 26 ) Interest rate swaps 5,032 470 9,140 2,151 Total $ 6,790 $ 421 $ 13,660 $ 2,125 The following table presents the reclassifications of our derivative instruments out of accumulated other comprehensive income into interest expense in the condensed consolidated financial statements (dollars in thousands): Amount reclassified out of Accumulated Other Comprehensive Income Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Interest rate caps $ ( 52 ) $ ( 145 ) $ ( 52 ) $ ( 145 ) Total $ ( 52 ) $ ( 145 ) $ ( 52 ) $ ( 145 ) The following table sets forth certain information regarding our derivative instruments (dollars in thousands): Asset (Liability) Derivatives Fair Value at Derivatives Designated as Hedging Instruments Balance Sheet Location September 30, 2022 December 31, 2021 Interest rate caps Other assets $ 4,843 $ 324 Interest rate swaps Other assets 8,868 841 Interest rate swaps Other liabilities ( 66 ) ( 1,217 ) Total derivative liabilities, net $ 13,645 $ ( 52 ) The fair value of all mortgage notes payable outstanding as of September 30, 2022 was $ 346.8 million , as compared to the carrying value stated above of $ 367.6 million. The fair value is calculated based on a discounted cash flow analysis, using management’s estimate of market interest rates on long-term debt with comparable terms and loan to value ratios. The fair value was calculated using Level 3 inputs of the hierarchy established by ASC 820, “Fair Value Measurements and Disclosures.” 19 Table of Contents Reference Rate Reform Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”) contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. As of September 30, 2022, we elected to apply the hedge accounting expedients related to probability and the assessment of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. We also elected the option to not reassess a previous accounting determination, and the option to not dedesignate a hedging relationship due to a change in a critical term. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in our hedging activities occur. Credit Facility On July 2, 2019, we amended, extended and upsized our Credit Facility, expanding Term Loan A from $ 75.0 million to $ 160.0 million, and increased our Revolver from $ 85.0 million to $ 100.0 million. 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. 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. The Credit Facility’s bank syndicate is comprised of KeyBank, Fifth Third Bank, U.S. Bank National Association, The Huntington National Bank, Goldman Sachs Bank USA, and Wells Fargo Bank, National Association. On February 11, 2021, we added a new $ 65.0 million Term Loan B, inclusive of a $ 15.0 million delayed funding component. Term Loan B has a maturity date of February 11, 2026 and a LIBOR floor of 25 basis points, plus a spread ranging from 140 to 225 basis points, depending on our leverage. We entered into multiple interest rate cap agreements on Term Loan B, which cap LIBOR from 1.50 % to 1.75 %. We incurred fees of approximately $ 0.5 million in connection with issuing Term Loan B. As of September 30, 2022, there was $ 60.0 million outstanding under Term Loan B, and we used all net proceeds to repay all outstanding borrowings on the Revolver and fund acquisitions. On August 18, 2022, we amended, extended and upsized our Credit Facility, increasing our Revolver from $ 100.0 million to $ 120.0 million (and its term to August 2026), adding the new $ 140.0 million Term Loan C, decreasing the principal balance of Term Loan B to $ 60.0 million and extending the maturity date of Term Loan A to August 2027. Term Loan C has a maturity date of February 18, 2028 and a SOFR spread ranging from 125 to 195 basis points, depending on our leverage. On September 27, 2022 we further increased the Revolver to $ 125.0 million and Term Loan C to $ 150.0 million, as permitted under the terms of the Credit Facility. We entered into multiple interest rate swap agreements on Term Loan C, which swap the interest rate to fixed rates from 3.15 % to 3.75 %. We incurred fees of approximately $ 4.2 million in connection with extending and upsizing our Credit Facility. As of September 30, 2022, there was $ 150.0 million outstanding under Term Loan C, and we used all net proceeds to repay all outstanding borrowings on the Revolver, pay off mortgage debt, and fund acquisitions. The Credit Facility’s current bank syndicate is comprised of KeyBank, Fifth Third Bank, The Huntington National Bank, Bank of America, Synovus Bank, United Bank, First Financial Bank, and S&T Bank. As of September 30, 2022, there was $ 377.8 million outstanding under our Credit Facility, at a weighted average interest rate of approximately 4.43 %, and $ 17.1 million outstanding under letters of credit, at a weighted average interest rate of 1.75 %. As of September 30, 2022, the maximum additional amount we could draw under the Credit Facility was $ 56.0 million. We were in compliance with all covenants under the Credit Facility as of September 30, 2022. The amount outstanding under the Credit Facility approximates fair value as of September 30, 2022. 7. Commitments and Contingencies Ground Leases We are obligated as lessee under four ground leases. Future minimum rental payments due under the terms of these leases for the three months ending December 31, 2022 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands): 20 Table of Contents Year Future Lease Payments Due Under Operating Leases Three Months Ending December 31, 2022 $ 123 2023 492 2024 493 2025 494 2026 498 2027 506 Thereafter 6,301 Total anticipated lease payments $ 8,907 Less: amount representing interest ( 3,547 ) Present value of lease payments $ 5,360 Rental expense incurred for properties with ground lease obligations during the three and nine months ended September 30, 2022 was $ 0.1 million and $ 0.3 million, respectively, and during the three and nine months ended September 30, 2021 was $ 0.1 million and $ 0.4 million, respectively. Our ground leases are treated as operating leases and rental expenses are reflected in property operating expenses on the condensed consolidated statements of operations and comprehensive income. Our ground leases have a weighted average remaining lease term of 18.7 years and a weighted average discount rate of 5.33 %. Letters of Credit As of September 30, 2022, there was $ 17.1 million outstanding under letters of credit. These letters of credit are not reflected on our condensed consolidated balance sheets. 8. Equity and Mezzanine Equity Stockholders’ Equity The following table summarizes the changes in our equity for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Senior Common Stock Balance, beginning of period $ 1 $ 1 $ 1 $ 1 Issuance of senior common stock, net — — — — Balance, end of period $ 1 $ 1 $ 1 $ 1 Common Stock Balance, beginning of period $ 39 $ 36 $ 37 $ 35 Issuance of common stock, net — 1 2 2 Balance, end of period $ 39 $ 37 $ 39 $ 37 Series F Preferred Stock Balance, beginning of period $ 1 $ — $ — $ — Issuance of Series F preferred stock, net — — 1 — Redemption of Series F preferred stock, net — — — — Balance, end of period $ 1 $ — $ 1 $ — Additional Paid in Capital Balance, beginning of period $ 705,629 $ 648,112 $ 671,134 $ 626,533 Issuance of common stock and Series F preferred stock, net 9,856 8,699 44,513 29,110 Redemption of OP Units — — — 4,812 Redemption of Series F preferred stock, net — — 55 — Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership 1,613 ( 21 ) 1,396 ( 3,665 ) 21 Table of Contents Balance, end of period $ 717,098 $ 656,790 $ 717,098 $ 656,790 Accumulated Other Comprehensive Income Balance, beginning of period $ 5,524 $ ( 2,641 ) $ ( 1,346 ) $ ( 4,345 ) Comprehensive income 6,790 421 13,660 2,125 Reclassification into interest expense 52 145 52 145 Balance, end of period $ 12,366 $ ( 2,075 ) $ 12,366 $ ( 2,075 ) Distributions in Excess of Accumulated Earnings Balance, beginning of period $ ( 498,574 ) $ ( 442,122 ) $ ( 468,523 ) $ ( 409,041 ) Distributions declared to common, senior common, and preferred stockholders ( 17,984 ) ( 16,849 ) ( 53,000 ) ( 50,011 ) Redemption of Series D preferred stock, net — — — ( 2,141 ) Redemption of Series F preferred stock, net — — ( 5 ) — Net income attributable to the Company 2,501 4,477 7,471 6,699 Balance, end of period $ ( 514,057 ) $ ( 454,494 ) $ ( 514,057 ) $ ( 454,494 ) Total Stockholders' Equity Balance, beginning of period $ 212,620 $ 203,386 $ 201,303 $ 213,183 Issuance of common stock and Series F preferred stock, net 9,856 8,700 44,516 29,112 Redemption of OP Units — — — 4,812 Redemption of Series D preferred stock, net — — — ( 2,141 ) Redemption of Series F preferred stock, net — — 50 — Distributions declared to common, senior common, and preferred stockholders ( 17,984 ) ( 16,849 ) ( 53,000 ) ( 50,011 ) Comprehensive income 6,790 421 13,660 2,125 Reclassification into interest expense 52 145 52 145 Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership 1,613 ( 21 ) 1,396 ( 3,665 ) Net income attributable to the Company 2,501 4,477 7,471 6,699 Balance, end of period $ 215,448 $ 200,259 $ 215,448 $ 200,259 Non-Controlling Interest Balance, beginning of period $ 1,275 $ 1,338 $ 1,259 $ 2,854 Distributions declared to Non-controlling OP Unit holders ( 114 ) ( 97 ) ( 307 ) ( 382 ) Issuance of Non-controlling OP Units as consideration in real estate acquisitions, net 2,394 — 2,394 — Redemptions of OP Units — — — ( 4,812 ) Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership ( 1,613 ) 21 ( 1,396 ) 3,665 Net (loss) income (attributable) available to OP units held by Non-controlling OP Unitholders ( 4 ) 21 ( 12 ) ( 42 ) Balance, end of period $ 1,938 $ 1,283 $ 1,938 $ 1,283 Total Equity $ 217,386 $ 201,542 $ 217,386 $ 201,542 22 Table of Contents Distributions We paid the following distributions per share for the three and nine months ended September 30, 2022 and 2021: For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Common Stock and Non-controlling OP Units $ 0.37620 $ 0.37545 $ 1.12860 $ 1.12635 Senior Common Stock 0.2625 0.2625 0.7875 0.7875 Series D Preferred Stock — — (1) — 0.8749998 (1) Series E Preferred Stock 0.414063 0.414063 1.242189 1.242189 Series F Preferred Stock 0.375 0.375 1.125 1.125 Series G Preferred Stock 0.375 0.375 (2) 1.125 0.375 (2) (1) We redeemed all outstanding shares of our Series D Preferred Stock on June 30, 2021. (2) Our shares of Series G Preferred Stock were issued on June 28, 2021. Recent Activity Common Stock ATM Program During the nine months ended September 30, 2022, we sold 2.0 million shares of common stock, raising $ 40.6 million in net proceeds under our At-the-Market Equity Offering Sales Agreements with sales agents Robert W. Baird & Co. 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 September 30, 2022, we had remaining capacity to sell up to $ 26.5 million of common stock pursuant to the Common Stock ATM Program under the 2020 Universal Shelf (as defined below). Mezzanine Equity Our 6.625 % Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”), and our 6.00 % Series G Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”) are classified as mezzanine equity in our condensed consolidated balance sheets because both are redeemable at the option of the shareholder upon a change of control of greater than 50 %. A change in control of our company, outside of our control, is only possible if a tender offer is accepted by over 90 % of our shareholders. All other change in control situations would require input from our Board of Directors. In addition, our Series E Preferred Stock and Series G Preferred Stock are redeemable at the option of the applicable shareholder in the event a delisting event occurs. We will periodically evaluate the likelihood that a delisting event or change of control of greater than 50 % will take place, and if we deem this probable, we adjust the Series E Preferred Stock, and Series G Preferred Stock presented in mezzanine equity to their redemption value, with the offset to gain (loss) on extinguishment. We currently believe the likelihood of a change of control of greater than 50%, or a delisting event, is remote. Universal Shelf Registration Statement On January 29, 2020, we filed a 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. 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 Series F Preferred Stock, and $ 63.0 million is reserved for our Common Stock ATM Program. As of September 30, 2022, we had the ability to issue up to $ 648.6 million of securities under the 2020 Universal Shelf. Series F Preferred Stock On February 20, 2020, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares 23 Table of Contents 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 164,400 shares of our Series F Preferred Stock, raising $ 3.7 million in net proceeds during the nine months ended September 30, 2022. As of September 30, 2022, we had remaining capacity to sell up to $ 621.6 million of Series F Preferred Stock. Non-controlling Interest in Operating Partnership As of September 30, 2022 and December 31, 2021, we owned approximately 99.0 % and 99.3 %, re spectively, of the outstanding OP Units. On September 20, 2022 , we issued 134,474 OP Units as partial consideration to acquire our 49,375 square foot property located in Fort Payne, Alabama for $ 5.6 million . During the nine months ended September 30, 2021 , we redeemed 246,039 OP Units for an equivalent amount of common stock. The Operating Partnership is required to make distributions on each OP Unit in the same amount as those paid on each share of our common stock, with the distributions on the OP Units held by us being utilized to make distributions to our common stockholders. As of September 30, 2022 and December 31, 2021, there were 391,468 and 256,994 outstanding OP Units held by Non-controlling OP Unitholders, respectively. 9. Subsequent Events Distributions On October 11, 2022, our Board of Directors declared the following monthly distributions for the months of October, November and December of 2022: Record Date Payment Date Common Stock and Non-controlling OP Unit Distributions per Share Series E Preferred Distributions per Share Series G Preferred Distributions per Share October 21, 2022 October 31, 2022 $ 0.12540 $ 0.138021 $ 0.125 November 18, 2022 November 30, 2022 0.12540 0.138021 0.125 December 20, 2022 December 30, 2022 0.12540 0.138021 0.125 $ 0.37620 $ 0.414063 $ 0.375 Senior Common Stock Distributions Payable to the Holders of Record During the Month of: Payment Date Distribution per Share October November 4, 2022 $ 0.0875 November December 5, 2022 0.0875 December January 6, 2023 0.0875 $ 0.2625 Series F Preferred Stock Distributions Record Date Payment Date Distribution per Share October 26, 2022 November 4, 2022 $ 0.125 November 23, 2022 December 5, 2022 0.125 December 28, 2022 January 6, 2023 0.125 $ 0.375 Equity Activity Subsequent to September 30, 2022 and through November 7, 2022, we raised $ 0.2 million in net proceeds from the sale of 8,500 shares of Series F Preferred Stock. 24 Table of Contents Sale Activity On October 28, 2022, we sold one of our properties in Columbus, Ohio for $ 2.3 million, resulting in a loss on sale, net, of $ 0.02 million. Acquisition Activity On October 26, 2022, we purchased a 68,674 square foot industrial property in Denver, Colorado for $ 12.0 million. This property is fully leased to one tenant on a 20.0 year lease. Financing Activity On October 26, 2022, we issued $ 6.6 million of swapped to fixed rate debt in connection with property acquisition on the same date, with a term of 6.9 years and interest rate swapped to 5.90 %. Election of Director Effective October 11, 2022, Paula Novara was elected to our Board of Directors. Ms. Novara also serves as head of human resources, facilities and office management and IT of the Adviser and certain of its affiliates. 25 Table of Contents