What changed in this filing

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Item 1. Business

2023-02-22 compared with 2022-02-15 · 36 added, 24 removed, 228 unchanged (21% of the section changed)

29 unchanged sentences

We believe that moderate leverage is prudent and we aspire to become an investment grade borrower over time.

We intend to primarily use non-recourse mortgage financing that will allow us to limit our loss exposure on any property to the amount of equity invested in such property.

In addition to our use of leverage, we were active in the equity markets during 2022 by issuing shares of common stock under our common stock at-the-market program (“Common ATM Program”), pursuant to our At-the-Market Equity Offering Sales Agreement (the “Common Stock Sales Agreement”) with Robert W.

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(“Fifth Third”) (collectively, the “Common Stock Sales Agents”).

We also voluntarily redeemed all outstanding shares of our 7.00% Series D Cumulative Redeemable Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”) on June 30, 2021, through raising proceeds from an underwritten public offering of Series G Preferred Stock.

We voluntarily redeemed all outstanding shares of our 7.00% Series D Cumulative Redeemable Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”) on June 30, 2021, through raising proceeds from an underwritten public offering of Series G Preferred Stock.

We also issued shares of our Series F Preferred Stock through bimonthly closings of this registered non-traded continuous offering.

Although we did not sell any shares of our Series E Preferred Stock during the year ended December 31, 2021, we also have an at-the-market program pursuant to our At-the-Market Equity Offering Sales Agreement (the “Series E Preferred ATM Program,” and together with the Common ATM Program, the “ATM Programs”) with Baird, Goldman Sachs, Stifel, Fifth Third, and U.S.

Bancorp Investments, Inc.

(collectively the “Series E Preferred Stock Sales Agents”).

Although we did not sell any shares of our Series E Preferred Stock during the year ended December 31, 2022, we also had an at-the-market program for our Series E Preferred Stock during the period.

We terminated that program and the Common Stock Sales Agreement, effective February 10, 2023, in connection with the expiration of our registration statement on Form S-3 (File No.

333-236143) (the “2020 Registration Statement”) on February 11, 2023.

Investment Policies

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Some of our investments may also be made through joint ventures that would permit us to own interests in large properties without restricting the diversity of our portfolio.

We anticipate that we will make substantially all of our investments through our Operating Partnership.

We anticipate that we will continue to make substantially all of our investments through our Operating Partnership.

Our Operating Partnership may acquire interests in real property or mortgage loans in exchange for the issuance of common shares, OP Units, cash, or through a combination of the aforementioned.

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We have formed relationships with nationally recognized strategic partners to assist us with the management of our properties in each of our markets.

These relationships provide local expertise to ensure that our properties are properly maintained and that

our tenants have local points of contact to address property issues.

This strategy improves our operating efficiencies, increases local market intelligence for the Adviser, and generally does not increase our costs as the local property managers are reimbursed by the tenants in accordance with the lease agreements.

These relationships provide local expertise to ensure that our properties are properly maintained and that our tenants have local points of contact to address property issues.

This strategy improves our operating efficiencies, increases

local market intelligence for the Adviser, and generally does not increase our costs as the local property managers are reimbursed by the tenants in accordance with the lease agreements.

Underwriting Criteria, Due Diligence Process and Negotiating Lease Provisions

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Our Adviser’s investment professionals have substantial experience in locating and underwriting these types of companies.

By leasing properties to these tenants, we believe that we will generally be able to charge rent that is higher than the rent charged to tenants with unleveraged balance sheets and recognized credit, thereby enhancing current return from these properties as compared with properties leased to companies whose credit potential has already been recognized by the market.

By leasing properties to these tenants, we believe that we will generally be able to charge rent that is higher than the rent charged to tenants with low leverage ratios and recognized credit, thereby enhancing current return from these properties as compared with properties leased to companies whose credit potential has already been recognized by the market.

Furthermore, if a tenant’s credit improves, the value of our lease or investment will likely increase (if all other factors affecting value remain unchanged).

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Our Adviser generally seeks to acquire investment properties that are essential or important to the ongoing operations of the prospective tenant.

We believe that these investment properties provide better protection in the event a tenant files bankruptcy, as leases on properties essential or important to the operations of a bankrupt tenant are typically less likely to be rejected in bankruptcy or otherwise terminated.

We believe that these investment properties

provide better protection in the event a tenant files bankruptcy, as leases on properties essential or important to the operations of a bankrupt tenant are typically less likely to be rejected in bankruptcy or otherwise terminated.

• Lease Provisions that Enhance and Protect Value .

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Term Loan B has a maturity date of 60 months from the closing of the amended Credit Facility and a London Inter-bank Offered Rate (“LIBOR”) floor of 25 basis points.

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

On August 18, 2022, we added a new $140.0 million term loan facility component (“Term Loan C”).

Term Loan C has a maturity date of February 18, 2028 and a Secured Overnight Financing Rate (“SOFR”) spread ranging from 125 to 195 basis points, depending on our leverage.

We also increased our Revolver from $100.0 million to $120.0 million (and its term to August 2026), decreased the principal balance of Term Loan B to $60.0 million and extended the maturity date of Term Loan A to August 2027.

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 ranging 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 December 31, 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.

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

Conflict of Interest Policy

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A copy of this code is available for review, free of charge, on the investors section of our website at www.GladstoneCommercial.com .

Information contained on our website is not part of this Annual Report.

The information contained on or connected to our website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.

We intend to provide any required disclosure of any amendments to or waivers of this code of ethics by posting information regarding any such amendment or waiver to our website.

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The officers, directors and employees of our Adviser have significant experience in making investments in and lending to businesses of all sizes, and investing in real estate.

We have entered into an investment advisory agreement with our Adviser, as amended (including the Sixth Amended and Restated Investment Advisory Agreement dated July 14, 2020, the “Advisory Agreement”), under which our Adviser is responsible for managing our assets and liabilities, for operating our business on a day-to-day basis and for identifying, evaluating, negotiating and consummating investment transactions consistent with our investment policies as determined by our Board of Directors from time to time.

We have entered into an investment advisory agreement with our Adviser, as amended from time to time (including the Seventh Amended and Restated Investment Advisory Agreement dated January 10, 2023, the “Advisory Agreement”), under which our Adviser is responsible for managing our assets and liabilities, for operating our business on a day-to-day basis and for identifying, evaluating, negotiating and consummating investment transactions consistent with our investment policies as determined by our Board of Directors from time to time.

The Administrator employs our chief financial officer, treasurer, chief compliance officer, and general counsel and secretary (who also serves as our Administrator’s president, general counsel, and secretary) and their respective staffs and provides administrative services for us under the administration agreement with our Administrator (the “Administration Agreement”).

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Terry Lee Brubaker, our vice chairman and chief operating officer, also serves in the same capacities for our Adviser and our Administrator.

Robert Cutlip, and Arthur “Buzz” Cooper, our co-presidents, are also executive managing directors of our Adviser.

Arthur “Buzz” Cooper, our president, is also an executive managing director of our Adviser.

Our Adviser has an investment committee that approves each of our investments.

This investment committee is currently comprised of Messrs.

Gladstone, Brubaker, Cutlip, Cooper, Laura Gladstone, who is a managing director of our Adviser, and John Sateri, who is a managing director of our Adviser.

Gladstone, Brubaker, and Cooper, Laura Gladstone, who is a managing director of our Adviser, and John Sateri, who is also a managing director of our Adviser.

We believe that the review process of our investment committee gives us a unique competitive advantage over other REITs because of the substantial experience that its members possess and their unique perspective in evaluating the blend of corporate credit, real estate and lease terms that collectively provide an acceptable risk for our investments.

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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 our 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.

On February 20, 2020 we entered into a dealer manager agreement, as amended on February 9, 2023 (together, the “Dealer Manager Agreement”), whereby Gladstone Securities acts as the exclusive dealer manager in connection with our offering (the “Offering”) of up to (i) 20,000,000 shares of our 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 the Company in connection with the Offering, and the Company 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.

333-268549), as the same may be amended and/or supplemented (the “2022 Registration Statement”), under the Securities Act of 1933, as amended, and are offered and sold pursuant to a prospectus supplement, dated February 9, 2023, and a base prospectus dated November 23, 2022 relating to the 2022 Registration Statement (the “Prospectus”).

During the years ended December 31, 2020, 2021 and 2022, the Series F Preferred Stock was registered with the SEC pursuant to the 2020 Registration Statement, and offered and sold pursuant to a prospectus supplement, dated February 20, 2020, and a base prospectus dated February 11, 2020.

Under the Dealer Manager Agreement, Gladstone Securities, as dealer manager, provides certain sales, promotional and marketing services to the Company in connection with the Offering, and the Company pays 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 are paid with respect to Shares sold pursuant to the DRIP.

Gladstone Securities may, in its sole discretion, reallow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering.

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We expect that a total of 15 to 20 full time employees of our Adviser and our Administrator will spend substantially all or all of their time on our matters during calendar year 2023.

Our co-presidents and CFO, accounting team, and the employees of our Adviser that manage our assets and our investments spend all of their time on our matters.

president and CFO, accounting team, and the employees of our Adviser that manage our assets and our investments spend all of their time on our matters.

To the extent that we acquire more investments, we anticipate that the number of employees of our Adviser and our Administrator who devote time to our matters will increase.

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We must own, operate, manage, acquire and develop our properties in compliance with the laws and regulations of the United States, as well as state and local laws and regulations in the markets where our properties are located, which may differ among jurisdictions.

In response to the COVID-19 pandemic, federal governmental authorities, as well as state and local governmental authorities in jurisdictions where our properties are located, may implement laws and regulations which impact our ability to operate our business in the ordinary course.

Such regulations, along with the COVID-19 pandemic in general, may materially affect our results of operations for the year ending December 31, 2022.

In response to public health emergencies such as the recent COVID-19 pandemic, federal governmental authorities, as well as state and local governmental authorities in jurisdictions where our properties are located, have in recent years implemented laws and regulations which impacted our ability to operate our business in the ordinary course.

These governmental authorities may take similar actions in the future in the event of new public health emergencies, or if a new strain of COVID-19 emerges.

Such regulations may materially affect our results of operations for the year ending December 31, 2023.

Otherwise, we do not expect that compliance with the various laws and regulations we are subject to will have a material effect on our capital expenditures, results of operations and competitive position for the year ending December 31,2023, as compared to prior periods.

For additional information, see “ Risk Factors - We could incur significant costs related to government regulation and private litigation over environmental matters ”, “ Risk Factors - Compliance or failure to comply with laws requiring access to our properties by disabled persons could result in substantial cost ” and “ Risk Factors - Disruptions in the financial markets and uncertain economic conditions resulting from the ongoing outbreak of COVID-19 and potential emergence of vaccine resistant strains could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing, service future debt obligations, or pay distributions to stockholders .”

For additional information, see “ Risk Factors - We could incur significant costs related to government regulation and private litigation over environmental matters.

”, “ Risk Factors - Compliance or failure to comply with laws requiring access to our properties by disabled persons could result in substantial cost.

”, and “Risk Factors – We could be exposed to liability and remedial costs related to environmental matters.”

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business