What changed in this filing

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Item 1A. Risk Factors

2024-02-21 compared with 2023-02-22 · 54 added, 65 removed, 385 unchanged (24% of the section changed)

9 unchanged sentences

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

Tenants and borrowers that are subject to significant debt obligations may be unable to make their rent or mortgage payments if there are adverse changes to their businesses or because of the impact of public health emergencies like COVID-19.

Rising interest rates, inflation and recessionary conditions also impact a tenant’s ability to timely make their rent or mortgage payments.

39 unchanged sentences

As a result, our income and distributions to our stockholders could be lower than they would otherwise be if we did not engage in net leases.

Multi-tenant properties expose us to additional risks.

Multi-tenant properties expose us to additional risks, such as increasing operating expenses and difficulty funding suitable replacement tenants.

Our multi-tenant properties could expose us to the risk that a sufficient number of suitable tenants may not be found to enable the property to operate profitably.

5 unchanged sentences

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

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

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

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

6 unchanged sentences

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

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

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

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

With these properties, if the current

lease is terminated or not renewed, we may be required to renovate the property or to make rent concessions to lease the property to another tenant or sell the property.

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

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

Many of our tenants are lower middle market businesses, which exposes us to additional risks unique to these entities.

Leasing real property to lower middle market businesses exposes us to a number of unique risks related to these entities, including the following:

Many of our tenants are lower middle market businesses, which exposes us to additional risks specific to these entities.

Leasing real property to lower middle market businesses exposes us to a number of risks specifically related to these entities, including the following:

• Lower middle market businesses may have limited financial resources and may not be able to make their lease or mortgage payments on a timely basis, or at all.

4 unchanged sentences

Many of our tenants and borrowers are privately owned businesses, about which there is generally little or no publicly available operating and financial information.

As a result, we will rely on our Adviser to perform due diligence investigations of these tenants and borrowers, their operations and their prospects.

As a result, we rely on our Adviser to perform due diligence investigations of these tenants and borrowers, their operations and their prospects.

Our Adviser will perform ongoing credit assessments of our tenants by reviewing all financial disclosures required from our respective leases.

45 unchanged sentences

In addition, if any of our properties are not properly connected to a water or sewer system, or if the integrity of such systems are breached, or if water intrusion into our buildings otherwise occurs, microbial matter or other contamination can develop.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period

Some molds may produce airborne toxins or irritants.

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

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

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

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

If we become subject to claims in this regard, it could materially and adversely affect us and our future insurability for such matters.

The assessments we perform on our acquisition of property may fail to reveal all environmental conditions, liabilities or compliance concerns.

The assessments we perform on our acquisitions of properties may fail to reveal all environmental conditions, liabilities or compliance concerns.

Material environmental conditions, liabilities or compliance concerns may have arisen after the assessments were conducted or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability.

6 unchanged sentences

We continually assess our properties to determine if any impairments are necessary or appropriate.

No assurance can be given that we will be able to recover the current carrying amount of our properties in the future.

We may not be able to recover the current carrying amount of our properties in the future.

Our failure to do so would require us to recognize additional impairment charges for the period in which we reached that conclusion, which could materially and adversely affect us and our results of operations.

1 unchanged sentence

Risks related to our financing

Capital markets and economic conditions can materially affect our financial condition and results of operations, the value of our equity securities, and our ability to sustain payment of distributions at current levels.

Many factors affect the value of our equity securities and our ability to make or maintain the current levels of distributions to stockholders, including the state of the capital markets and the economy.

8 unchanged sentences

The agreement governing our Credit Facility requires us to comply with certain financial and operational covenants.

These covenants require us to, among other things, maintain certain financial ratios, including fixed charge coverage, debt service coverage and a minimum net worth.

These covenants require us to, among other things, maintain certain financial ratios, including fixed charge coverage, debt service

coverage and a minimum net worth.

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

December 31, 2022, we were in compliance with these covenants.

As of December 31, 2023, we were in compliance with these covenants.

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

8 unchanged sentences

There is also a risk that a significant increase in the ratio of our indebtedness to the measures of asset value used by financial analysts may have an adverse effect on the market price of our securities.

We face risks related to “balloon payments” and refinancing.

We face liquidity, credit, and performance risks related to “balloon payments” and refinancing.

Some of our debt financing arrangements may require us to make lump-sum or “balloon” payments at maturity.

13 unchanged sentences

We borrow on an unsecured basis under the Credit Facility;

however, we are required to maintain a pool of unsecured assets sufficient to draw on the Credit Facility.

however, we are required to maintain a sufficient pool of unsecured assets in order to draw on the Credit Facility.

A significant reduction in the value of our pool of unencumbered assets could require us to pay down a portion (or significant portion) of the balance of the Credit Facility.

Although we believe that we have significant excess collateral and capacity, future asset values are uncertain.

If we were unable to meet a request to add collateral to the Credit Facility, this inability could have a material adverse effect on our liquidity and our ability to meet our loan covenants.

If we were unable to meet a request to add collateral

to this unsecured asset pool under the Credit Facility, this inability could have a material adverse effect on our liquidity and our ability to meet our loan covenants.

Interest rate fluctuations may adversely affect our results of operations.

4 unchanged sentences

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

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

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

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

1 unchanged sentence

A significant change in interest rates could have an adverse impact on our results of operations.

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

LIBOR has been largely replaced by SOFR as the basic rate of interest used in lending between banks and is widely used as a reference for setting the interest rate on loans globally.

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

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

Also, the U.S.

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

financial institutions, recommended replacing U.S.-dollar LIBOR with SOFR.

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

Treasury securities.

At December 31, 2022, all of our variable rate debt was based upon SOFR, with the exception of $41.8 million of hedged variable rate mortgages still based on LIBOR, which we are planning to transition to SOFR prior to the targeted mid-2023 phase out of LIBOR.

Risks related to the real estate industry

We are subject to certain risks associated with real estate ownership and lending which could reduce the value of our investments.

We are subject to certain risks associated with real estate ownership and borrowing which could reduce the value of our investments.

Our investments include primarily industrial and office property.

19 unchanged sentences

We are dependent upon our key personnel, who are employed by our Adviser or Administrator, as applicable, for our future success, particularly David Gladstone, Terry Lee Brubaker, Arthur “Buzz” Cooper and Gary Gerson.

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

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

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

We have no employees, and are therefore dependent on the senior management and other key management members who are employed by our Adviser or Administrator, as applicable, to carry out our business and investment strategies.

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

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

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

19 unchanged sentences

Termination of the Advisory Agreement with our Adviser without cause would be difficult and costly.

We may only terminate the agreement without cause (as defined therein) upon 120 days’ prior written notice and after the affirmative vote of at least two-thirds of our independent directors.

We may only terminate the Advisory Agreement without cause (as defined therein) upon 120 days’ prior written notice and after the affirmative vote of at least two-thirds of our independent directors.

Furthermore, if we default under the agreement and any applicable cure period has expired, the Adviser may terminate the agreement.

8 unchanged sentences

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

For the years ended December 31, 2022 and 2020, our Adviser did not issue a full or partial waiver of the incentive fee.

For the year ended December 31, 2022, our Adviser did not issue a full or partial waiver of the incentive fee.

If our Adviser does not issue this waiver in future quarters, it could negatively impact our earnings and may compromise our ability to maintain our current level of, or increase, distributions to our stockholders, which could have a material adverse impact on the market price of our securities.

Under the most recent amendment of the Advisory Agreement dated January 10, 2023, our Advisor will not receive an incentive fee for the quarters ending March 31, 2023 and June 30, 2023.

Therefore, such six-month waiver is contractual.

Under the amendment of the Advisory Agreement dated January 10, 2023, our Advisor was not entitled to receive an incentive fee for the quarters ended March 31, 2023 and June 30, 2023.

Under the amendment of the Advisory Agreement dated July 11, 2023, our Advisor was not entitled to receive an incentive fee for the quarters ended September 30, 2023 and December 31, 2023.

No waivers were required, as the incentive fees for the 12-month period were contractually eliminated.

Risks Related to Qualification and Operation as a REIT

24 unchanged sentences

In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% (25% for taxable years beginning before January 1, 2018) of the value of our total assets can be represented by the securities of one or more TRSs.

for purposes of the 75% gross income test, other types of interest and distributions, gain from the sale or disposition of stock or securities, or any combination of these.

We also must ensure that (i) at least 75% of our gross income for each taxable year consists of certain types of income that we derive, directly or indirectly, from investments relating to real property or mortgages on real property or qualified temporary investment income and (ii) at least 95% of our gross income for each taxable year consists of income that is qualifying income for purposes of the 75% gross income test, other types of interest and distributions, gain from the sale or disposition of stock or securities, or any combination of these.

In addition, we may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution.

24 unchanged sentences

Our charter stipulates that any acquisition of shares that would result in our disqualification as a REIT under the Code shall be void to the fullest extent permitted under applicable law.

securities convertible into common stock which are held by the tender offeror and any “affiliates” or “associates” thereof within the meaning of the Exchange Act) are duly tendered and accepted pursuant to the cash tender offer;

The ownership limit does not apply to (i) offerors which, in accordance with applicable federal and state securities laws, make a cash tender offer, where at least 90% of the outstanding shares of our stock (not including shares or subsequently issued securities convertible into common stock which are held by the tender offeror and any “affiliates” or “associates” thereof within the meaning of the Exchange Act) are duly tendered and accepted pursuant to the cash tender offer;

(ii) an underwriter in a public offering of our shares;

5 unchanged sentences

Accordingly, we are dependent on cash flows and payments of funds to us by our subsidiaries as dividends, distributions, loans, advances, leases or other payments from our subsidiaries to generate the funds necessary to make dividend payments on our capital stock.

Our subsidiaries’ ability to pay such dividends and/or make such loans, advances, leases or other payments may be restricted by, among other things, applicable laws and regulations, current and future debt agreements and management agreements into which our subsidiaries may enter, which may impair our ability to make cash payments on our common stock or our preferred stock.

Our subsidiaries’ ability to pay such dividends and/or make such loans, advances,

leases or other payments may be restricted by, among other things, applicable laws and regulations, current and future debt agreements and management agreements into which our subsidiaries may enter, which may impair our ability to make cash payments on our common stock or our preferred stock.

In addition, such agreements may prohibit or limit the ability of our subsidiaries to transfer any of their property or assets to us, any of our other subsidiaries or to third parties.

14 unchanged sentences

• Our Board of Directors is divided into three classes, with the term of the directors in each class expiring every third year.

At each annual meeting of stockholders, the successors to the class of directors whose term expires at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year

following the year of their election.

After election, a director may only be removed by our stockholders for cause.

12 unchanged sentences

The market price of our common and preferred stock may be highly volatile and subject to wide fluctuations, and the trading volume in our common and preferred stock may fluctuate and cause significant price variations to occur.

We cannot assure investors that the market price of our common and preferred stock will not fluctuate or decline further in the future.

We cannot assure investors that the market price of our common and preferred stock will not fluctuate or decline in the future.

Some market conditions that could negatively affect our share price or result in fluctuations in the price or trading volume of our securities include, but are not limited to:

2 unchanged sentences

• price and volume fluctuations in the stock market as a result of terrorist attacks, or speculation regarding future terrorist attacks, in the United States or abroad;

• actual or anticipated variations in our quarterly operating results or distributions to shareholders;

• actual or anticipated variations in our quarterly operating results or distributions to stockholders;

• changes in our FFO or earnings estimates or the publication of research reports about us or the real estate industry generally;

6 unchanged sentences

We cannot predict the effect, if any, of future sales of common or preferred stock, or the availability of shares for future sales, on the market price of our common or preferred stock.

Sales of substantial amounts of common or preferred stock (including shares of common stock issuable upon the conversion of units of the Operating Partnership that we may issue from time to time, issuable upon conversion of our Senior Common Stock, or issuances made through our ATM Programs or otherwise), or the perception that these sales could occur, may adversely affect prevailing market prices for our common and preferred stock.

Sales of substantial amounts of common or preferred stock (including shares of common stock issuable upon the conversion of units of the Operating Partnership that we may issue from time to time, issuable upon conversion of our Senior Common Stock, or issuances made through any ATM programs or otherwise), or the perception that these sales could occur, may adversely affect prevailing market prices for our common and preferred stock.

Compliance or failure to comply with laws requiring access to our properties by disabled persons could result in substantial cost.

4 unchanged sentences

Legislation or regulations adopted in the future may impose further burdens or restrictions on us with respect to improved access by disabled persons.

We may incur unanticipated expenses that may be material to our financial condition or results of operations to comply with ADA and other federal, state and local laws, or in connection with lawsuits brought by private litigants.

We may incur unanticipated expenses that may be

material to our financial condition or results of operations to comply with ADA and other federal, state and local laws, or in connection with lawsuits brought by private litigants.

Our Board of Directors may change our investment policy without stockholders’ approval.

17 unchanged sentences

If a large number of OP Units were redeemed, it could result in the issuance of a large number of new shares of our common stock, which could dilute our existing stockholders’ ownership.

Alternatively, if we were to redeem a large number of

OP Units for cash, we may be required to expend significant amounts to pay the redemption price, which may limit our funds necessary to make distributions on our common stock.

Alternatively, if we were to redeem a large number of OP Units for cash, we may be required to expend significant amounts to pay the redemption price, which may limit our funds necessary to make distributions on our common stock.

Further, if we do not have sufficient cash on hand at the time the OP Units are tendered for redemption, we may be forced to sell additional shares of our common stock or preferred stock to raise cash, which could cause dilution to our existing stockholders and adversely affect the market price of our common stock.

2 unchanged sentences

Under applicable Maryland law, a Maryland corporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business or the corporation’s total assets would be less than the sum of its total liabilities plus, unless the corporation’s charter permits otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.

Accordingly, we generally may not make a distribution on our stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus, unless the terms of such class or series provide otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of stock then outstanding, if any, with preferences upon dissolution senior to those of such class of stock with respect to which the distribution would be made.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, or the operations of businesses in which we invest, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.

series provide otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of stock then outstanding, if any, with preferences upon dissolution senior to those of such class of stock with respect to which the distribution would be made.

Cybersecurity threats and cyber incidents may adversely affect our business by causing a disruption to our operations, or the operations of businesses in which we invest, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.

In the normal course of business, we and our service providers collect and retain certain personal information provided by our tenants, employees of our Administrator and Adviser, and vendors.

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

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

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

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

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

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

A cybersecurity incident is defined by the SEC as an unauthorized occurrence, or a series of related unauthorized occurrences, on or conducted through our information systems that jeopardize the confidentiality, integrity or availability of our information resources or any information residing therein.

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

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

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

In addition, cybersecurity risks such as those above have increased in recent years in part due to increasingly numerous and sophisticated malicious cyber actors.

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

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

In addition, cybersecurity threats such as those noted above have increased in recent years in part due to increasingly numerous and sophisticated malicious cyber actors.

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

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

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

6 unchanged sentences

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

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

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

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

1 unchanged sentence

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

These indirect effects may include increases to the costs of electricity, fuel, water consumption, and waste

disposal, as well as increasing the cost of (or making unavailable) property insurance on terms we find acceptable.

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

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

4 unchanged sentences

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

Unresolved Staff Comments.

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

What changed 10-K

Item 1A. Risk Factors