What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-22 · 145 added, 162 removed, 351 unchanged (47% of the section changed)

3 unchanged sentences

We focus on acquiring, owning, and managing primarily industrial and office properties.

Our properties are geographically diversified and our tenants cover a broad cross section of business sectors and range in size from small to very large private and public companies, many of which are corporations that do not have publicly-rated debt.

We have historically

entered into, and intend in the future to enter into, purchase agreements primarily for real estate having net leases with remaining terms of approximately seven to 15 years and built-in rental rate increases.

Our properties are geographically diversified and our tenants cover a broad cross section of business sectors and range in size from small to very

large private and public companies, many of which are corporations that do not have publicly-rated debt.

We have historically entered into, and intend in the future to enter into, purchase agreements primarily for real estate having net leases with remaining terms of approximately seven to 15 years and built-in rental rate increases.

Under a net lease, the tenant is required to pay most or all operating, maintenance, repair and insurance costs and real estate taxes with respect to the leased property.

8 unchanged sentences

Business Environment

The demand for industrial space has continued due to the continuing growth of e-commerce and recent trend of manufacturing onshoring, which appears to have partially rebounded from the adverse effects of COVID-19 on the commercial real estate industry in 2020, 2021, and early 2022.

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

Further, a tightening of available financing due primarily to higher interest rates has caused a slowdown in new construction starts throughout the fourth quarter of 2022, as compared to the record breaking third quarter of 2022, which should lead to lowered deliveries into 2024.

The industrial market recorded its strongest year in 2021, surpassing 500 million square feet in net absorption, according to research, and continued to remain strong through the third quarter of 2022 absorbing over 350 million square feet through the end of 2022.

Construction activity for the industrial sector saw record amounts of groundbreakings in the third quarter of 2022, bringing the total amount under development to over 600 million square feet.

Industrial markets continued to tighten, bringing the vacancy rate to an all-time low of 3.3% at the end of the third quarter of 2022.

The office sector struggled less in 2022 than 2021, posting negative net absorption of 37 million square feet in 2022 compared to negative net absorption of 59 million square feet in 2021.

Tenants continue to put their space up for sublease to reduce costs, with year-end sublease vacancy totaling 136 million square feet.

Industry expectations are for an increase in office vacancy rates as leases roll over the next few years, which will lead to downsizing and lower renewal rates for spaces currently offered for sublease.

Interest rates remain volatile in response to competing concerns about inflationary pressures, and interest rate increases by the Federal Reserve and are expected to increase.

The yield on the 10-year U.S.

Treasury Note has increased significantly since the beginning of 2022 and finished 2022 at 3.88%.

Global recessionary conditions may occur over the next 6-24 months as a direct result of central bank intervention to curb inflation.

As of February 22, 2023, we have collected 100% of all outstanding rent collections for calendar year 2022.

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

However, we are unable to quantify the outcomes of the negotiation of relief packages, the success of any tenant’s financial prospects or the amount of relief requests that we will ultimately receive or grant.

We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in the retail, hospitality, airlines, and oil and gas industries.

Additionally, our properties are located across 27 states, which we believe mitigates our exposure to economic issues, including regulations or laws implemented by state and local governments in response to public health emergencies, in any one geographic market or area.

While the trends of major supply chain disruptions, materials shortages, and significant increases to construction prices have largely subsided in the back half of 2023, interest rates and capital markets became the primary talking points and drivers of activity on commercial real estate development and investment.

In October 2023, the benchmark 10-year U.S.

Treasury yield peaked above 5.0% for the first time since 2007, concluding a more than 160 bps increase since May 2023.

Rates remained volatile through the end of the year with the 10-year yield finishing below 4.0%.

This volatility translated directly to capital markets and investment volume as sellers’ pricing expectations lagged real-time changes in rates.

According to CBRE, year-to-date net lease investment volume fell 55% year over year through the third quarter of 2023.

The industrial market experienced moderate softening on leasing activity and occupancy rates in 2023 relative to 2022.

According to CBRE, annual industrial leasing activity fell by 8.8% year-over-year to 790.3 million square feet, with lease renewals accounting for 267 million square feet of the total.

In addition, construction completions as of the fourth quarter of 2023 outpaced net absorption for the sixth consecutive quarter, causing the overall vacancy rate to increase by 50 bps quarter-over-quarter to 4.8%, the highest level since the third quarter of 2020 but still well below historical averages.

Industrial construction activity is expected to slow as rates have already forced new starts to decline significantly.

Despite slower starts and leasing activity, industrial rents nationwide grew 6.0% year-over-year, and fundamentals remain strong relative to historical levels coming off record-breaking years in 2021 and 2022.

The office market continued to struggle in 2023.

According to Cushman Wakefield, office net absorption was negative in the fourth quarter of 2023 for the eighth consecutive quarter.

Despite weakening overall demand, some office markets have seen signs of promise driven by return-to-work mandates.

According to JLL Research, these mandates vary by geography, industry, and function.

We expect office supply to decline in 2024 as leases roll and owners convert obsolete product to higher and better uses supported by state and local government initiatives.

These initiatives include California’s $400.0 million incentives for commercial-to-residential conversions and the District of Columbia’s 20-year tax abatement to property owners who add 10 or more housing units and change a building’s use.

We collected 100% of all outstanding base rent for calendar year 2023.

This is a testament to the strength of our credit underwriting and asset management teams.

We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in cyclical retail, hospitality, airlines, or oil & gas industries.

Additionally, our 135 properties are located across 27 states, which we believe mitigates our exposure to economic issues, including regulations or laws implemented by state and local governments in any one geographic market or area.

We also have a cap on industry sector concentration to further diversify our portfolio and mitigate risk.

We believe we currently have adequate liquidity in the near term, and we believe the availability on our Credit Facility is sufficient to cover all near-term debt obligations and operating expenses and to continue our industrial growth strategy.

We are in compliance with all of our debt covenants.

We amended our Credit Facility in 2019 to increase our borrowing capacity and extend its maturity date.

We believe we have adequate liquidity in the near term, and we believe the availability on our Credit Facility is sufficient to cover all near-term debt obligations and operating expenses and to continue our industrial growth strategy.

As of December 31, 2023, we had $56.5 million in available liquidity via our revolving credit facility and cash on hand and were in compliance with all of our debt covenants.

We amended our Credit Facility in 2019 to increase our borrowing capacity and extend its maturity

In addition, on August 18, 2022, we added a new $150.0 million term loan component.

We have had numerous conversations with lenders, and credit continues to be available for well capitalized borrowers.

We continue to monitor our portfolio and intend to maintain a reasonably conservative liquidity position for the foreseeable future.

We have numerous ongoing conversations with lenders, and credit continues to be available for well capitalized borrowers.

Other Business Environment Considerations

The short-term and long-term economic implications are unknown, in relation to recent world events including inflation, supply chain disruptions and related inventory management issues, labor shortages, rising interest rates, public health emergencies such as the COVID-19 pandemic and associated governmental responses in addition to any subsequent shift in policy, new regulations or the long-term impact of social and infrastructure spending and tax reform in the U.S.

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

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

The London Inter-bank Offered Rate (“LIBOR”) is anticipated to be phased out by June 2023, and LIBOR is being transitioned to a new standard rate, the Secured Overnight Financing Rate (“SOFR”).

During 2022, we began transitioning our variable rate debt to SOFR, and, 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 mid-2023 phase out of LIBOR.

The geopolitical landscape remains fractured due to recent world events.

Many domestic manufacturing businesses seek to limit supply chain disruptions by bringing their operations back to the U.S.

The COVID-19 pandemic is largely behind us, but a level of work-from-home trends appear to be here to stay.

Industrial demand will be further buoyed by government investment in infrastructure and advanced manufacturing operations.

The Federal Reserve recently indicated it does not expect additional rate increases, but the timing of an easing cycle remains unknown.

These uncertain times create both risks and opportunities for us and our tenants, and we believe we are well-capitalized and positioned to take advantage.

The London Inter-bank Offered Rate (“LIBOR”) was phased out by June 2023, and transitioned to a new standard rate, the Secured Overnight Financing Rate (“SOFR”).

During 2022, we began transitioning our variable rate debt to SOFR, and, at December 31, 2023, all of our variable rate debt was based upon SOFR.

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

At December 31, 2022, we only had five partially vacant buildings and three fully vacant buildings.

We believe our lease expiration schedule for 2023 is quite manageable as it equates to 7.0% of annual rental income with a majority of the expirations due to occur in the second half of the year.

At December 31, 2023, we had four partially vacant buildings and three fully vacant buildings.

We believe our lease expiration schedule for 2024 is manageable as it equates to 4.5% of annual lease revenue with all of the expirations due beyond the first quarter of the year.

Property acquisitions increased during the third and fourth quarters of the year ended December 31, 2023 equating to almost $24.7 million in volume.

Every acquisition was industrial in nature, reinforcing our commitment to increase our portfolio’s industrial allocation.

All but one acquisition was industrial in nature, reinforcing our commitment to increase our portfolio’s industrial allocation.

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

4 unchanged sentences

Sale Activity

During the year ended December 31, 2022, we continued to execute our capital recycling program, whereby we sell non-core properties and redeploy proceeds to fund property acquisitions in our target secondary growth markets, as well as repay outstanding debt.

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

During the year ended December 31, 2022, we sold five non-core properties, located in Jupiter, Florida, Parsippany, New Jersey, Boston Heights, Ohio, Columbus, Ohio, and Allen, Texas, which are summarized in the table below (dollars in thousands):

During the year ended December 31, 2023, we continued to execute our capital recycling program, whereby we sold non-core properties and redeployed proceeds to fund property acquisitions in our target secondary growth markets, as well as repay outstanding debt.

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

During the year ended December 31, 2023, we sold seven non-core properties, located in Baytown, Texas;

Birmingham, Alabama;

Pittsburgh, Pennsylvania;

Eatontown, New Jersey;

Taylorsville, Utah;

Columbia, South Carolina;

and Blaine, Minnesota, which are summarized in the table below (dollars in thousands):

Aggregate Square Footage Sold Aggregate Sales Price Aggregate Sales Costs Aggregate Impairment Charge for the Twelve Months Ended December 31, 2023 Aggregate Gain on Sale of Real Estate, net

445,036 $ 39,634 $ 2,626 $ 3,591 $ 7,737

Subsequently, on January 11, 2024, we sold our 114,786 square foot office property in Columbus, Ohio for $4.5 million.

We realized a $0.3 million loss on sale, net.

Acquisition Activity

During the year ended December 31, 2022, we acquired 13 properties, which are summarized below (dollars in thousands):

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

During the year ended December 31, 2023, we acquired five properties, which are summarized below (dollars in thousands):

321,432 19.3 years $ 30,018 $ 528 $ 2,820

6 unchanged sentences

During the year ended December 31, 2023, we had two lease terminations, which are aggregated below (dollars in thousands):

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

Square Footage Reduced Accelerated Rent Accelerated Rent Recognized through December 31, 2023

119,224 $ 2,581 $ 2,134

Financing Activity

During the year ended December 31, 2022, we repaid 14 mortgages, collateralized by 28 properties, which are summarized below (dollars in thousands):

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

During the year ended December 31, 2023, we repaid six mortgages, collateralized by six properties, which are summarized below (dollars in thousands):

Fixed Rate Debt Repaid Interest Rate on Fixed Rate Debt Repaid

$ 58,864 4.69 %

Aggregate Variable Rate Debt Repaid Weighted Average Interest Rate on Variable Rate Debt Repaid

$ 30,336 LIBOR/SOFR + 2.50%

During the year ended December 31, 2022, we issued six mortgages, collateralized by 11 properties, which are summarized below (dollars in thousands):

During the year ended December 31, 2023, we issued three mortgages, collateralized by three properties, which are summarized below (dollars in thousands):

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

$ 9,000 (1) 6.10 %

(1) We issued $10.0 million of fixed rate debt with a maturity date of May 4, 2027, in connection with our two-property portfolio we 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 our 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 our 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 our property acquisition on September 16, 2022.

The interest rate is swapped to a fixed rate of 5.39%.

We issued $6.6 million of swapped to fixed rate debt with a maturity date of September 16, 2029, in connection with the property acquisition on October 26, 2022.

The interest rate is swapped to a fixed rate of 5.90%.

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 year ended December 31, 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

(1) We issued $9.0 million of fixed rate debt with an interest rate of 6.10% and a maturity date of September 1, 2028, in connection with three of our acquisitions during the year.

During the year ended December 31, 2023, we extended the maturity date of one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):

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

$ 8,769 6.50 % 1.0 year

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.

Equity Activity

Common Stock ATM Program

During the year ended December 31, 2022, we sold 2.1 million shares of common stock, raising approximately $43.2 million in net proceeds under our Common ATM Program, pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $250.0 million (the “Common Stock ATM Program”).

As of December 31, 2022, we had a remaining capacity to sell up to $23.9 million of common stock under the Common Stock Sales Agreement.

The proceeds from these issuances were used to acquire real estate, repay outstanding debt and for other general corporate purposes.

On February 22, 2022, we entered into Amendment No.

1 to the At-the-Market Equity Offering Sales Agreement, dated December 3, 2019 (together, the “Prior Common Stock Sales Agreement”).

The amendment permitted shares of common stock

to be issued pursuant to the Prior Common Stock Sales Agreement under the 2020 Registration Statement, and future registration statements on Form S-3 (the “Prior Common Stock ATM Program”).

During the year ended December 31, 2023, we sold 0.2 million shares of common stock, raising approximately $4.0 million in net proceeds under our At-the-Market Equity Offering Sales Agreement with sales agents Robert W.

Incorporated (“Baird”), Goldman Sachs & Co.

LLC (“Goldman Sachs”), Stifel, Nicolaus & Company, Incorporated, (“Stifel”) BTIG, LLC, and Fifth Third Securities, Inc.

(“Fifth Third”).

We terminated 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.

On March 3, 2023, we entered into an At-the-Market Equity Offering Sales Agreement (the “2023 Common Stock Sales Agreement”), with BofA Securities, Inc.

(“BofA”), Goldman Sachs, Baird, KeyBanc Capital Markets Inc.

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

In connection with the 2023 Common Stock Sales Agreement, we filed prospectus supplements dated March 3, 2023 and March 7, 2023, to the prospectus dated November 23, 2022, with the SEC, for the offer and sale of an aggregate offering amount of $250.0 million of common stock.

During the year ended December 31, 2023, we sold 1,776 shares of common stock, raising approximately $0.02 million in net proceeds under the 2023 Common Stock Sales Agreement.

Common Stock Buyback Program

During the year ended December 31, 2023, we repurchased $1.0 million worth of our common stock through our common stock repurchase program.

Amendment to Articles of Restatement

5 unchanged sentences

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

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

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

Articles Supplementary Reclassifying Remaining Series D Preferred Stock

On August 5, 2021, we filed Articles Supplementary (the “Reclassification Articles Supplementary”) with the SDAT, pursuant to which our Board of Directors reclassified and designated the remaining 2,490,445 shares of authorized but unissued Series D Preferred Stock as additional shares of common stock.

After giving effect to the filing of the Reclassification Articles

Supplementary in August 2021, our authorized capital stock consisted of 62,290,000 shares of common stock, 6,760,000 shares of Series E Preferred Stock, 26,000,000 shares of Series F Preferred Stock, 4,000,000 shares of Series G Preferred Stock, and 950,000 shares of senior common stock.

After giving effect to the filing of the Reclassification Articles Supplementary in August 2021, our authorized capital stock consisted of 62,290,000 shares of common stock, 6,760,000 shares of Series E Preferred Stock, 26,000,000 shares of Series F Preferred Stock, 4,000,000 shares of Series G Preferred Stock, and 950,000 shares of senior common stock.

The Reclassification Articles Supplementary did not increase our authorized shares of capital stock.

2 unchanged sentences

Bancorp Investments, Inc., pursuant to which we could, from time to time, offer to sell shares of our Series E Preferred Stock, in an aggregate offering price of up to $100.0 million (the “Series E Preferred ATM Program”).

We did not sell any shares of our Series E Preferred Stock pursuant to the Series E Preferred Stock Sales Agreement during the year ended December 31, 2022.

As of December 31, 2022, we had remaining capacity to sell up to $92.8 million of Series E Preferred Stock under the Series E Preferred ATM Program.

We did not sell any shares of our Series E Preferred

Stock pursuant to the Series E Preferred Stock Sales Agreement during the year ended December 31, 2023.

We terminated the Series E Preferred Stock Sales Agreement effective February 10, 2023 in connection with the expiration of the 2020 Registration Statement on February 11, 2023.

8 unchanged sentences

Of the $800.0 million of available capacity under our 2020 Registration Statement, approximately $636.5 million was reserved for the sale of Series F Preferred Stock.

As of December 31, 2022, we had the ability to issue up to $644.0 million of securities under the 2020 Registration Statement.

The 2020 Registration Statement expired on February 11, 2023.

6 unchanged sentences

We sold 246,775 shares of our Series F Preferred Stock, raising $5.6 million in net proceeds, during the year ended December 31, 2023.

As of December 31, 2022, we had remaining capacity to sell up to $619.6 million of Series F Preferred Stock.

Amendments to Operating Partnership Agreement

2 unchanged sentences

Generally, the Series F Preferred Units provided for under the Amendment have preferences, distribution rights and other provisions substantially equivalent to those of the Series F Preferred Stock.

and preferences of 6.00% Series G Cumulative Redeemable Preferred Units, a newly-designated class of limited partnership interests (the “Series G Term Preferred Units”).

On June 23, 2021, the Operating Partnership adopted the Third Amendment to its Second Amended and Restated Agreement of Limited Partnership, including Exhibit SGP thereto (collectively, the “Third Amendment”), establishing the rights, privileges, and preferences of 6.00% Series G Cumulative Redeemable Preferred Units, a newly-designated class of limited partnership interests (the “Series G Term Preferred Units”).

The Third Amendment provides for the Operating Partnership’s establishment and issuance of an equal number of Series G Term Preferred Units as are issued shares of Series G Preferred Stock by the Company in connection with the offering of Series G Preferred Stock upon the Company’s contribution to the Operating Partnership of the net proceeds of the offering of Series G Preferred Stock.

2 unchanged sentences

Amendments to the Advisory Agreement

On July 14, 2020, we amended and restated our existing advisory agreement with our Advisor (as defined herein), as amended from time to time (the “Advisory Agreement”), by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Sixth Amended Advisory Agreement”).

The Company’s entrance into the Sixth Amended Advisory Agreement was approved by its Board of Directors, including, specifically, unanimously by its independent directors.

The Sixth Amended Advisory Agreement revised and replaced the Fifth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Fifth Amended Advisory Agreement”), under which the calculation of the Base Management Fee was based on Total Equity (as was defined in the Fifth Amended Advisory Agreement), with a calculation based on Gross Tangible Real Estate (as defined in the Sixth Amended Advisory Agreement).

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 as the current gross value of the Company’s 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 remained unchanged.

The revised Base Management Fee calculation began with the fee calculations for the quarter ended September 30, 2020.

On January 10, 2023, we amended the Sixth Amended Advisory Agreement, by entering into the Seventh Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Seventh Amended Advisory Agreement”), which was approved unanimously by our board of directors, including specifically, our independent directors.

The Seventh Amended Advisory Agreement waived the payment of the incentive fee, as applicable, for the quarters ending March 31, 2023 and June 30, 2023.

On January 10, 2023, we amended and restated the Sixth Amended Advisory Agreement by entering into the Seventh Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Seventh Amended Advisory Agreement”), as approved unanimously by our Board of Directors, including specifically, our independent directors.

The Seventh Amended Advisory Agreement contractually eliminated the payment of the incentive fee for the quarters ended March 31, 2023 and June 30, 2023.

The calculation of the other fees was unchanged.

On July 11, 2023, the Company entered into the Eighth Amended Advisory Agreement, as approved unanimously by our Board of Directors, including specifically, our independent directors.

The Eighth Amended Advisory Agreement contractually eliminated the payment of the incentive fee for the quarters ended September 30, 2023 and December 31, 2023.

In addition, the Eighth Amended Advisory Agreement also clarified that for any future quarter whereby an incentive fee would exceed by greater than 15% of the average quarterly incentive fee paid, the measurement would be versus the last four quarters where an incentive fee was actually paid.

The calculation of the other fees remains unchanged.

For the year ended December 31, 2023, the contractually eliminated incentive fee would have been $4.6 million.

Non-controlling Interests in Operating Partnership

4 unchanged sentences

As of December 31, 2023 and 2022, there were 310,643 and 391,468 outstanding OP Units held by Non-controlling OP Unitholders, respectively.

Personnel Activity

On January 11, 2022, the board of directors appointed Mr.

Arthur “Buzz” Cooper as our co-president to serve alongside Mr.

Robert Cutlip, who announced his intention to resign on or about June 30, 2022.

Cutlip’s resignation was in connection with his planned retirement.

Cutlip resigned as of June 30, 2022, and Mr.

Cooper is now our sole president.

Our Adviser and Administrator

3 unchanged sentences

Gladstone also serves as the chairman and chief executive officer of both our Adviser and Administrator.

Brubaker, our vice chairman and chief operating officer, is also the vice chairman and chief operating officer of our Adviser and Administrator.

Brubaker, our chief operating officer, is also the vice chairman and chief operating officer of our Adviser and Administrator.

Cooper, our president, is also an executive managing director of our Adviser.

19 unchanged sentences

Base Management Fee

Prior to entering into the Sixth Amended Advisory Agreement in July of 2020, on January 8, 2019, we entered into a Fifth Amended Advisory Agreement, effective as of October 1, 2018, to clarify that the definition of Total Equity included outstanding OP Units issued to Non-controlling OP Unitholders.

Our entrance into the Advisory Agreement, and all amendments thereto, have been approved unanimously by our Board of Directors.

Our Board of Directors also reviews and considers renewing the agreement with our Adviser each July.

As a result of the Fifth Amended Advisory Agreement, the calculation of the Base Management Fee equaled 1.5% of our Total Equity, which was our total stockholders’ equity plus total mezzanine equity (before giving effect to the Base Management Fee and incentive fee), adjusted to exclude the effect of any unrealized gains or losses that do not affect realized net income (including impairment charges), adjusted for any one-time events and certain non-cash items (the later to occur for a given quarter only upon the approval of our Compensation Committee), and adjusted to include OP Units held by Non-controlling OP Unitholders.

The fee was calculated and accrued quarterly as 0.375% per quarter of such adjusted total stockholders’ equity figure.

Our Adviser does not charge acquisition or disposition fees when we acquire or dispose of properties as is common in other externally managed REITs;

however, our Adviser may earn fee income from our borrowers, tenants or other sources.

On July 14, 2020, the Company entered into the Sixth Amended Advisory Agreement, which replaced the previous calculation of the Base Management Fee.

3 unchanged sentences

On January 10, 2023, we amended and restated the Sixth Amended Advisory Agreement, by entering into the Seventh Amended Advisory Agreement, which was approved unanimously by our Board of Directors, including specifically, our independent directors.

The Seventh Amended Advisory Agreement waived the payment of the incentive fee, as applicable, for the quarters ending March 31, 2023 and June 30, 2023.

The Seventh Amended Advisory Agreement contractually eliminated the payment of the incentive fee, as applicable, for the quarters ended March 31, 2023 and June 30, 2023.

The calculation of the other fees remains unchanged.

On July 11, 2023, we entered into the Eighth Amended Advisory Agreement, as approved unanimously by our Board of Directors, including specifically, our independent directors.

The Eighth Amended Advisory Agreement contractually eliminated the payment of the incentive fee for the quarters ended September 30, 2023 and December 31, 2023.

The calculation of the other fees remains unchanged.

Incentive Fee

18 unchanged sentences

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.

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.

Critical Accounting Policies

21 unchanged sentences

Intangible assets are generally amortized over the respective life of the leases, which normally range from 10 to 15 years.

Also, we depreciate our buildings over up to 39 years, but do not depreciate our land.

Also, we depreciate our buildings for a period of time up to 39 years, but do not depreciate our land.

These differences in timing could have a material impact on our results of operations.

Asset Impairment Evaluation

Real Estate Impairment Evaluation

We periodically review the carrying value of each property to determine if circumstances that indicate impairment in the carrying value of the investment exist or that depreciation periods should be modified.

5 unchanged sentences

Using the methodology discussed above, we evaluated our entire portfolio, as of December 31, 2023, for any impairment indicators and performed an impairment analysis on select properties that had an indication of impairment.

See Note 5 - Real Estate Dispositions, Held for Sale, and Impairment Charges - Impairment Charges of the accompanying consolidated financial statements.

We will continue to monitor our portfolio for any other indicators of impairment.

16 unchanged sentences

Impairment charge 19,296 12,092 7,204 59.6 %

Total operating expense before incentive fee waiver $ 117,758 $ 102,816 $ 14,942 14.5 %

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

Total operating expenses $ 116,103 $ 116,248 $ (145) (0.1) %

1 unchanged sentence

Interest expense $ (37,330) $ (32,457) $ (4,873) 15.0 %

Gain (loss) on sale of real estate, net 10,052 (1,148) 11,200 (975.6) %

Gain on sale of real estate, net 7,737 10,052 (2,315) (23.0) %

Gain on debt extinguishment, net 2,830 — 2,830 100.0 %

Other income 204 454 (250) (55.1) %

1 unchanged sentence

Net income $ 4,922 $ 10,782 $ (5,860) (54.3) %

Distributions attributable to Series D, E, F, and G preferred stock (11,903) (11,488) (415) 3.6 %

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

Distributions attributable to Series E, F, and G preferred stock (12,285) (11,903) (382) 3.2 %

Distributions attributable to senior common stock (430) (458) 28 (6.1) %

5 unchanged sentences

FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) $ 59,214 $ 61,100 $ (1,886) (3.1) %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted, as adjusted for comparability (1) $ 61,100 $ 59,704 $ 1,396 2.3 %

FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1) $ 1.46 $ 1.55 $ (0.09) (5.8) %

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1) $ 1.46 $ 1.54

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted, as adjusted for comparability (1) $ 1.54 $ 1.60 $ (0.06) (3.8) %

$ (0.08) (5.2) %

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

12 unchanged sentences

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

Lease revenues from same store properties increased for the year ended December 31, 2022, primarily due to accelerated rent from one tenant that terminated their lease early and will remain in the building through January 2023, partially offset by less income recognized from tenant funded projects, where our tenants used their capital to improve our buildings.

Lease revenues increased for acquired and disposed of properties for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to accelerated rent from two lease terminations, one of which related to a property we sold.

This was coupled with our acquisition of 13 properties during the year ended December 31, 2022, and the inclusion of a full year of lease revenues recorded in 2022 for 11 properties acquired during the year ended December 31, 2021, partially offset by a decrease in lease revenues from the eight properties sold during and subsequent to December 31, 2021.

Lease revenues increased for properties with vacancy for the year ended December 31, 2022 due to vacant space being leased.

Lease revenues from same store properties increased for the year ended December 31, 2023, due to an increase in recovery revenue from property operating expenses, accelerated rent from a tenant lease termination, and income recognized from tenant funded projects which were determined to be lessor assets.

Lease revenues decreased for acquired and disposed of properties for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to accelerated rent from three lease terminations, all related to properties we sold or are currently held for sale.

This was coupled with a decrease in lease revenues from the 12 properties sold during and subsequent to December 31, 2022 and one held for sale property that went vacant in early 2023.

This was partially offset with our acquisition of five properties during the year ended December 31, 2023, and the inclusion of a full year of lease revenues recorded in 2023 for 13 properties acquired during the year ended December 31, 2022.

Lease revenues increased for properties with vacancy for the year ended December 31, 2023 due to an increase in rental revenue from partially leasing vacant space and an increase in variable lease payments due to an increase in property operating expenses.

Operating Expenses

Depreciation and amortization increased for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to recognizing a full year of depreciation for the 11 properties acquired during the year ended December 31, 2021, as well as increased depreciation expense from the 13 properties acquired during the year ended December 31, 2022, partially offset by a decrease in depreciation expense for the five properties sold during the year ended December 31, 2022.

Depreciation and amortization decreased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to reduced depreciation and amortization expense for the seven properties sold during the year ended December 31, 2023, coupled with the correction of certain errors in the calculation of the depreciation of certain tenant funded improvement assets, as outlined in Note 9.

This was partially offset by a full year of depreciation and amortization for the 13 properties acquired during the year ended December 31, 2022, as well as increased depreciation and amortization expense from the five properties acquired during the year ended December 31, 2023.

For the year ended December 31,

6 unchanged sentences

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

Property operating expenses increased for same store properties for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to general cost increases due to the inflationary environment.

The decrease in property operating expenses on acquired and disposed of properties for the year ended December 31, 2022, as compared to the year ended December 31, 2021, is a result of a decrease in property operating expenses from eight property sales during and subsequent to December 31, 2021, partially offset by increased property operating expenses on the 13 properties we acquired during the year ended December 31, 2022, coupled with a full year of property operating expenses for the 11 properties acquired during the year ended December 31, 2021.

The decrease in property operating expenses for properties with vacancy for the year ended December 31, 2022, as compared to the year ended December 31, 2021, is a result of reduced real estate tax during the period, partially offset by general cost increases due to the inflationary environment.

The base management fee paid to the Adviser increased for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to an increase in gross tangible real estate, the main component of the base management fee calculation under the Sixth Amended Advisory Agreement.

Property operating expenses increased for same store properties for the year ended December 31, 2023, as compared to the year ended December 31, 2022, as a result of tenants requiring more employees to return on site, as well as general cost increases due to the inflationary environment.

The decrease in property operating expenses on acquired and disposed of properties for the year ended December 31, 2023, as compared to the year ended December 31, 2022, is a result of a decrease in property operating expenses in relation to properties held for sale or sold during the year that are or were fully vacant.

The increase in property operating expenses for properties with vacancy for the year ended December 31, 2023, as compared to the year ended December 31, 2022, is a result of general cost increases due to the inflationary environment.

The base management fee paid to the Adviser increased minimally for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to an increase in gross tangible real estate, the main component of the base management fee calculation under the Sixth Amended Advisory Agreement.

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

The incentive fee paid to the Adviser increased for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to an increase in pre-incentive fee Core FFO.

The increase in pre-incentive fee Core FFO was primarily due to an increase in lease revenues from the 13 properties acquired during the year ended December 31, 2022,

coupled with a full year of lease revenues from the 11 properties acquired during the year ended December 31, 2021.

The incentive fee paid to the Adviser decreased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to the payment of the incentive fee being contractually eliminated for the quarters ended March 31, 2023 and June 30, 2023, as outlined in the Seventh Amended Advisory Agreement, and for the quarters ended September 30, 2023 and December 31, 2023, as outlined in the Eighth Amended Advisory Agreement.

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

2 unchanged sentences

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

General and administrative expenses increased for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily as a result of an increase in due diligence expenses for potential acquisition targets that were not completed, coupled with an increase in legal fees.

We recorded an impairment charge during the year ended December 31, 2022 on two properties, as we had determined the carrying value of these properties was in excess of the fair market value and not recoverable.

General and administrative expenses increased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily as a result of an increase in professional fees.

We recorded an impairment charge during the year ended December 31, 2023 on five properties, as we had determined the carrying value of these properties was in excess of the fair market value and not recoverable.

Accordingly, we impaired these properties to fair market value.

We did not record an impairment charge during the year ended December 31, 2021.

We recorded an impairment charge on two properties during the year ended December 31, 2022.

Other Income and Expenses

Interest expense increased for the year ended December 31, 2023, as compared to the year ended December 31, 2022.

This increase is primarily a result of increased borrowing costs, as global interest rates have increased to counteract growing inflation, coupled with expensed deferred financing fees associated with mortgage repayments and the Credit Facility amendment.

The gain on sale of real estate, net, during the year ended December 31, 2022 is a result of the sale of five properties.

The loss on sale of real estate, net, during the year ended December 31, 2021 was a result of the sale of three of our properties.

Other income decreased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to legal settlement income earned during the year ended December 31, 2021.

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

Net loss attributable to common stockholders and Non-controlling OP Unitholders decreased for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to asset acquisition activity causing an increase in operating revenues during and subsequent to December 31, 2021, coupled with a gain on sale of real estate, net, from five property sales, partially offset by an increase in interest expense due to higher borrowing costs due to global interest rate expansion.

A discussion of the results of operations for the year ended December 31, 2020 is found in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 15, 2022, which is available free of charge on the SEC's website at www.sec.gov and on the investors section of our website at www.GladstoneCommercial.com.

This increase is primarily the result of increased interest costs on variable rate debt, as global interest rates have increased, coupled with the maturity of several interest rate caps that were replaced by swaps.

The gain on sale of real estate, net, during the year ended December 31, 2023 is a result of the sale of seven properties.

The gain on sale of real estate, net, during the year ended December 31, 2022 was a result of the sale of five properties.

We also recognized a gain on debt extinguishment during the year ended December 31, 2023 in conjunction with one of our sales;

no debt extinguishment occurred during the year ended December 31, 2022.

Other income decreased minimally during the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to nonrecurring income items that occurred during the year ended December 31, 2022.

Net Income Available to Common Stockholders and Non-controlling OP Unitholders

Net income available to common stockholders and Non-controlling OP Unitholders decreased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to an increase in interest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion, coupled with impairment charges.

This was partially offset by the contractual elimination of the incentive fee for the year ended December 31, 2023 and reduced depreciation and amortization expense due to the correction of certain errors in the calculation of the depreciation of certain tenant funded improvement assets, as outlined in Note 9.

A discussion of the results of operations for the year ended December 31, 2021 is found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 22, 2023, which is available free of charge on the SEC's website at www.sec.gov and on the investors section of our website at www.GladstoneCommercial.com.

Liquidity and Capital Resources

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowing capacity under our Revolver and issuing additional equity securities.

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowing capacity under our Revolver and through issuance of additional equity securities.

Our available liquidity as of December 31, 2023, was $56.5 million, including $12.0 million in cash and cash equivalents and an available borrowing capacity of $44.5 million under our Revolver.

4 unchanged sentences

Accordingly, to ensure that we are able to effectively execute our business strategy, we routinely review our liquidity requirements and continually evaluate all potential sources of liquidity.

Our short-term liquidity needs include proceeds necessary to fund our distributions to stockholders, pay the debt service costs on our existing long-term mortgages, refinancing

maturing debt and fund our current operating costs.

Our short-term liquidity needs include proceeds necessary to fund our distributions to stockholders, pay the debt service costs on our existing long-term mortgages, refinancing maturing debt and fund our current operating costs.

Our long-term liquidity needs include proceeds necessary to grow and maintain our portfolio of investments.

10 unchanged sentences

As of February 21, 2024, there is no limit on the aggregate amount of the securities that we may offer pursuant to the 2022 Registration Statement.

At December 31, 2022, we had the ability to raise up to $644.0 million of additional equity capital through the sale and issuance of securities that were registered under the 2020 Registration Statement.

Of the $644.0 million of available capacity under our 2020 Registration Statement, approximately $23.9 million was reserved for additional sales under our Common Stock ATM Program, and approximately $619.6 million was reserved for the sale of our Series F Preferred Stock as of February 22, 2023.

As of December 31, 2023, we had 41 mortgage notes payable in the aggregate principal amount of $298.1 million, collateralized by a total of 47 properties with a remaining weighted average maturity of 4.1 years.

The weighted-average interest rate on the mortgage notes payable as of December 31, 2023 was 4.19%.

We continue to see banks and other non-bank lenders willing to issue mortgages.

Consequently, we remain focused on obtaining mortgages through regional banks, non-bank lenders and, to a lesser extent, the commercial mortgage backed securities market.

We continue to see banks and other non-bank lenders willing to issue mortgages for properties comparable to those held in our portfolio on terms that are commercially reasonable.

Consequently, we remain focused on obtaining mortgages through insurance companies, regional banks, non-bank lenders and, to a lesser extent, the commercial mortgage backed securities market.

As of December 31, 2023, we had mortgage debt in the aggregate principal amount of $25.1 million payable during 2024 and $36.5 million payable during 2025.

The 2023 principal amounts payable include both amortizing principal payments and five balloon principal payments.

The 2024 principal amounts payable include both amortizing principal payments and two balloon principal payments.

We anticipate being able to refinance our mortgages that come due during 2024 and 2025 with a combination of new mortgage debt, availability under our Credit Facility and the issuance of additional equity securities.

We have successfully repaid $135.2 million of debt over the past 12 months with either new mortgage debt or by generating additional availability by adding properties to our unsecured pool under our Credit Facility, as well as additional funds generated from our 2022 Credit Facility amendment, which resulted in us reducing our Term Loan B from $65.0 million to $60.0 million, increasing our Revolver from $100.0 million to $125.0 million, and adding Term Loan C, a new $150.0 million term loan component.

We have successfully repaid $58.9 million of debt over the past 12 months with either new mortgage debt or by generating additional availability by adding properties to our unsecured pool under our Credit Facility.

Operating Activities

Net cash provided by operating activities during the year ended December 31, 2023, was $60.4 million, as compared to net cash provided by operating activities of $69.2 million for the year ended December 31, 2022.

This change was primarily a result of an increase in operating revenues received from the properties acquired during the past 12 months, partially offset by an increase in interest expense due to higher interest rates on variable rate debt.

This change was primarily a result of an increase in interest expense due to higher interest rates on variable rate debt.

The majority of cash from operating activities is generated from the rental payments and operating expense recoveries that we receive from our tenants.

1 unchanged sentence

Investing Activities

Net cash used in investing activities during the year ended December 31, 2022, was $82.5 million, which primarily consisted of the acquisition of 13 properties, coupled with the capital improvements performed at certain of our properties, partially offset by proceeds from the sale of real estate.

Net cash provided by investing activities during the year ended December 31, 2023, was $1.1 million, which primarily consisted of proceeds from the sale of real estate, partially offset by the acquisition of five properties, coupled with the capital improvements performed at certain of our properties.

Financing Activities

Net cash provided by financing activities during the year ended December 31, 2022, was $16.2 million, which primarily consisted of proceeds from our common and preferred equity offerings, mortgage borrowings on new acquisitions and a net increase in Credit Facility borrowings, partially offset by the repayment of outstanding mortgage debt and distributions paid to our stockholders and Non-controlling OP Unitholders.

Net cash provided by financing activities for the year ended December 31, 2021, was $21.8 million, which primarily consisted of proceeds from our common and preferred stock offerings, mortgage borrowings on new acquisitions and borrowings on our Credit Facility, partially offset by distributions paid to our stockholders and Non-controlling OP Unitholders.

Net cash used in financing activities during the year ended December 31, 2023, was $61.4 million, which primarily consisted of proceeds from our common and preferred equity offerings, mortgage borrowings on new acquisitions and a net increase in Credit Facility borrowings, partially offset by the repayment of outstanding mortgage debt and distributions paid to our stockholders and Non-controlling OP Unitholders.

Net cash provided by financing activities for the year ended December 31, 2022, was $16.2 million, which primarily consisted of proceeds from our common and preferred stock offerings, mortgage

borrowings on new acquisitions and a net increase in borrowings on our Credit Facility, partially offset by the repayment of outstanding mortgage debt and distributions paid to our stockholders and Non-controlling OP Unitholders.

Credit Facility

10 unchanged sentences

We entered into multiple interest rate cap agreements on Term Loan B, which cap LIBOR from 1.50% to 1.75%.

During 2022, we began transitioning our variable rate debt to SOFR, and, at December 31, 2023, all of our variable rate debt was based upon SOFR.

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.

4 unchanged sentences

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 net proceeds of the transaction were used to repay the then-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.

12 unchanged sentences

(1) Debt obligations represent borrowings under our Revolver, which represents $75.8 million of the debt obligation due in 2026, Term Loan A, which represents $160.0 million of the debt obligation due in 2027, Term Loan B, which represents $60.0 million of the debt obligation due in 2026, Term Loan C, which represents $150.0 million of the debt obligation due in 2028 and mortgage notes payable that were outstanding as of December 31, 2023.

This figure does not include $(0.1) million of premiums and (discounts), net, and $6.0 million of deferred financing costs, net, which are reflected in mortgage notes payable, net, borrowings under Revolver, and borrowings under Term Loan A, Term Loan B and Term Loan C, net, on the consolidated balance sheet.

This figure does not include $(0.04) million of premiums and (discounts), net, and $5.0 million of deferred financing costs, net, which are reflected in mortgage

notes payable, net, borrowings under Revolver, and borrowings under Term Loan A, Term Loan B and Term Loan C, net, on the consolidated balance sheet.

(2) Interest on debt obligations includes estimated interest on our borrowings under our Revolver, Term Loan A, Term Loan B, Term Loan C and mortgage notes payable.

2 unchanged sentences

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

(4) Purchase obligations consist of tenant and capital improvements at 10 of our properties.

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

Off-Balance Sheet Arrangements

11 unchanged sentences

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

FFO as adjusted for comparability is

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

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

The following table provides a reconciliation of our FFO and FFO as adjusted for comparability for the years ended December 31, 2023 and 2022 to the most directly comparable GAAP measure, net income (loss), and a computation of basic and diluted FFO and diluted FFO as adjusted for comparability per weighted average total share:

4 unchanged sentences

Distributions attributable to preferred and senior common stock (12,715) (12,361)

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

Loss on extinguishment of Series F preferred stock (11) (10)

3 unchanged sentences

Impairment charge 19,296 12,092

Loss on sale of real estate, net — 1,148

Gain on sale of real estate, net (7,737) (10,052)

Gain on debt extinguishment, net (2,830) —

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 58,784 $ 60,642

1 unchanged sentence

Weighted average Non-controlling OP Units outstanding 382,563 294,941

Total common shares and Non-controlling OP Units 39,245,675 36,854,293

Weighted average common shares and Non-controlling OP Units 40,325,730 39,245,675

Basic FFO per weighted average share of common stock and Non-controlling OP Unit (1) $ 1.46 $ 1.55

2 unchanged sentences

Distributions attributable to preferred and senior common stock (12,715) (12,361)

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

Loss on extinguishment of Series F preferred stock (11) (10)

4 unchanged sentences

Income impact of assumed conversion of senior common stock 430 458

Loss on sale of real estate, net — 1,148

Gain on sale of real estate, net (7,737) (10,052)

Gain on debt extinguishment, net (2,830) —

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions (1) $ 59,214 $ 61,100

4 unchanged sentences

Diluted FFO per weighted average share of common stock and Non-controlling OP Unit (1) $ 1.46 $ 1.54

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

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions $ 61,100 $ 57,563

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

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions, as adjusted for comparability $ 61,100 $ 59,704

Weighted average common shares and Non-controlling OP Units outstanding - diluted 39,608,921 37,358,255

Diluted FFO per weighted average share of common stock and Non-controlling OP Unit, as adjusted for comparability $ 1.54 $ 1.60

Distributions declared per share of common stock and Non-controlling OP Unit $ 1.2000 $ 1.5048

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 7. Management’s Discussion and Analysis