What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-11-06 · 160 added, 236 removed, 280 unchanged (59% of the section changed)

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We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.

This Quarterly Report includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties.

Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

We have not independently verified the information contained in such sources.

All references to “we,” “our,” “us” and the “Company” in this Report mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where otherwise noted or where the context indicates that the term means only Gladstone Commercial Corporation.

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All references to annualized generally accepted accounting principles (“GAAP”) rent are rents that each tenant pays in accordance with the terms of its respective lease reported evenly over the non-cancelable term of the lease.

As of November 6, 2023:

As of May 6, 2024:

• we owned 131 properties totaling 16.7 million square feet of rentable space, located in 27 states;

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Business Environment

The commercial real estate sector was marked by continued uncertainty and volatility in the third quarter of 2023.

The Federal Reserve is signaling a holding pattern on its short-term rate increases as inflation levels out, but long-term rates have risen significantly over the last few months.

These long-term rates have slowed the mortgage market which has, in turn, slowed the market for acquisitions.

Real estate transaction volumes remain low, as tightened credit standards and increasing capital costs have sidelined many investors.

Overall industrial fundamentals remain sound, and the sector continues to outperform other property types.

According to Cushman Wakefield, the third quarter of 2023 posted 46.2 million square feet of net absorption, 12.7% lower than in the second quarter of 2023.

Absorption levels for the first three quarters of 2023 were below where they had been in the years leading up to

the pandemic, which were historically strong years in the broader context of the e-commerce demand boom kick-started by the pandemic.

New deliveries totaled 171.8 million square feet, an 18.7% increase over the 144.7 million square feet delivered in the second quarter of 2023.

This record amount of new deliveries pushed the vacancy rate to 4.7%, which is still well below the 15-year historical average of 6.8%.

The Sunbelt continues to outperform, with Savannah, Dallas-Fort Worth, Charlotte, and Houston all exceeding 4.0 million square feet of net occupancy gains during the third quarter.

While net absorption remains positive, the national under construction pipeline continued to shrink by 96.7 million square feet.

According to Cushman Wakefield, this is the smallest pipeline since the second quarter of 2021.

The office sector continued to weaken in the second quarter of 2023.

According to Jones Lang LaSalle, overall office vacancy increased 39 basis points to 21.0%, but a slowing volume of deliveries and increased inventory removals point to stabilization in 2024.

Only 7.9 million square feet of new product has broken ground in 2023 to date, which will limit future new deliveries.

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

The commercial real estate sector continued to face uncertainty and volatility in the first quarter of 2024.

Although the Federal Reserve hinted at potential rate cuts at the end of 2023, higher than expected CPI data, as reported by the U.S.

Bureau of Labor Statistics for all urban consumers, during the first quarter of 2024 has led to a rise in long-term interest rates.

This increase has slowed the mortgage market and consequently dampened acquisition activity.

As a result, real estate transaction volumes have remained low, with tightened credit standards and rising capital costs preventing many investors from entering the market.

Despite capital markets volatility, the industrial sector continues to demonstrate strong fundamentals, consistently outperforming other real estate categories.

Cushman & Wakefield plc (“Cushman”) reported healthy leasing activity in the first quarter of 2024, with transactions amounting to 128.7 million square feet, a 3% increase over the 10-year pre-pandemic average (2010-2019).

Net absorption fell quarter over quarter from 48 million square feet to 14 million square feet, but the four-quarter rolling average of 42 million square feet remains in Cushman’s range for 2024.

Although new completions continue to exceed net absorption, leading to a rise in the overall vacancy rate, the vacancy rate of 5.8% in Q1 2024 remains below the historical average of 7.0% according to Cushman.

Year-over-year, Cushman reports that industrial rents increased by 6%, compared to 10% in 2023 and 20% in 2022.

Notably, Cushman reports that eight markets recorded net occupancy gains exceeding 1.0 million square feet in Q1 2024, with significant contributions from Houston (5.1 million square feet), Savannah (3.6 million square feet), Chicago (2.8 million square feet), and Austin (2.4 million square feet).

Cushman further notes that the construction pipeline has decreased by 10% since the end of 2023 and is down 40% year-over-year as developers pull back, particularly in speculative builds, due to slowing demand for space and rising interest rates.

According to Cushman, this represents the lowest level of future construction activity in three years.

The office sector in Q1 2024 showed mixed outcomes according to Jones Lang LaSalle Incorporated (“JLL”).

Despite improvements in demand, JLL reports that the market still struggles with high negative net absorption, primarily driven by significant space reductions from major occupiers.

JLL reports that the overall vacancy rate increased to 21.9%, reflecting ongoing challenges and that development activity has slowed considerably, with new office supply groundbreakings dropping to less than 300,000 square feet, the lowest recorded in nearly 40 years, which points to limited future deliveries.

JLL notes that this slowdown, combined with robust inventory removals and conversions, suggests potential stabilization and a move towards market equilibrium in the upcoming years.

Interest rates have been fluctuating due to ongoing concerns about inflation, with the future direction of Federal Reserve rate hikes remaining uncertain.

The yield on the 10-year U.S.

Treasury Note has increased significantly since the beginning of 2022 and finished the third quarter of 2023 at 4.57% and subsequent to quarter end has approached 5.00%.

Global recessionary conditions may occur over the next 6-24 months likely stemming from central bank intervention to curb inflation.

We collected 100% of all outstanding cash rents for the nine months ended September 30, 2023.

Treasury Note, which has risen steadily since the beginning of 2022, ended the first quarter of 2024 at 4.21%.

Despite these macro-economic challenges, we believe that we are well positioned to navigate the current business environment.

We collected 100% of all outstanding cash rents for the three months ended March 31, 2024.

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

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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 as of September 30, 2023.

We are in compliance with all of our debt covenants as of March 31, 2024.

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

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.

Based on market observations and conversations we routinely have with lenders, we believe that 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.

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, geopolitical conditions (including instability resulting from military conflicts), 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”) was phased out as of June 2023.

The Secured Overnight Financing Rate (“SOFR”) is now the new rate standard.

During 2022 and the first half of 2023, we began transitioning our variable rate debt to SOFR, and, at September 30, 2023 , all of our variable rate debt was based upon SOFR.

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.

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

Currently, we have four partially vacant buildings and three fully vacant buildings.

Our available vacant space at September 30, 2023 represents 3.4% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $3.5 million .

Currently, we have four partially vacant buildings and no fully vacant buildings.

Our available vacant space at March 31, 2024 represents 1.1% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $1.8 million.

We continue to actively seek new tenants for these properties.

We believe our lease expiration schedule for the remainder of 2023 is quite manageable, as it equates to only 2.1% of our lease revenue at September 30, 2023.

Property acquisitions since the beginning of 2020 have totaled $360.4 million and all transactions were industrial in nature, with a weighted average lease term of 13.4 years and a current weighted average lease term today of 10.9 years.

We believe our lease expiration schedule for the remainder of 2024 is manageable, as it equates to 4.8% of our lease revenue at March 31, 2024.

Property acquisitions since the beginning of 2020 have totaled $372.7 million and all but one transaction was industrial in nature, with a weighted average lease term of 13.6 years and a current weighted average lease term today of 10.7 years.

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

which matures in August 2026, our $160.0 million term loan facility (“Term Loan A”), which matures in August 2027, our $60.0 million term loan facility (“Term Loan B”), which matures in February 2026, and our $150.0 million term loan facility (“Term Loan C”) which matures in February 2028.

Our principal sources of financing generally include the issuance of equity securities, long-term mortgage loans secured by properties, borrowings under our $125.0 million senior unsecured revolving credit facility (“Revolver”), with KeyBank National Association (“KeyBank”), which matures in August 2026, our $160.0 million term loan facility (“Term Loan A”), which matures in August 2027, our $60.0 million term loan facility (“Term Loan B”), which matures in February 2026, and our $150.0 million term loan facility (“Term Loan C”) which matures in February 2028.

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

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Sale Activity

During the nine months ended September 30, 2023, we continued to execute our capital recycling program, whereby we sold non-core properties and redeployed proceeds to either fund property acquisitions in our target secondary growth markets or repay outstanding debt.

During the three months ended March 31, 2024, we continued to execute our capital recycling program, whereby we sold non-core properties.

We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available, and use the sales proceeds to acquire properties in our target, secondary growth markets or pay down outstanding debt.

During the nine months ended September 30, 2023, we sold five non-core properties, located in Baytown, Texas and Birmingham, Alabama, 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 Nine Months Ended September 30, 2023 Aggregate Gain on Sale of Real Estate, net

During the three months ended March 31, 2024, we sold three non-core properties, located in Columbus, Ohio;

Draper, Utah;

and Richardson, Texas, 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 Three Months Ended March 31, 2024 Aggregate Gain on Sale of Real Estate, net

357,179 $ 19,523 $ 898 $ 493 $ 283

On October 2, 2023, we sold our 146,483 square foot office property in Columbia, South Carolina for $7.0 million.

We realized a $2.9 million gain on sale, net.

Acquisition Activity

During the nine months ended September 30, 2023, we acquired three properties located in Riverdale, Illinois and Dallas-Fort Worth, Texas, 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

183,803 18.7 years $ 17,539 $ 349 $ 1,649

On October 12, 2023, we purchased a 69,920 square foot industrial property in Allentown, Pennsylvania for $7.8 million.

The property is fully leased to one tenant on a 20-year lease.

On November 3, 2023, we purchased a 67,709 square foot industrial property in Indianapolis, Indiana for $4.5 million.

The property is fully leased to one tenant on a 20-year lease.

On April 30, 2024, we sold our 29,257 square foot property in Egg Harbor, New Jersey for $2.6 million.

We realized a $0.05 million loss on sale.

Leasing Activity

During and subsequent to the nine months ended September 30, 2023, we executed 12 leases, which are summarized below (dollars in thousands):

During and subsequent to the three months ended March 31, 2024, we executed three leases, which are summarized below (dollars in thousands):

Aggregate Square Footage Weighted Average Remaining Lease Term Aggregate Annualized GAAP Fixed Lease Payments Aggregate Tenant Improvement Aggregate Leasing Commissions

740,948 6.4 years $ 3,030 $ 834 $ 341

During the nine months ended September 30, 2023, we had one lease termination, which is summarized below (dollars in thousands):

Square Footage Reduced Accelerated Rent Accelerated Rent Recognized through September 30, 2023

119,224 $ 2,045 $ 2,045

Financing Activity

During the nine months ended September 30, 2023, we repaid four mortgages, collateralized by four properties, which are summarized in the table below (dollars in thousands):

During the three months ended March 31, 2024, we repaid two mortgages, collateralized by two properties, which are summarized in the table below (dollars in thousands):

Fixed Rate Debt Repaid Interest Rate on Fixed Rate Debt Repaid

$ 17,674 5.05 %

On October 2, 2023, we repaid $9.0 million in fixed rate debt, collateralized by one property, at an interest rate of 4.04%.

We realized a $2.8 million gain on debt extinguishment.

During the nine months ended September 30, 2023, we issued three mortgages, collateralized by three properties, which are summarized in the table below (dollars in thousands):

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

$ 9,000 6.10 %

During the nine months ended September 30, 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

Equity Activities

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

1 to our Common Stock 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 Company’s Registration Statement on Form S-3 (File No.

333-236143) (the “2020 Registration Statement”), and future registration statements on Form S-3 (the “Prior Common Stock ATM Program”).

During the nine months ended September 30, 2023, we sold 0.2 million shares of common stock, raising $4.0 million in net proceeds under our At-the-Market Equity Offering Sales Agreement (the “Common Stock Sales Agreement”) with sales agents Robert W.

1 to 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”).

(“Fifth Third”), 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 Company’s Registration Statement on Form S-3 (File No.

333-236143) (the “2020 Registration Statement”), and future registration statements on Form S-3.

We terminated the Prior Common Stock Sales Agreement effective as of February 10, 2023 in connection with the expiration of the 2020 Registration Statement on February 11, 2023.

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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 nine months ended September 30, 2023, we did not sell any shares of common stock under the 2023 Common Stock Sales Agreement.

Common Stock Buyback Program

During the nine months ended September 30, 2023, we utilized our common stock repurchase program, repurchasing $1.0 million worth of common stock.

All repurchased shares were retired.

Series E Preferred ATM Program

Prior to February 10, 2023, we had an At-the-Market Equity Offering Sales Agreement (the “Series E Preferred Stock Sales Agreement”) with sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S.

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.

We did not sell any shares of our Series E Preferred Stock pursuant to the Series E Preferred Stock Sales Agreement during the nine months ended September 30, 2023.

We terminated the Series E Preferred Stock Sales Agreement effective as of February 10, 2023.

During the three months ended March 31, 2024, we did not sell any shares of common stock under the 2023 Common Stock Sales Agreement.

On March 26, 2024, we entered into Amendment No.

1 to the 2023 Common Stock Sales Agreement (the “2024 Common Stock Sales Agreement”).

The amendment permitted shares of common stock to be issued pursuant to the 2024 Common Stock Sales Agreement under the Company’s Registration Statement on Form S-3 (File No.

333-277877) (the “2024 Registration Statement”), and future registration statements on Form S-3.

In connection with the 2024 Common Stock Sales Agreement, we filed a prospectus supplement dated March 26, 2024, to the prospectus dated March 21, 2024, with the SEC, for the offer and sale of an aggregate offering amount of $250.0 million of common stock.

During the three months ended March 31, 2024, we did not sell any shares of common stock under the 2024 Common Stock Sales Agreement.

Universal Shelf Registration Statements

On January 29, 2020, we filed the 2020 Registration Statement.

The 2020 Registration Statement was declared effective on February 11, 2020.

The 2020 Registration Statement allowed us to issue up to $800.0 million of securities.

Of the $800.0 million of available capacity under our 2020 Registration Statement, approximately $636.5 million was reserved for the sale of our Series F Preferred Stock, and $63.0 million was reserved for our Prior Common Stock ATM Program.

The 2020 Registration Statement expired on February 11, 2023.

On November 23, 2022, we filed an automatic registration statement on Form S-3 (File No.

On November 23, 2022, we filed an automatic shelf registration statement on Form S-3 (File No.

333-268549) (the “2022 Registration Statement”).

There is no limit on the aggregate amount of the securities that we may offer pursuant to the 2022 Registration Statement.

There was no limit on the aggregate amount of the securities that we could offer pursuant to the 2022 Registration Statement.

On March 13, 2024, we filed the 2024 Registration Statement, which was declared effective on March 21, 2024.

The 2024 Registration Statement allows us to issue up to $1.3 billion of securities and replaces the 2022 Registration Statement.

Series F Preferred Stock Continuous Offering

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The reclassification decreased the number of shares classified as common stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification.

We sold 229,677 shares of our Series F Preferred Stock, raising $5.2 million in net proceeds during the nine months ended September 30, 2023.

We sold 7,580 shares of our Series F Preferred Stock, raising $0.2 million in net proceeds, during the three months ended March 31, 2024.

Non-controlling Interest in Operating Partnership

As of September 30, 2023 and December 31, 2022, we owned approximately 99.0% and 99.0%, re spectively, of the outstanding operating partnership units in the Operating Partnership (“OP Units”).

As of September 30, 2023 and December 31, 2022, there were 391,468 and 391,468 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.

As of March 31, 2024 and December 31, 2023, we owned approximately 99.2% and 99.2%, re spectively, of the outstanding operating partnership units in the Operating Partnership (“OP Units”).

As of March 31, 2024 and December 31, 2023, there were 310,643 and 310,643 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.

Diversity of Our Portfolio

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By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic market.

For the nine months ended September 30, 2023, our largest tenant comprised only 4.3% of total lease revenue.

The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

For the three months ended September 30, For the nine months ended September 30,

2023 2022 2023 2022

Industry Classification Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue

Telecommunications $ 4,627 12.7 % $ 5,859 14.7 % $ 16,851 15.4 % $ 17,216 15.6 %

For the three months ended March 31, 2024, our largest tenant comprised only 4.3% of total lease revenue.

The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three months ended March 31, 2024 and 2023 (dollars in thousands):

For the three months ended March 31,

Industry Classification Lease Revenue Percentage of Lease Revenue Lease Revenue Percentage of Lease Revenue

Automotive $ 5,302 14.8 % $ 5,140 14.2 %

Diversified/Conglomerate Services 4,627 13.0 4,529 12.4

Healthcare 2,683 7.4 4,025 10.1 8,636 7.7 12,084 10.8

Diversified/Conglomerate Manufacturing 2,653 7.3 2,779 7.0 8,052 7.2 8,198 7.3

Banking 2,527 6.9 5,726 14.4 7,136 6.4 10,941 9.8

Telecommunications 4,493 12.6 4,940 13.5

Buildings and Real Estate 2,534 7.1 2,304 6.3

Diversified/Conglomerate Manufacturing 2,464 6.9 2,636 7.2

Personal, Food & Miscellaneous Services 2,348 6.6 2,347 6.4

Banking 2,314 6.5 2,336 6.4

Healthcare 2,225 6.2 3,348 9.2

Personal & Non-Durable Consumer Products 1,916 5.4 1,882 5.1

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Containers, Packaging & Glass 1,156 3.2 983 2.7

Information Technology 579 1.6 669 1.7 1,869 1.7 2,824 2.5

Childcare 573 1.6 573 1.6

Information Technology 570 1.6 573 1.6

Electronics 287 0.8 272 0.7

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Total $ 35,721 100.0 % $ 36,554 100.0 %

The tables below reflect the breakdown of total lease revenue by state for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

State Lease Revenue for the three months ended September 30, 2023 Percentage of Lease Revenue Number of Leases for the three months ended September 30, 2023 Lease Revenue for the three months ended September 30, 2022 Percentage of Lease Revenue Number of Leases for the three months ended September 30, 2022

The tables below reflect the breakdown of total lease revenue by state for the three months ended March 31, 2024 and 2023 (dollars in thousands):

State Lease Revenue for the three months ended March 31, 2024 Percentage of Lease Revenue Number of Leases for the three months ended March 31, 2024 Lease Revenue for the three months ended March 31, 2023 Percentage of Lease Revenue Number of Leases for the three months ended March 31, 2023

Texas $ 4,526 12.7 % 14 $ 4,781 13.1 % 13

Florida 4,254 11.9 9 4,117 11.3 9

Ohio 3,660 10.0 16 3,381 8.5 15

Pennsylvania 3,736 10.5 10 3,736 10.2 10

Georgia 3,109 8.5 11 2,894 7.3 10

North Carolina 2,398 6.6 10 2,320 5.8 10

Alabama 2,168 5.9 6 1,933 4.9 7

Colorado 1,869 5.1 4 1,109 2.8 3

Michigan 1,638 4.5 6 1,608 4.0 6

Indiana 1,053 2.9 10 1,063 2.7 10

All Other States 8,183 22.5 42 12,592 31.5 41

Total $ 36,464 100.0 % 137 $ 39,834 100.0 % 136

State Lease Revenue for the nine months ended September 30, 2023 Percentage of Lease Revenue Number of Leases for the nine months ended September 30, 2023 Lease Revenue for the nine months ended September 30, 2022 Percentage of Lease Revenue Number of Leases for the nine months ended September 30, 2022

Florida $ 15,118 13.5 % 9 $ 12,242 11.0 % 9

Texas 13,607 12.2 14 15,971 14.3 15

Pennsylvania 11,097 9.9 9 11,145 10.0 10

Ohio 3,187 8.9 15 3,661 10.0 16

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Michigan 1,632 4.6 6 1,599 4.4 6

Minnesota 3,202 2.9 7 2,983 2.7 7

Indiana 1,188 3.3 11 1,044 2.9 10

All Other States 7,881 22.1 41 8,284 22.6 42

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In addition, with the exception of Messrs.

Cooper and Gerson, all of our executive officers and all of our directors, serve as either directors or executive officers, or both, of Gladstone

Land Corporation.

Cooper and Gerson, all of our executive officers and all of our directors, serve as either directors or executive officers, or both, of Gladstone Land Corporation.

Cooper and Gerson do not put forth any material efforts in assisting affiliated companies.

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Advisory and Administration Agreements

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits and other general expenses directly.

Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr.

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Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our Board of Directors.

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

Our Board of Directors reviews and considers renewing the agreement with our Adviser annually, typically during the month of July.

During its July 2023 meeting, our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2024.

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Incentive Fee

Pursuant to the Advisory Agreement, the calculation of the incentive fee rewards the Adviser in circumstances where our quarterly Core FFO (defined at the end of this paragraph), before giving effect to any incentive fee, or pre-incentive fee Core FFO, exceeds 2.0% quarterly, or 8.0% annualized, of adjusted total stockholders’ equity (after giving effect to the base management fee but before giving effect to the incentive fee).

management fee but before giving effect to the incentive fee).

We refer to this as the hurdle rate.

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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 ending September 30, 2023 and December 31, 2023.

In addition, the Eighth Amended Advisory Agreement also clarifies that for any future quarter whereby an incentive fee would exceed by greater than 15% 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.

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% 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 was unchanged.

Capital Gain Fee

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

No capital gain fee was recognized during the three and nine months ended September 30, 2023 or 2022.

No capital gain fee was recognized during the three months ended March 31, 2024 or 2023.

Termination Fee

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The agreement may also be terminated for cause by us (with 30 days’ prior written notice and the vote of at least two-thirds of our independent directors), with no termination fee payable.

Cause is defined in the agreement to include if the Adviser breaches any material provisions of the agreement, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds.

Cause is defined in the Advisory Agreement to include if the Adviser breaches any material provisions of the agreement, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds.

Administration Agreement

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The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature to make certain estimates and assumptions.

Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates.

Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ

from these estimates.

A summary of all of our significant accounting policies is provided in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023, filed by us with the U.S.

Securities and Exchange Commission (the “SEC”) on February 21, 2024 (our “2023 Form 10-K”).

There were no material changes to our critical accounting policies or estimates during the nine months ended September 30, 2023.

There were no material changes to our critical accounting policies or estimates during the three months ended March 31, 2024.

Results of Operations

The weighted average yield on our total portfolio, which was 8.0% and 7.8% as of September 30, 2023 and 2022, respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as lease revenue on our condensed consolidated statements of operations and other comprehensive income, less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements.

The weighted average yield on our total portfolio, which was 8.5% and 7.9% as of March 31, 2024 and 2023, respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as lease revenue on our condensed consolidated statements of operations and other comprehensive income, less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements.

The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties.

A comparison of our operating results for the three and nine months ended September 30, 2023 and 2022 is below (dollars in thousands, except per share amounts) :

For the three months ended September 30,

A comparison of our operating results for the three months ended March 31, 2024 and 2023 is below (dollars in thousands, except per share amounts) :

For the three months ended March 31,

2024 2023 $ Change % Change

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Impairment charge 493 — 493 100.0 %

Total operating expense before incentive fee waiver $ 24,086 $ 24,664 $ (578) (2.3) %

Incentive fee waiver (771) — (771) 100.0 %

Total operating expenses $ 23,315 $ 24,664 $ (1,349) (5.5) %

Other (expense) income

Other income (expense)

Interest expense $ (9,497) $ (8,828) $ (669) 7.6 %

Gain on sale of real estate, net 283 — 283 100.0 %

Gain on debt extinguishment, net 300 — 300 100.0 %

Other income 34 105 (71) (67.6) %

4 unchanged sentences

Loss on extinguishment of Series F preferred stock (3) (5) 2 (40.0) %

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,416) $ (314) $ (1,102) 351.0 %

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ (0.04) $ (0.01) $ (0.03) 300.0 %

Gain on repurchase of Series G preferred stock — 3 (3) (100.0) %

Net income available to common stockholders and Non-controlling OP Unitholders $ 306 $ 34 $ 272 800.0 %

Net income available to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ 0.01 $ — $ 0.01 100.0 %

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 13,542 $ 14,738 $ (1,196) (8.1) %

4 unchanged sentences

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

For the nine months ended September 30,

2023 2022 $ Change % Change

Operating revenues

Lease revenue $ 111,675 $ 111,764 $ (89) (0.1) %

Total operating revenues $ 111,675 $ 111,764 $ (89) (0.1) %

Operating expenses

Depreciation and amortization $ 44,125 $ 45,279 $ (1,154) (2.5) %

Property operating expenses 20,286 20,118 168 0.8 %

Base management fee 4,808 4,727 81 1.7 %

Incentive fee — 4,193 (4,193) (100.0) %

Administration fee 1,734 1,342 392 29.2 %

General and administrative 3,437 2,788 649 23.3 %

Impairment charge 13,577 12,092 1,485 12.3 %

Total operating expenses $ 87,967 $ 90,539 $ (2,572) (2.8) %

Other (expense) income

Interest expense $ (27,845) $ (22,813) $ (5,032) 22.1 %

Gain on sale of real estate, net 4,245 8,902 (4,657) (52.3) %

Other income 262 538 (276) (51.3) %

Total other expense, net $ (23,338) $ (13,373) $ (9,965) 74.5 %

Net income $ 370 $ 7,852 $ (7,482) (95.3) %

Distributions attributable to Series E, F, and G preferred stock (9,179) (8,900) (279) 3.1 %

Distributions attributable to senior common stock (323) (344) 21 (6.1) %

Loss on extinguishment of Series F preferred stock (12) (5) (7) 140.0 %

Gain on repurchase of Series G preferred stock 3 — 3 100.0 %

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (9,141) $ (1,397) $ (7,744) 554.3 %

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ (0.23) $ (0.04) $ (0.19) 475.0 %

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 44,316 $ 47,072 $ (2,756) (5.9) %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) $ 44,639 $ 47,416 $ (2,777) (5.9) %

FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1) $ 1.10 $ 1.21 $ (0.11) (9.1) %

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1) $ 1.10 $ 1.21

$ (0.11) (9.1) %

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

Same Store Analysis

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Operating Revenues

For the three months ended September 30,

(Dollars in Thousands)

Lease Revenues 2023 2022 $ Change % Change

Same Store Properties $ 29,214 $ 27,707 $ 1,507 5.4 %

Acquired & Disposed Properties 3,416 8,833 (5,417) (61.3) %

Properties with Vacancy 3,834 3,294 540 16.4 %

$ 36,464 $ 39,834 $ (3,370) (8.5) %

For the nine months ended September 30,

For the three months ended March 31,

(Dollars in Thousands)

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

Lease revenues from same store properties increased for the three and nine months ended September 30, 2023, due to an increase in recovery revenue from property operating expenses, accelerated rent from a lease termination, and income recognized from tenant funded improvement projects which were determined to be lessor assets.

Lease revenues decreased for acquired and disposed of properties for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, primarily due to accelerated rent from a lease termination in the prior period relating to a property sold and loss of lease revenue including variable lease payments caused by a decrease in property operating expenses from vacancy at properties held for sale, and partially offset by lease revenue from the three properties acquired subsequent to September 30, 2022.

Lease revenues increased for our properties with vacancy for the three and nine months ended September 30, 2023 due to an increase in rental revenue from partially leasing vacant space and variable lease payments due to an increase in property operating expenses.

Lease revenues from same store properties increased for the three months ended March 31, 2024, due to an increase in rental rates from the leasing activity subsequent to the three months ended March 31, 2023.

Lease revenues decreased for acquired and disposed of properties for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to loss of lease revenue including variable lease payments from the 10 property sales subsequent to March 31, 2023, and partially offset by lease revenue from the five properties acquired subsequent to March 31, 2023.

Lease revenues increased for our properties with vacancy for the three months ended March 31, 2024 due to an increase in rental revenue from partially leasing vacant space and variable lease payments due to an increase in property operating expenses.

Operating Expenses

Depreciation and amortization expense decreased for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, due to the depreciation errors corrected, as outlined in Note 1 and Note 9, coupled with the reduced depreciation and amortization expense from the seven property sales subsequent to September 30, 2022, partially offset by an increase in depreciation and amortization expense on the three properties acquired subsequent to September 30, 2022 and lease-related assets for lease that was terminated during the period.

For the three months ended September 30,

(Dollars in Thousands)

Property Operating Expenses 2023 2022 $ Change % Change

Same Store Properties $ 4,155 $ 3,626 $ 529 14.6 %

Acquired & Disposed Properties 686 1,210 (524) (43.3) %

Properties with Vacancy 1,980 1,700 280 16.5 %

$ 6,821 $ 6,536 $ 285 4.4 %

For the nine months ended September 30,

Depreciation and amortization expense decreased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to the depreciation errors corrected, as outlined in Note 1 and Note 9, coupled with the reduced depreciation and amortization expense from the 10 property sales subsequent to March 31, 2023, partially offset by an increase in depreciation and amortization expense on the five properties acquired subsequent to March 31, 2023.

For the three months ended March 31,

(Dollars in Thousands)

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

The increase in property operating expenses for

same store properties for the three and nine months ended September 30, 2023, from the comparable 2022 period, was a result of tenants requiring more employees to return on site as well as general cost increases due to the inflationary environment during the three and nine months ended September 30, 2023.

The decrease in property operating expenses for acquired and disposed of properties for the three and nine months ended September 30, 2023, from the comparable 2022 period, is a result of a decrease in property operating expenses in relation to two properties held for sale during the three and nine months ended September 30, 2023 that are fully vacant, requiring less costs to operate the empty buildings.

The increase in property operating expenses for properties with vacancy for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, is a result of general cost increases due to the inflationary environment during the same period coupled with increased expenses due to partially leasing space.

The base management fee paid to the Adviser increased for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, due to an increase in Gross Tangible Real Estate over the three and nine months ended September 30, 2023 as compared to a smaller increase in Gross Tangible Real Estate during the three and nine months ended September 30, 2022.

The decrease in property operating expenses for same store properties for the three months ended March 31, 2024, from the comparable 2023 period, was a result of a decrease in franchise taxes, partially offset by general cost increases due to the inflationary environment during the three months ended March 31, 2024.

The decrease in property operating expenses for acquired and disposed of properties for the three months ended March 31, 2024, from the comparable 2023 period, is a result of a decrease in property operating expenses from the 10 property sales subsequent to March 31, 2023, minimally offset by the property operating expense from the five properties acquired subsequent to March 31, 2023.

The increase in property operating expenses for properties with vacancy for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, is a result of general cost increases due to the inflationary environment during the same period.

The base management fee paid to the Adviser decreased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to a decrease in Gross Tangible Real Estate over the three months ended March 31, 2024 from property sales as compared to Gross Tangible Real Estate during the three months ended March 31, 2023.

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

The incentive fee paid to the Adviser decreased for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 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 incentive fee paid to the Adviser increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to the payment of the incentive fee being contractually eliminated for the quarter ended March 31, 2023, as outlined in the Seventh Amended Advisory Agreement.

We recorded an incentive fee, which was partially waived, during the three months ended March 31, 2024.

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

The administration fee paid to the Administrator increased for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, due to our Administrator incurring greater costs that are allocated to us.

The administration fee paid to the Administrator increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to our Administrator incurring greater costs that are allocated to us.

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

General and administrative expenses increased for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, primarily as a result of an increase in professional fees.

General and administrative expenses remained consistent for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

Other Income and Expenses

Interest expense increased for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022.

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

We sold five non-core office properties during the three and nine months ended September 30, 2023, and as a result, incurred a gain on sale of real estate, net.

Gain on sale of real estate, net, during the three and nine months ended September 30, 2022 is attributable to three non-core office properties sold during the period.

Other income decreased for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, due to nonrecurring income items that occurred in the three months ended September 30, 2022.

Interest expense increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

This increase was primarily a result of increased interest costs on variable rate debt, as global interest rates have increased in reaction to growing inflation, coupled with costs associated with the maturity of several interest rate caps.

We sold three non-core office properties during the three months ended March 31, 2024, and as a result, incurred a gain on sale of real estate, net, and a gain on debt extinguishment, net.

There were no property sales during the three months ended March 31, 2023.

Other income decreased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to nonrecurring income items that occurred in the three months ended March 31, 2023.

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 three months ended September 30, 2023, as compared to the three months ended September 30, 2022, as revised, primarily due to impairment charges in the prior period, partially offset by a smaller gain on sale, net.

Net income available to common stockholders and Non-controlling OP Unitholders decreased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, as revised, primarily due to an increase in interest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion.

This was partially offset by the contractual elimination of the Incentive Fee during the nine months ended September 30, 2023.

Net income available to common stockholders and Non-controlling OP Unitholders increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, as revised, primarily due a decrease in depreciation and amortization from the 10 property sales subsequent to March 31, 2023 and gains on sale, net, and debt extinguishment, net.

This was partially offset by depreciation and amortization from the five properties acquired subsequent to March 31, 2023, impairment charges in the current period, an increase in interest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion, and the Incentive Fee in the current period, which was contractually eliminated in the prior period.

Liquidity and Capital Resources

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our Credit Facility and issuing additional equity securities.

Our available liquidity as of September 30, 2023 was $63.2 million, consisting of approximately $18.3 million in cash and cash equivalents and available borrowing capacity of $44.9 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility decreased to $43.6 million as of November 6, 2023.

Our available liquidity as of March 31, 2024 was $57.8 million, consisting of approximately $10.5 million in cash and cash equivalents and available borrowing capacity of $47.3 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility increased to $49.1 million as of May 6, 2024.

Future Capital Needs

We actively seek conservative investments that are likely to produce income to pay distributions to our stockholders.

We actively seek conservative investments that we expect are likely to produce income to pay distributions to our stockholders.

We intend to use the proceeds received from future equity raised and debt capital borrowed to continue to invest in industrial and office real property, make mortgage loans, or pay down outstanding borrowings under our Revolver.

4 unchanged sentences

We also believe we will be able to refinance our mortgage debt as it matures.

Additionally, to satisfy our short-term obligations, we may request credits to our management fees that are issued from our Adviser, although our Adviser is under no obligation to provide any such credits, either in whole or in part.

Additionally, to satisfy our short-term obligations, we may request credits to our management

fees that are issued from our Adviser, although our Adviser is under no obligation to provide any such credits, either in whole or in part.

We further believe that our cash flow from operations coupled with the financing capital available to us in the future are sufficient to fund our long-term liquidity needs.

Equity Capital

During the nine months ended September 30, 2023, we raised net proceeds of $4.0 million of common equity under our Prior Common Stock ATM Program at a net weighted average per share price of $17.10.

We used these proceeds to fund acquisitions, pay down outstanding debt and for other general corporate purposes.

We did not sell any of our Series E Preferred Stock under our Series E Preferred Stock Sales Agreement during the nine months ended September 30, 2023, which was terminated effective as of February 10, 2023.

We raised net proceeds of $5.2 million from sales of our Series F Preferred Stock during the nine months ended September 30, 2023.

As of November 6, 2023, there is no limit on the aggregate amount of securities we may offer pursuant to the 2022 Registration Statement.

As of September 30, 2023, we had 43 mortgage notes payable in the aggregate principal amount of $313.4 million, collateralized by a total of 49 properties with a remaining weighted average maturity of 4.1 years.

The weighted-average interest rate on the mortgage notes payable as of September 30, 2023 was 4.20%.

We continue to see banks and other non-bank lenders willing to make mortgage loans.

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

As of September 30, 2023, we had mortgage debt in the aggregate principal amount of $12.0 million payable during the remainder of 2023 and $28.4 million payable during 2024.

The 2023 principal amount payable includes both amortizing principal payments and one balloon principal payment due during the remaining three months of 2023, which was repaid subsequent to quarter end.

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

In addition, we have raised substantial equity under our at-the-market programs and plan to continue to use these programs.

During the three months ended March 31, 2024, we did not sell any common equity under either the 2023 Common Stock Sales Agreement or 2024 Common Stock Sales Agreement.

We raised net proceeds of $0.2 million from sales of our Series F Preferred Stock during the three months ended March 31, 2024.

As of May 6, 2024, we had the ability to raise up to $1.1 billion of additional equity capital through the sale and issuance of securities that are registered under the 2024 Registration Statement, in one or more future public offerings.

We expect to continue to use our 2024 Common Stock Sales Agreement as a source of liquidity for the remainder of 2024.

As of March 31, 2024, we had 39 mortgage notes payable in the aggregate principal amount of $278.0 million, collateralized by a total of 45 properties with a remaining weighted average maturity of 4.0 years.

The weighted-average interest rate on the mortgage notes payable as of March 31, 2024 was 4.16%.

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 March 31, 2024, we had mortgage debt in the aggregate principal amount of $14.3 million payable during the remainder of 2024 and $27.1 million payable during 2025.

The 2024 principal amount payable includes both amortizing principal payments and one balloon principal payment due during the remaining nine months of 2024.

We anticipate being able to refinance our mortgages that come due during 2025 with a combination of new mortgage debt, availability under our Credit Facility, the issuance of additional equity securities under our 2024 Common Stock Sales Agreement, or the sale and issuance of other equity securities (including our Series F Preferred Stock) that are registered under the 2024 Registration Statement.

Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2023, was $48.5 million, as compared to net cash provided by operating activities of $56.9 million for the nine months ended September 30, 2022.

This change was primarily a result of an increase in interest expense due to higher interest rates on variable rate debt, partially offset by an increase in operating revenues from the three properties acquired subsequent to September 30, 2022.

Net cash provided by operating activities during the three months ended March 31, 2024, was $15.0 million, remained consistent with net cash provided by operating activities of $14.9 million for the three months ended March 31, 2023.

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

1 unchanged sentence

Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2023, was $3.6 million, which primarily consisted of two property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from five property sales.

Net cash used in investing activities during the nine months ended September 30, 2022, was $75.5 million, which primarily consisted of 11 property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by the sale of three properties.

Net cash provided by investing activities during the three months ended March 31, 2024, was $18.5 million, which primarily consisted of proceeds from three property sales, offset by capital improvements performed at certain of our properties.

Net cash provided by investing activities during the three months ended March 31, 2023, was $0.7 million, which primarily consisted of receipts from tenant escrow, partially offset by capital improvements performed at certain of our properties and deposits on future acquisitions.

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2023, was $38.8 million, which primarily consisted of $57.6 million of mortgage principal repayments, and distributions paid to common, senior common and preferred shareholders, partially offset by the issuance of $9.8 million of equity, issuances of $9.0 million of new mortgage debt, and net borrowings on our credit facility.

Net cash provided by financing activities for the nine months ended September 30, 2022, was $23.1 million, which primarily consisted of the issuance of $45.2 million of common and preferred equity, coupled with a net increase in Credit Facility borrowings of $119.2 million partially offset by the repayment $138.9 million of outstanding mortgage debt, and distributions paid to common, senior common and preferred shareholders.

Net cash used in financing activities during the three months ended March 31, 2024, was $34.7 million, which primarily consisted of $19.8 million of mortgage principal repayments, and distributions paid to common, senior common and preferred shareholders, partially offset by the issuance of $0.2 million of equity and net borrowings on our credit facility.

Net cash used in financing activities for the three months ended March 31, 2023, was $12.8 million, which primarily consisted of $5.0 million of mortgage debt repayments, and distributions paid to common, senior common and preferred shareholders, partially offset by the issuance of $4.6 million of common and preferred equity and net borrowings on our credit facility.

Credit Facility

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On September 27, 2022, we further increased the Revolver to $125.0 million and the Term Loan C to $150.0 million, as permitted under the terms of the Credit Facility.

We entered into multiple interest rate swap agreements on Term Loan C, which swap the interest rate to fixed rates from 3.15% to 3.75%.

We entered into multiple interest rate swap agreements on Term Loan A and Term Loan C, which swap the interest rate to fixed rates from 3.15% to 3.75%.

We incurred fees of approximately $4.2 million in connection with extending and upsizing our Credit Facility.

1 unchanged sentence

The Credit Facility’s current bank syndicate is comprised of KeyBank, Fifth Third Bank, The Huntington National Bank, Bank of America, Synovus Bank, United Bank, First Financial Bank, and S&T Bank.

As of September 30, 2023, there was $441.0 million outstanding under our Credit Facility at a weighted average interest rate of approximately 6.77% and $2.9 million outstanding under letters of credit at a weighted average interest rate of 1.50%.

As of November 6, 2023, the maximum additional amount we could draw under the Credit Facility was $43.6 million.

We were in compliance with all covenants under the Credit Facility as of September 30, 2023.

As of March 31, 2024, there was $446.0 million outstanding under our Credit Facility at a weighted average interest rate of approximately 6.80% and no outstanding letters of credit.

As of May 6, 2024, the maximum additional amount we could draw under the Credit Facility was $49.1 million.

We were in compliance with all covenants under the Credit Facility as of March 31, 2024.

Contractual Obligations

The following table reflects our material contractual obligations as of September 30, 2023 (in thousands):

The following table reflects our material contractual obligations as of March 31, 2024 (dollars in thousands):

Payments Due by Period

5 unchanged sentences

$ 877,262 $ 78,986 $ 291,555 $ 439,446 $ 67,275

(1) Debt obligations represent borrowings under our Revolver, which represents $71.0 million of the debt obligation due in 2026, our Term Loan A, which represents $160.0 million of the debt obligation due in 2027, our Term Loan B, which represents $60.0 million of the debt obligation due in 2026, our Term Loan C, which represents $150.0 million of the debt obligation due in 2028 and mortgage notes payable that were outstanding as of September 30, 2023.

(1) Debt obligations represent borrowings under our Revolver, which represents $76.0 million of the debt obligation due in 2026, our Term Loan A, which represents $160.0 million of the debt obligation due in 2027, our Term Loan B, which represents $60.0 million of the debt obligation due in 2026, our Term Loan C, which represents $150.0 million of the debt obligation due in 2028 and mortgage notes payable that were outstanding as of March 31, 2024.

This figure does not include $(0.03) million of premiums and (discounts), net and $4.6 million of deferred financing costs, net, which are reflected in mortgage notes payable, net and borrowings under Term Loan, net on the condensed consolidated balance sheets.

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The balance and interest rate on our Revolver, Term Loan A, Term Loan B and Term Loan C is variable;

thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of September 30, 2023.

(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 six of our properties.

thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of March 31, 2024.

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

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

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of September 30, 2023.

We did not have any material off-balance sheet arrangements as of March 31, 2024.

Funds from Operations

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We believe that net income is the most directly comparable GAAP measure to FFO, Basic EPS is the most directly comparable GAAP measure to Basic FFO per share, and that Diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share.

The following table provides a reconciliation of our FFO available to common stockholders for the three and nine months ended September 30, 2023 and 2022, respectively, to the most directly comparable GAAP measure, net income available to common stockholders, and a computation of basic and diluted FFO per weighted average share of common stock:

For the three months ended September 30, For the nine months ended September 30,

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

2023 2022 2023 2022

The following table provides a reconciliation of our FFO available to common stockholders for the three months ended March 31, 2024 and 2023, respectively, to the most directly comparable GAAP measure, net income available to common stockholders, and a computation of basic and diluted FFO per weighted average share of common stock:

For the three months ended March 31,

(Dollars in Thousands, Except for Per Share Amounts)

Calculation of basic FFO per share of common stock and Non-controlling OP Unit

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Gain on repurchase of Series G preferred stock — 3

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,416) $ (314) $ (9,141) $ (1,397)

Net income available to common stockholders and Non-controlling OP Unitholders $ 306 $ 34

Real estate depreciation and amortization $ 13,326 $ 14,704

1 unchanged sentence

Gain on sale of real estate, net (283) —

Gain on debt extinguishment, net (300) —

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 13,542 $ 14,738

8 unchanged sentences

Gain on repurchase of Series G preferred stock — 3

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,416) $ (314) $ (9,141) $ (1,397)

Net income available to common stockholders and Non-controlling OP Unitholders $ 306 $ 34

Real estate depreciation and amortization $ 13,326 $ 14,704

2 unchanged sentences

Gain on sale of real estate, net (283) —

Gain on debt extinguishment, net (300) —

FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions (1) $ 13,647 $ 14,847

7 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis