What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-06 · 198 added, 120 removed, 320 unchanged (50% of the section changed)

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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 May 6, 2024:

As of August 6, 2024:

• we owned 136 properties totaling 16.8 million square feet of rentable space, located in 27 states;

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Business Environment

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

The commercial real estate sector continued to face uncertainty in the first half of 2024 with more recent signs of decreased volatility.

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.

Bureau of Labor Statistics for all urban consumers) in the first quarter of 2024 followed by more progress towards the Federal Reserve’s 2% inflation rate target in the second quarter has resulted in a steady federal funds rate.

The Federal Reserve in June voted to keep the federal funds rate unchanged at 5.25% - 5.50%.

This prolonged higher interest rate environment 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.

Cushman & Wakefield plc (“Cushman”) reported healthy activity in the second quarter of 2024, with overall U.S.

industrial net absorption more than doubling to 46.3 million square feet.

Also, according to Cushman, new leasing activity measured 137.2 million square feet, which was down 2.8% compared to the first quarter of 2024 but 11.2% higher than the 10-year pre-pandemic average of 126.9 million square feet.

Through June 2024, the U.S.

recorded just over 278.0 million square feet of new transactions, with the market being on pace to surpass 500.0 million square feet for the 10th straight year.

Year-over-year, Cushman reports that industrial asking rents increased by 3.7% in the second quarter of 2024.

While this is the lowest growth rate since 2020, it is still above historical averages and rent growth in other asset classes.

For comparison, industrial rent growth in 2022 and 2023 was 20.0% and 10.0%, respectively.

Notably, Cushman reports that six markets recorded absorption gains exceeding 3.0 million square feet in the second quarter of 2024, with significant contributions from Dallas-Fort Worth (13.8 million square feet), Phoenix (7.4 million square feet), and Houston (4.3 million square feet).

The office sector in the second quarter of 2024 showed mixed results.

According to Cushman, national absorption in the second quarter of 2024 was negative 18.2 million square feet, as compared to negative 25.5 million square feet in the first quarter of 2024, but a third of U.S.

office markets showed positive absorption.

Office deliveries of 17.7 million square feet in the second quarter of 2024 was 27.0% below the average since 2020.

According to Cushman, 2024 is on pace for the lowest amount of new deliveries since 2014, providing some progress towards a more stable office market next year.

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

Treasury Note, which has risen steadily since the beginning of 2022, ended the second quarter of 2024 at 4.36%.

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.

We collected 100% of all outstanding cash rents for the six months ended June 30, 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 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 any one geographic market or area.

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

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 March 31, 2024.

We are in compliance with all of our debt covenants as of June 30, 2024.

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

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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 Federal Reserve recently indicated it does not expect additional rate increases and has indicated possible interest rate cuts, but the timing of those cuts has not been solidified.

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 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.

Currently, we have four partially vacant buildings and one fully vacant building.

Our available vacant space at June 30, 2024 represents 1.5% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $1.6 million.

We continue to actively seek new tenants for these properties.

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.

We believe our lease expiration schedule for the remainder of 2024 is manageable, as it equates to 2.1% of our lease revenue at June 30, 2024.

Property acquisitions since the beginning of 2020 have totaled $384.3 million and all but one transaction was industrial in nature, with a weighted average lease term of 14.0 years and a current weighted average lease term today of 10.9 years.

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Sale Activity

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

During the six months ended June 30, 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 three months ended March 31, 2024, we sold three non-core properties, located in Columbus, Ohio;

During the six months ended June 30, 2024, we sold four 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

Richardson, Texas;

and Egg Harbor, New Jersey, 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 Six Months Ended June 30, 2024 Aggregate Gain on Sale of Real Estate, net

386,436 $ 22,165 $ 1,113 $ 493 $ 236

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.

Acquisition Activity

During the six months ended June 30, 2024, we acquired five industrial properties located in Warfordsburg, Pennsylvania, which are summarized below (dollars in thousands):

Square Footage Lease Term Purchase Price Capitalized Acquisition Expenses Annualized GAAP Fixed Lease Payments

142,125 25.1 years $ 11,954 $ 267 $ 1,432

Leasing Activity

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

During and subsequent to the six months ended June 30, 2024, we executed seven 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

2,475,036 6.0 years $ 12,605 $ 5,596 $ 4,025

During the six months ended June 30, 2024, we had two lease terminations, which are summarized below (dollars in thousands):

Aggregate Square Footage Reduced Aggregate Accelerated Rent Aggregate Accelerated Rent Recognized through June 30, 2024

85,257 $ 574 $ 574

Financing Activity

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):

During the six months ended June 30, 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 %

During the six months ended June 30, 2024, we extended the maturity date of one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):

Variable Rate Debt Extended Interest Rate on Variable Rate Debt Extended Extension Term

$ 7,386 SOFR + 2.25 % 1.3 years

Equity Activities

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

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

During the six months ended June 30, 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.

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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.

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

During the six months ended June 30, 2024, we sold 756,214 shares of common stock, raising approximately $10.6 million in net proceeds under the 2024 Common Stock Sales Agreement.

Universal Shelf Registration Statements

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

We sold 25,780 shares of our Series F Preferred Stock, raising $0.6 million in net proceeds, during the six months ended June 30, 2024.

Non-controlling Interest in Operating Partnership

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.

As of June 30, 2024 and December 31, 2023, we owned approximately 99.9% and 99.2%, re spectively, of the outstanding operating partnership units in the Operating Partnership (“OP Units”).

During the six months ended June 30, 2024, we redeemed 271,169 OP Units for an equivalent amount of common stock.

As of June 30, 2024 and December 31, 2023, there were 39,474 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 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

For the six months ended June 30, 2024, our largest tenant comprised only 4.4% of total lease revenue.

The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

For the three months ended June 30, For the six months ended June 30,

2024 2023 2024 2023

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

Automotive $ 5,418 14.6 % $ 5,220 13.5 % $ 10,721 14.7 % $ 10,349 13.8 %

Diversified/Conglomerate Services 5,210 14.1 4,660 12.1 9,837 13.5 9,191 12.2

Telecommunications 4,493 12.6 4,940 13.5

Buildings and Real Estate 3,671 9.9 2,313 6.0 7,341 10.1 4,621 6.1

Telecommunications 3,347 9.0 7,281 18.9 6,710 9.2 12,223 16.5

Healthcare 2,504 6.8 2,608 6.7 4,727 6.5 5,955 7.9

Diversified/Conglomerate Manufacturing 2,483 6.7 2,762 7.1 4,945 6.8 5,398 7.2

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

Banking 2,382 6.4 2,272 5.9 4,696 6.5 4,610 6.1

Healthcare 2,225 6.2 3,348 9.2

Personal, Food & Miscellaneous Services 2,370 6.4 2,345 6.1 4,718 6.5 4,692 6.2

Personal & Non-Durable Consumer Products 1,878 5.1 1,886 4.9 3,794 5.2 3,769 5.0

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Containers, Packaging & Glass 1,157 3.1 980 2.5 2,310 3.2 1,962 2.6

Childcare 573 1.6 573 1.6

Information Technology 576 1.6 717 1.9 1,146 1.6 1,290 1.7

Childcare 573 1.5 573 1.5 1,146 1.6 1,146 1.5

Electronics 284 0.8 287 0.7 571 0.8 560 0.7

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Total $ 37,057 100.0 % $ 38,658 100.0 % $ 72,779 100.0 % $ 75,212 100.0 %

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

The tables below reflect the breakdown of total lease revenue by state for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

State Lease Revenue for the three months ended June 30, 2024 Percentage of Lease Revenue Number of Leases for the three months ended June 30, 2024 Lease Revenue for the three months ended June 30, 2023 Percentage of Lease Revenue Number of Leases for the three months ended June 30, 2023

Texas $ 4,614 12.5 % 14 $ 4,332 11.2 % 12

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Pennsylvania 4,079 11.0 11 3,721 9.6 10

Georgia 3,364 9.1 11 2,973 7.7 11

Ohio 3,066 8.3 15 3,449 8.9 16

North Carolina 2,351 6.3 10 2,306 6.0 10

Alabama 2,184 5.9 6 2,248 5.8 6

Colorado 1,870 5.0 4 1,869 4.8 4

Michigan 1,707 4.6 6 1,612 4.2 6

New Jersey 1,283 3.5 3 965 2.5 5

All Other States 8,243 22.2 47 8,420 21.8 48

Total $ 37,057 100.0 % 136 $ 38,658 100.0 % 137

State Lease Revenue for the six months ended June 30, 2024 Percentage of Lease Revenue Number of Leases for the six months ended June 30, 2024 Lease Revenue for the six months ended June 30, 2023 Percentage of Lease Revenue Number of Leases for the six months ended June 30, 2023

Texas $ 9,143 12.6 % 14 $ 9,102 12.1 % 12

Florida 8,551 11.7 9 10,881 14.5 9

Pennsylvania 7,815 10.7 11 7,457 9.9 10

Georgia 6,320 8.7 11 5,899 7.8 11

Ohio 6,252 8.6 15 7,111 9.5 16

North Carolina 4,684 6.4 10 4,609 6.1 10

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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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Incentive Fee

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

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

We refer to this as the hurdle rate.

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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 months ended March 31, 2024 or 2023.

No capital gain fee was recognized during the three and six months ended June 30, 2024 or 2023.

Termination Fee

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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 three months ended March 31, 2024.

There were no material changes to our critical accounting policies or estimates during the six months ended June 30, 2024.

Results of Operations

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 on our total portfolio, which was 8.6% and 7.9% as of June 30, 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 months ended March 31, 2024 and 2023 is below (dollars in thousands, except per share amounts) :

For the three months ended March 31,

A comparison of our operating results for the three and six months ended June 30, 2024 and 2023 is below (dollars in thousands, except per share amounts) :

For the three months ended June 30,

2024 2023 $ Change % Change

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Interest expense $ (9,463) $ (9,081) $ (382) 4.2 %

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

Gain on debt extinguishment, net 300 — 300 100.0 %

Loss on sale of real estate, net (47) (451) 404 (89.6) %

Other income 26 2 24 1,200.0 %

Total other (expense), net $ (9,484) $ (9,530) $ 46 (0.5) %

Net income $ 3,526 $ 3,167 $ 359 11.3 %

Net income (loss) $ 1,600 $ (4,588) $ 6,188 (134.9) %

Distributions attributable to Series E, F, and G preferred stock (3,116) (3,058) (58) 1.9 %

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Loss on extinguishment of Series F preferred stock (4) (6) 2 (33.3) %

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 %

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,625) $ (7,758) $ 6,133 (79.1) %

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ (0.04) $ (0.19) $ 0.15 (78.9) %

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 14,437 $ 16,452 $ (2,015) (12.2) %

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

For the six months ended June 30,

2024 2023 $ Change % Change

Operating revenues

Lease revenue $ 72,779 $ 75,212 $ (2,433) (3.2) %

Total operating revenues $ 72,779 $ 75,212 $ (2,433) (3.2) %

Operating expenses

Depreciation and amortization $ 29,341 $ 31,640 $ (2,299) (7.3) %

Property operating expenses 11,692 13,465 (1,773) (13.2) %

Base management fee 3,051 3,210 (159) (5.0) %

Incentive fee 2,416 — 2,416 100.0 %

Administration fee 1,225 1,110 115 10.4 %

General and administrative 2,093 2,131 (38) (1.8) %

Impairment charge 493 6,823 (6,330) (92.8) %

Total operating expense before incentive fee waiver $ 50,311 $ 58,379 $ (8,068) (13.8) %

Incentive fee waiver (1,021) — (1,021) 100.0 %

Total operating expenses $ 49,290 $ 58,379 $ (9,089) (15.6) %

Other (expense) income

Interest expense $ (18,960) $ (17,909) $ (1,051) 5.9 %

Gain (loss) on sale of real estate, net 236 (451) 687 (152.3) %

Gain on debt extinguishment, net 300 — 300 100.0 %

Other income 60 107 (47) (43.9) %

Total other expense, net $ (18,364) $ (18,253) $ (111) 0.6 %

Net income (loss) $ 5,125 $ (1,420) $ 6,545 (460.9) %

Distributions attributable to Series E, F, and G preferred stock (6,229) (6,080) (149) 2.5 %

Distributions attributable to senior common stock (211) (215) 4 (1.9) %

Loss on extinguishment of Series F preferred stock (7) (11) 4 (36.4) %

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

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,322) $ (7,723) $ 6,401 (82.9) %

Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted $ (0.03) $ (0.19) $ 0.16 (84.2) %

FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) $ 27,976 $ 31,191 $ (3,215) (10.3) %

FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) $ 28,187 $ 31,406 $ (3,219) (10.2) %

FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1) $ 0.69 $ 0.77 $ (0.08) (10.4) %

FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1) $ 0.69 $ 0.77

$ (0.08) (10.4) %

(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 March 31,

For the three months ended June 30,

(Dollars in Thousands)

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$ 37,057 $ 38,658 $ (1,601) (4.1) %

For the six months ended June 30,

(Dollars in Thousands)

Lease Revenues 2024 2023 $ Change % Change

Same Store Properties $ 61,096 $ 62,944 $ (1,848) (2.9) %

Acquired & Disposed Properties 4,419 5,179 (760) (14.7) %

Properties with Vacancy 7,264 7,089 175 2.5 %

$ 72,779 $ 75,212 $ (2,433) (3.2) %

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

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.

Lease revenues from same store properties decreased for the three and six months ended June 30, 2024, due to accelerated rent attributable to a lease termination during the three and six months ended June 30, 2023.

Lease revenues increased for acquired and disposed of properties for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to accelerated rent attributable to a lease termination on a property that was sold during the current period.

Lease revenues decreased for acquired and disposed of properties for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to loss of variable lease payments from the nine property sales subsequent to June 30, 2023, partially offset by lease revenue from the nine properties acquired subsequent to June 30, 2023 and accelerated rent attributable to a lease termination on a property that was sold during the current period.

Lease revenues increased for our properties with vacancy for the three and six months ended June 30, 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 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,

Depreciation and amortization expense decreased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, due to the reduced depreciation and amortization expense from the nine property sales subsequent to June 30, 2023, partially offset by an increase in depreciation and amortization expense on the nine properties acquired subsequent to June 30, 2023.

For the three months ended June 30,

(Dollars in Thousands)

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$ 5,807 $ 6,738 $ (931) (13.8) %

For the six months ended June 30,

(Dollars in Thousands)

Property Operating Expenses 2024 2023 $ Change % Change

Same Store Properties $ 8,320 $ 8,183 $ 137 1.7 %

Acquired & Disposed Properties 449 2,109 (1,660) (78.7) %

Properties with Vacancy 2,923 3,173 (250) (7.9) %

$ 11,692 $ 13,465 $ (1,773) (13.2) %

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

The increase in property operating expenses for

same store properties for the three and six months ended June 30, 2024, from the comparable 2023 period, was a result of general cost increases due to the inflationary environment during the three and six months ended June 30, 2024.

The decrease in property operating expenses for acquired and disposed of properties for the three and six months ended June 30, 2024, from the comparable 2023 period, is a result of a decrease in property operating expenses from the nine property sales subsequent to June 30, 2023, minimally offset by the property operating expense from the nine properties acquired subsequent to June 30, 2023.

The decrease in property operating expenses for properties with vacancy for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, is a result of a reduction in real estate taxes due to successful appeals.

The base management fee paid to the Adviser decreased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, due to a decrease in Gross Tangible Real Estate over the three and six months ended June 30, 2024 from property sales as compared to Gross Tangible Real Estate during the three and six months ended June 30, 2023.

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

The incentive fee paid to the Adviser increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, 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 Eighth Amended Advisory Agreement.

We recorded an incentive fee, which was partially waived, during the three and six months ended June 30, 2024.

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

The administration fee paid to the Administrator increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 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 subheading “Advisory and Administration Agreements.”

General and administrative expenses remained consistent for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023.

Other Income and Expenses

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

Interest expense increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 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 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.

We sold four non-core office properties during the three and six months ended June 30, 2024, and as a result, incurred a gain on sale of real estate, net, and a gain on debt extinguishment, net.

We sold two non-core office properties during the three and six months ended June 30, 2023, and as a result, incurred a loss on sale of real estate, net.

Other income increased for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, due to nonrecurring income items that occurred in the three months ended June 30, 2024.

Other income decreased for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, due to nonrecurring income items that occurred in the six months ended June 30, 2023.

Net Income (Loss) Available (Attributable) to Common Stockholders and Non-controlling OP Unitholders

Net income (loss) available (attributable) to common stockholders and Non-controlling OP Unitholders increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, primarily due to a decrease in depreciation and amortization from the nine property sales subsequent to June 30, 2023, impairment charges in the prior period, and a gain on sale, net, and gain on debt extinguishment, net, during the current period.

This was partially offset by depreciation and amortization from the nine properties acquired subsequent to June 30, 2023, decrease in operating revenues due to lease termination fees in the prior 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 accrued 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 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.

Our available liquidity as of June 30, 2024 was $52.5 million, consisting of approximately $10.4 million in cash and cash equivalents and available borrowing capacity of $42.1 million under our Credit Facility.

Our available borrowing capacity under the Credit Facility increased to $60.3 million as of August 6, 2024.

Future Capital Needs

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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 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.

During the six months ended June 30, 2024, we raised net proceeds of $10.6 million of common equity under the 2024 Common Stock Sales Agreement.

We raised net proceeds of $0.6 million from sales of our Series F Preferred Stock during the six months ended June 30, 2024.

As of August 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%.

As of June 30, 2024, we had 39 mortgage notes payable in the aggregate principal amount of $275.7 million, collateralized by a total of 45 properties with a remaining weighted average maturity of 3.8 years.

The weighted-average interest rate on the mortgage notes payable as of June 30, 2024 was 4.24%.

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.

As of June 30, 2024, we had mortgage debt in the aggregate principal amount of $4.7 million payable during the remainder of 2024 and $34.4 million payable during 2025.

The 2024 principal amount payable includes amortizing principal payments only, as there are no balloon principal payments due during the remaining six 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 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.

Net cash provided by operating activities during the six months ended June 30, 2024, was $28.6 million, remaining consistent with net cash provided by operating activities of $30.7 million for the six months ended June 30, 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 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.

Net cash provided by investing activities during the six months ended June 30, 2024, was $5.8 million, which primarily consisted of a five-property acquisition, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from four property sales.

Net cash used in investing activities during the six months ended June 30, 2023, was $6.9 million, which primarily consisted of one property acquisition, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from two property sales.

Financing Activities

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.

Net cash used in financing activities during the six months ended June 30, 2024, was $36.1 million, which primarily consisted of $22.1 million of mortgage principal repayments, and distributions paid to common, senior common and preferred shareholders, partially offset by the issuance of $11.4 million of equity and net borrowings on our credit facility.

Net cash used in financing activities for the six months ended June 30, 2023, was $19.2 million, which primarily consisted of $11.3 million of mortgage debt repayments, and distributions paid to common, senior common and preferred shareholders, partially offset by the issuance of $8.8 million of common and preferred equity and net borrowings on our credit facility.

Credit Facility

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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 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.

As of June 30, 2024, there was $451.2 million outstanding under our Credit Facility at a weighted average interest rate of approximately 6.79% and no outstanding letters of credit.

As of August 6, 2024, the maximum additional amount we could draw under the Credit Facility was $60.3 million.

We were in compliance with all covenants under the Credit Facility as of June 30, 2024.

Contractual Obligations

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

The following table reflects our material contractual obligations as of June 30, 2024 (dollars in thousands):

Payments Due by Period

5 unchanged sentences

$ 871,605 $ 74,308 $ 308,503 $ 422,774 $ 66,020

(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.

(1) Debt obligations represent borrowings under our Revolver, which represents $81.2 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 June 30, 2024.

This figure does not include $(0.02) million of premiums and (discounts), net and $4.3 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 March 31, 2024.

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

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

Off-Balance Sheet Arrangements

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

We did not have any material off-balance sheet arrangements as of June 30, 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 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)

The following table provides a reconciliation of our FFO available to common stockholders for the three and six months ended June 30, 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 June 30, For the six months ended June 30,

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

2024 2023 2024 2023

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

3 unchanged sentences

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

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

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,625) $ (7,758) $ (1,322) $ (7,723)

Real estate depreciation and amortization $ 16,015 $ 16,936 $ 29,341 $ 31,640

Impairment charge — 6,823 493 6,823

Loss on sale of real estate, net 47 451 — 451

Gain on sale of real estate, net — — (236) —

10 unchanged sentences

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

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

Net loss attributable to common stockholders and Non-controlling OP Unitholders $ (1,625) $ (7,758) $ (1,322) $ (7,723)

Real estate depreciation and amortization $ 16,015 $ 16,936 $ 29,341 $ 31,640

1 unchanged sentence

Income impact of assumed conversion of senior common stock 105 106 211 215

Loss on sale of real estate, net 47 451 — 451

Gain on sale of real estate, net — — (236) —

7 unchanged sentences

Distributions declared per share of common stock and Non-controlling OP Unit $ 0.30 $ 0.30 $ 0.60 $ 0.60

(1) These amounts were unchanged by the revisions described in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies” and Note 9, “Revision of Previously Issued Financial Statements.”

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