GLADSTONE COMMERCIAL CORP 10-Q

Item 1. Financial Statements Gladstone Commercial Corporation Condensed Consolidated Balance Sheets (Dollars in Thousands, Except Share and Per Share Data) (Unaudited) September 30, 2024 December 31, 2023 ASSETS Real estate, at cost $ 1,214,288 $ 1,221,364 Less: accumulated depreciation 313,730 299,662 Total real estate, net 900,558 921,702 Lease intangibles, net 97,802 101,048 Real estate and related assets held for sale 16,964 28,787 Cash and cash equivalents 10,531 11,985 Restricted cash 3,999 4,150 Funds held in escrow 5,673 7,515 Right-of-use assets from operating leases 4,023 4,889 Deferred rent receivable, net 44,855 41,006 Other assets 11,910 12,389 TOTAL ASSETS $ 1,096,315 $ 1,133,471 LIABILITIES, MEZZANINE EQUITY AND EQUITY LIABILITIES Mortgage notes payable, net $ 271,621 $ 295,853 Borrowings under Revolver 53,250 75,750 Borrowings under Term Loan A, Term Loan B and Term Loan C, net 367,776 367,258 Deferred rent liability, net 23,599 29,324 Operating lease liabilities 4,123 5,093 Asset retirement obligation 5,027 4,928 Accounts payable and accrued expenses 15,666 13,588 Liabilities related to assets held for sale 169 676 Due to Adviser and Administrator (1) 3,063 2,556 Other liabilities 12,934 14,138 TOTAL LIABILITIES $ 757,228 $ 809,164 Commitments and contingencies (2) MEZZANINE EQUITY Series E and G redeemable preferred stock, net, par value $ 0.001 per share; $ 25 per share liquidation preference; 10,750,886 and 10,750,886 shares authorized; and 7,052,334 and 7,052,334 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3) $ 170,041 $ 170,041 TOTAL MEZZANINE EQUITY $ 170,041 $ 170,041 EQUITY Senior common stock, par value $ 0.001 per share; 950,000 shares authorized; and 399,483 and 406,425 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3) $ 1 $ 1 Common stock, par value $ 0.001 per share, 62,384,569 and 62,326,818 shares authorized; and 43,728,098 and 40,000,596 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3) 43 40 Series F redeemable preferred stock, par value $ 0.001 per share; $ 25 per share liquidation preference; 25,914,545 and 25,972,296 shares authorized and 907,941 and 918,601 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3) 1 1 Additional paid in capital 780,205 730,256 Accumulated other comprehensive income 3,365 7,758 Distributions in excess of accumulated earnings ( 614,698 ) ( 584,776 ) TOTAL STOCKHOLDERS' EQUITY $ 168,917 $ 153,280 OP Units held by Non-controlling OP Unitholders (3) 129 986 TOTAL EQUITY $ 169,046 $ 154,266 TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY $ 1,096,315 $ 1,133,471 (1) Refer to Note 2 “Related-Party Transactions” (2) Refer to Note 7 “Commitments and Contingencies” (3) Refer to Note 8 “Equity and Mezzanine Equity” The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Gladstone Commercial Corporation Condensed Consolidated Statements of Operations and Comprehensive Income (Dollars in Thousands, Except Share and Per Share Data) (Unaudited) For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Operating revenues Lease revenue $ 39,235 $ 36,464 $ 112,013 $ 111,675 Total operating revenues $ 39,235 $ 36,464 $ 112,013 $ 111,675 Operating expenses Depreciation and amortization $ 13,343 $ 12,485 $ 42,683 $ 44,125 Property operating expenses 6,681 6,821 18,373 20,286 Base management fee (1) 1,528 1,597 4,580 4,808 Incentive fee (1) 1,146 — 3,562 — Administration fee (1) 725 624 1,950 1,734 General and administrative 970 1,306 3,064 3,437 Impairment charge 4,549 6,754 5,043 13,577 Total operating expense before incentive fee waiver $ 28,942 $ 29,587 $ 79,255 $ 87,967 Incentive fee waiver (1) ( 396 ) — ( 1,417 ) — Total operating expenses $ 28,546 $ 29,587 $ 77,838 $ 87,967 Other income (expense) Interest expense $ ( 9,299 ) $ ( 9,936 ) $ ( 28,259 ) $ ( 27,845 ) Gain on sale of real estate, net 10,319 4,696 10,554 4,245 Gain on debt extinguishment, net — — 300 — Other income 12 155 73 262 Total other income (expense), net $ 1,032 $ ( 5,085 ) $ ( 17,332 ) $ ( 23,338 ) Net income $ 11,721 $ 1,792 $ 16,843 $ 370 Net (income) loss (available) attributable to OP Units held by Non-controlling OP Unitholders ( 44 ) ( 3 ) ( 35 ) 78 Net income available to the Company $ 11,677 $ 1,789 $ 16,808 $ 448 Distributions attributable to Series E, F, and G preferred stock ( 3,106 ) ( 3,099 ) ( 9,334 ) ( 9,179 ) Distributions attributable to senior common stock ( 106 ) ( 108 ) ( 317 ) ( 323 ) Gain (loss) on extinguishment of Series F preferred stock, net 2 ( 1 ) ( 4 ) ( 12 ) Gain on repurchase of Series G preferred stock — — — 3 Net income (loss) available (attributable) to common stockholders $ 8,467 $ ( 1,419 ) $ 7,153 $ ( 9,063 ) Income (loss) per weighted average share of common stock - basic & diluted Income (loss) available (attributable) to common stockholders $ 0.20 $ ( 0.04 ) $ 0.17 $ ( 0.23 ) Weighted average shares of common stock outstanding Basic and Diluted 42,790,685 39,917,995 41,041,621 39,939,660 Earnings per weighted average share of senior common stock $ 0.27 $ 0.27 $ 0.79 $ 0.79 Weighted average shares of senior common stock outstanding - basic 399,520 406,425 401,723 411,075 Comprehensive income Change in unrealized (loss) gain related to interest rate hedging instruments, net $ ( 10,456 ) $ 5,089 $ ( 4,568 ) $ 7,218 Other comprehensive (loss) income ( 10,456 ) 5,089 ( 4,568 ) 7,218 Net income $ 11,721 $ 1,792 $ 16,843 $ 370 Comprehensive income $ 1,265 $ 6,881 $ 12,275 $ 7,588 Comprehensive (income) loss (available) attributable to OP Units held by Non-controlling OP Unitholders ( 44 ) ( 3 ) ( 35 ) 78 Total comprehensive income available to the Company $ 1,221 $ 6,878 $ 12,240 $ 7,666 (1) Refer to Note 2 “Related-Party Transactions” The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Gladstone Commercial Corporation Condensed Consolidated Statements of Cash Flows (Dollars in Thousands) (Unaudited) For the nine months ended September 30, 2024 2023 Cash flows from operating activities: Net income $ 16,843 $ 370 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,683 44,125 Impairment charge 5,043 13,577 Gain on debt extinguishment, net ( 300 ) — Gain on sale of real estate, net ( 10,554 ) ( 4,245 ) Amortization of deferred financing costs 1,235 1,248 Amortization of deferred rent asset and liability, net ( 5,164 ) ( 5,772 ) Amortization of discount and premium on assumed debt, net 26 31 Asset retirement obligation expense 99 94 Amortization of right-of-use asset from operating leases and operating lease liabilities, net 5 20 Bad debt expense 64 — Operating changes in assets and liabilities (Increase) decrease in other assets ( 5,641 ) 2,279 Decrease in deferred rent receivable ( 4,612 ) ( 2,524 ) Increase in accounts payable and accrued expenses 1,372 2,320 Increase (decrease) in amount due to Adviser and Administrator 507 ( 804 ) Decrease in other liabilities ( 2,873 ) ( 894 ) Leasing commissions paid ( 4,567 ) ( 1,336 ) Net cash provided by operating activities $ 34,166 $ 48,489 Cash flows from investing activities: Acquisition of real estate and related intangible assets $ ( 22,122 ) $ ( 17,539 ) Improvements of existing real estate ( 9,200 ) ( 6,369 ) Proceeds from sale of real estate 35,132 22,174 Receipts from lenders for funds held in escrow 2,513 3,662 Payments to lenders for funds held in escrow ( 671 ) ( 3,353 ) Receipts from tenants for reserves 793 352 Payments to tenants from reserves 2,193 ( 2,165 ) Deposits on future acquisitions — ( 350 ) Net cash provided by (used in) investing activities $ 8,638 $ ( 3,588 ) Cash flows from financing activities: Proceeds from issuance of equity $ 50,902 $ 9,775 Offering costs paid ( 737 ) ( 500 ) Redemption of Series F preferred stock ( 1,322 ) ( 413 ) Retirement of senior common stock — ( 55 ) Repurchase of Series G preferred stock — ( 12 ) Repurchase of common stock — ( 998 ) Borrowings under mortgage notes payable — 9,000 Payments for deferred financing costs ( 43 ) ( 375 ) Principal repayments on mortgage notes payable ( 24,394 ) ( 57,637 ) Borrowings from revolving credit facility 68,100 93,100 Repayments on revolving credit facility ( 90,600 ) ( 45,400 ) Increase in security deposits 198 141 Distributions paid for common, senior common, preferred stock and Non-controlling OP Unitholders ( 46,513 ) ( 45,445 ) Net cash used in financing activities $ ( 44,409 ) $ ( 38,819 ) Net (decrease) increase in cash, cash equivalents, and restricted cash $ ( 1,605 ) $ 6,082 Cash, cash equivalents, and restricted cash at beginning of period $ 16,135 $ 15,992 6 Table of Contents Cash, cash equivalents, and restricted cash at end of period $ 14,530 $ 22,074 SUPPLEMENTAL AND NON-CASH INFORMATION Tenant funded fixed asset improvements included in deferred rent liability, net $ ( 479 ) $ ( 1,312 ) Unrealized gain related to interest rate hedging instruments, net $ ( 4,568 ) $ 7,218 Right-of-use asset from operating leases $ ( 686 ) $ — Operating lease liabilities $ 795 $ — Capital improvements and leasing commissions included in accounts payable and accrued expenses $ 6,330 $ 3,099 Dividends paid on Series F preferred stock via additional share issuances $ 385 $ 355 The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (dollars in thousands): For the nine months ended September 30, 2024 2023 Cash and cash equivalents $ 10,531 $ 18,263 Restricted cash 3,999 3,811 Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows $ 14,530 $ 22,074 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents Gladstone Commercial Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization, Basis of Presentation and Significant Accounting Policies Gladstone Commercial Corporation is a real estate investment trust (“REIT”) that was incorporated under the General Corporation Law of the State of Maryland on February 14, 2003. We focus on acquiring, owning and managing primarily industrial and office properties. Subject to certain restrictions and limitations, our business is managed by Gladstone Management Corporation, a Delaware corporation (the “Adviser”), and administrative services are provided by Gladstone Administration, LLC, a Delaware limited liability company (the “Administrator”), each pursuant to a contractual arrangement with us. Our Adviser and Administrator collectively employ all of our personnel and pay their salaries, benefits, and general expenses directly. Gladstone Commercial Corporation conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership (the “Operating Partnership”). All references herein to “we,” “our,” “us” and the “Company” mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where it is made clear that the term means only Gladstone Commercial Corporation. Interim Financial Information Our interim financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data presented herein was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period, have been included. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2024. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for other interim periods or for the full 2024 fiscal year. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Significant Accounting Policies The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature and requires management 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. A summary of all of our significant accounting policies is provided in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes to our critical accounting policies during the three and nine months ended September 30, 2024. Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures.” The new standard improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The standard requires expanded disclosures regarding significant segments expense categories and a measure of profit or loss for each reportable segment. ASU 2023-08 is effective for fiscal years beginning after December 15, 2023. We are currently evaluating the impact from adopting ASU 2023-07, but we anticipate adopting this standard will not have a material impact to our consolidated financial statements. 8 Table of Contents 2. Related-Party Transactions Gladstone Management and Gladstone Administration 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 general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. Two of our executive officers, Mr. Gladstone and Mr. Terry Lee Brubaker (our chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Our president, Mr. Arthur “Buzz” Cooper, is also an executive vice president of commercial and industrial real estate of our Adviser. Mr. Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president, general counsel and secretary, as well as executive vice president of administration of our Adviser. We have entered into an advisory agreement with our Adviser, as amended from time to time (the “Advisory Agreement”), and an administration agreement with our Administrator (the “Administration Agreement”). The services and fees under the Advisory Agreement and Administration Agreement are described below. As of September 30, 2024 and December 31, 2023, $ 3.1 million and $ 2.6 million, respectively, was collectively due to our Adviser and Administrator. Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our board of directors (“Board of Directors”). Our Board of Directors reviews and considers renewing the agreements with our Adviser and Administrator annually, typically during the month of July. During its July 2024 meeting, our Board of Directors reviewed and renewed the Administration Agreement for an additional year, through August 31, 2025. Base Management Fee On July 14, 2020, we amended and restated the Advisory Agreement, which replaced the previous calculation of the base management fee with a calculation based on Gross Tangible Real Estate. The revised base management fee is payable quarterly in arrears and calculated at an annual rate of 0.425 % ( 0.10625 % per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Advisory Agreement as the current gross value of our property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Advisory Agreement was unchanged. For the three and nine months ended September 30, 2024, we recorded a base management fee of $ 1.5 million and $ 4.6 million, respectively. For the three and nine months ended September 30, 2023, we recorded a base management fee of $ 1.6 million and $ 4.8 million, respectively. 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. The Adviser will receive 15.0 % of the amount of our pre-incentive fee Core FFO that exceeds the hurdle rate. However, in no event shall the incentive fee for a particular quarter exceed by 15.0 % (the cap) the average quarterly incentive fee paid by us for the previous four quarters (excluding quarters for which no incentive fee was paid). Core FFO, as defined in the Advisory Agreement, is GAAP net (loss) income (attributable) available to common stockholders, excluding the incentive fee, depreciation and amortization, any realized and unrealized gains, losses or other non-cash items recorded in net (loss) income (attributable) available to common stockholders for the period, and one-time events pursuant to changes in GAAP. On January 10, 2023, the Company amended and restated the Advisory Agreement by entering into the Seventh Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Seventh Amended Advisory Agreement”), as approved unanimously by our Board of Directors, including specifically, our independent directors. The Seventh Amended Advisory Agreement contractually eliminated the payment of the incentive fee for the quarters ended March 31, 2023 and June 30, 2023. The calculation of the other fees was unchanged. On July 11, 2023, the Company amended and restated the Advisory Agreement by entering into the Eighth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Eighth Amended Advisory Agreement”), as approved unanimously by our Board of Directors, including specifically, our independent directors. The Eighth Amended Advisory Agreement contractually eliminated the payment of the incentive fee for the quarters ended September 30, 2023 and December 31, 2023. In addition, the Eighth Amended Advisory Agreement also clarified that for any future quarter whereby an incentive fee would exceed by greater than 15 % the average quarterly incentive fee paid, the 9 Table of Contents measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the other fees was unchanged. For the three months ended September 30, 2024, we recorded an incentive fee of $ 1.1 million, partially offset by credits related to non-contractual, unconditional, and irrevocable waivers issued by the Adviser of $ 0.4 million. For the nine months ended September 30, 2024, we recorded an incentive fee of $ 3.6 million, partially offset by credits related to non-contractual, unconditional, and irrevocable waivers issued by the Adviser of $ 1.4 million. For the three and nine months ended September 30, 2023, the contractually eliminated incentive fee would have been $ 0.9 million and $ 3.4 million, respectively. Capital Gain Fee Under the Advisory Agreement, we will pay to the Adviser a capital gain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property (equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements) of the disposed property. 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, 2024 or 2023. Termination Fee The Advisory Agreement includes a termination fee clause whereby, in the event of our termination of the agreement without cause (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24 -month period prior to such termination. A termination fee is also payable if the Adviser terminates the Advisory Agreement after we have defaulted and applicable cure periods have expired. The Advisory 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 Advisory Agreement to include if the Adviser breaches any material provisions thereof, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds. Administration Agreement Under the terms of the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under contractual agreements. We believe that the methodology of allocating the Administrator’s total expenses by approximate percentage of time services were performed among all companies serviced by our Administrator more closely approximates fees paid for actual services performed. For the three and nine months ended September 30, 2024, we recorded an administration fee of $ 0.7 million and $ 2.0 million, respectively. For the three and nine months ended September 30, 2023, we recorded an administration fee of $ 0.6 million and $ 1.7 million, respectively. Gladstone Securities Gladstone Securities, LLC (“Gladstone Securities”), is a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities. Mortgage Financing Arrangement Agreement We entered into an agreement with Gladstone Securities, effective June 18, 2013, for it to act as our non-exclusive agent to assist us with arranging mortgage financing for our owned properties. In connection with this engagement, Gladstone Securities will, from time to time, continue to solicit the interest of various commercial real estate lenders or recommend to us third-party 10 Table of Contents lenders offering credit products or packages that are responsive to our needs. We pay Gladstone Securities a financing fee in connection with the services it provides to us for securing mortgage financing on any of our properties. The amount of these financing fees, which are payable upon closing of the financing, are based on a percentage of the amount of the mortgage, generally ranging from 0.15 % to a maximum of 1.00 % of the mortgage obtained. The amount of the financing fees may be reduced or eliminated, as determined by us and Gladstone Securities, after taking into consideration various factors, including, but not limited to, the involvement of any third-party brokers and market conditions. We did not pay financing fees to Gladstone Securities during the three months ended September 30, 2024 and paid financing fees to Gladstone Securities of $ 0.01 million during the nine months ended September 30, 2024, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.13 % of the mortgage principal secured. We paid financing fees to Gladstone Securities of $ 0.03 million and $ 0.1 million during the three and nine months ended September 30, 2023, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.38 % and 0.29 % of the mortgage principal secured. Our Board of Directors renewed the agreement for an additional year, through August 31, 2025, at its July 2024 meeting. Dealer Manager Agreement On February 20, 2020, we entered into a dealer manager agreement, as amended on February 9, 2023 (together, the “Dealer Manager Agreement”), whereby Gladstone Securities acts as the exclusive dealer manager in connection with our offering (the “Offering”) of up to (i) 20,000,000 shares of 6.00 % Series F Cumulative Redeemable Preferred Stock, par value $ 0.001 per share (the “Series F Preferred Stock”), on a “reasonable best efforts” basis (the “Primary Offering”), and (ii) 6,000,000 shares of Series F Preferred Stock pursuant to our distribution reinvestment plan (the “DRIP”) to those holders of the Series F Preferred Stock who participate in such DRIP. Prior to the effectiveness of the Company’s Registration Statement on Form S-3 (File No. 333-277877) (the “2024 Registration Statement”), the Series F Preferred Stock was registered with the SEC pursuant to an automatic shelf registration statement on Form S-3 (File No. 333-268549), as was amended and supplemented (the “2022 Registration Statement”), under the Securities Act of 1933, as amended, and was offered and sold pursuant to a prospectus supplement, dated February 9, 2023, and a base prospectus dated November 23, 2022 relating to the 2022 Registration Statement. During the years ended December 31, 2020, 2021 and 2022, the Series F Preferred Stock was registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-236143) (the “2020 Registration Statement”), and offered and sold pursuant to a prospectus supplement, dated February 20, 2020, and a base prospectus dated February 11, 2020. Under the Dealer Manager Agreement, Gladstone Securities, as dealer manager, provides certain sales, promotional and marketing services to us in connection with the Offering, and we pay Gladstone Securities (i) selling commissions of 6.0 % of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Selling Commissions”), and (ii) a dealer manager fee of 3.0 % of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Dealer Manager Fee”). No Selling Commissions or Dealer Manager Fee are paid with respect to shares sold pursuant to the DRIP. Gladstone Securities may, in its sole discretion, re-allow for payment of a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $ 0.01 million and $ 0.07 million to Gladstone Securities during the three and nine months ended September 30, 2024, respectively, in connection with the Offering. We paid fees of $ 0.1 million and $ 0.5 million to Gladstone Securities during the three and nine months ended September 30, 2023, respectively, in connection with the Offering. 3. Earnings (Loss) Per Share of Common Stock The following tables set forth the computation of basic and diluted earnings (loss) per share of common stock for the three and nine months ended September 30, 2024 and 2023. The operating partnership units in the Operating Partnership (“OP Units”) held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”) (which may be redeemed for shares of common stock) have been excluded from the diluted earnings (loss) per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of income (loss) would also be added back to net income (loss). Net income (loss) figures are presented net of such non-controlling interests in the income (loss) per share calculation. We computed basic earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 using the weighted average number of shares outstanding during the respective periods. Diluted earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 reflects additional shares of common stock related to our convertible senior common stock (the “Senior Common Stock”), if the effect of conversion would be dilutive, that would have been outstanding if such dilutive potential shares of common stock had been issued, as well as an adjustment to net income (loss) available (attributable) to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts). 11 Table of Contents For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Calculation of basic earnings (loss) per share of common stock: Net income (loss) available (attributable) to common stockholders $ 8,467 $ ( 1,419 ) $ 7,153 $ ( 9,063 ) Denominator for basic weighted average shares of common stock (1) 42,790,685 39,917,995 41,041,621 39,939,660 Basic earnings (loss) per share of common stock $ 0.20 $ ( 0.04 ) $ 0.17 $ ( 0.23 ) Calculation of diluted earnings (loss) per share of common stock: Net income (loss) available (attributable) to common stockholders $ 8,467 $ ( 1,419 ) $ 7,153 $ ( 9,063 ) Net income (loss) available (attributable) to common stockholders plus assumed conversions (2) $ 8,467 $ ( 1,419 ) $ 7,153 $ ( 9,063 ) Denominator for basic weighted average shares of common stock (1) 42,790,685 39,917,995 41,041,621 39,939,660 Effect of convertible Senior Common Stock (2) — — — — Denominator for diluted weighted average shares of common stock (2) 42,790,685 39,917,995 41,041,621 39,939,660 Diluted earnings (loss) per share of common stock $ 0.20 $ ( 0.04 ) $ 0.17 $ ( 0.23 ) (1) The weighted average number of OP Units held by Non-controlling OP Unitholders was 39,474 and 196,675 for the three and nine months ended September 30, 2024, respectively, and 391,468 and 391,468 for the three and nine months ended September 30, 2023, respectively. (2) We excluded convertible shares of Senior Common Stock of 339,299 and 345,132 from the calculation of diluted earnings per share for the three and nine months ended September 30, 2024 and 2023, respectively, because they were anti-dilutive. 4. Real Estate and Intangible Assets Real Estate The following table sets forth the components of our investments in real estate as of September 30, 2024 and December 31, 2023, respectively, excluding real estate held for sale (dollars in thousands): September 30, 2024 December 31, 2023 Real estate: Land (1) $ 139,916 $ 143,442 Building and improvements 1,019,056 1,020,661 Tenant improvements 55,316 57,261 Accumulated depreciation ( 313,730 ) ( 299,662 ) Real estate, net $ 900,558 $ 921,702 (1) This amount includes $ 2,711 of land value subject to land lease agreements which we may purchase at our option for a nominal fee. Real estate depreciation expense on building and tenant improvements was $ 9.8 million and $ 29.8 million for the three and nine months ended September 30, 2024, respectively. Real estate depreciation expense on building and tenant improvements was $ 8.9 million and $ 31.2 million for the three and nine months ended September 30, 2023, respectively. Acquisitions We acquired six industrial properties during the nine months ended September 30, 2024, and acquired three industrial properties during the nine months ended September 30, 2023. The acquisitions are summarized below (dollars in thousands): Nine Months Ended Square Footage Lease Term Purchase Price Capitalized Acquisition Expenses September 30, 2024 (1) 192,227 21.0 years $ 22,122 $ 435 September 30, 2023 (2) 183,803 18.7 years $ 17,539 $ 349 (1) On May 7, 2024, we acquired a five -property, 142,125 square foot portfolio in Warfordsburg, Pennsylvania for $ 12.0 million. The property is fully leased to one tenant and had 25.1 years of remaining lease term at the time we acquired the property. On August 29, 2024, we acquired a 50,102 square foot property in Midland, Texas for $ 10.2 million. The property is fully leased to one tenant and had 15.0 years of remaining lease term at the time we acquired the property. (2) On April 14, 2023, we acquired a 76,089 square foot property in Riverdale, Illinois for $ 5.4 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On July 10, 2023, we 12 Table of Contents acquired a 7,714 square foot property in Dallas-Fort Worth, Texas for $ 3.0 million. The property is fully leased to one tenant and had 9.9 years of remaining lease term at the time we acquired the property. On July 28, 2023, we acquired a 100,000 square foot property in Dallas-Fort Worth, Texas for $ 9.2 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the nine months ended September 30, 2024 and 2023 as follows (dollars in thousands): Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 Acquired assets and liabilities Purchase price Purchase price Land $ 1,694 $ 2,714 Building 15,665 11,423 Tenant Improvements 374 692 In-place Leases 1,616 1,001 Leasing Costs 2,265 1,270 Customer Relationships 418 439 Above Market Leases 90 (1) — Total Purchase Price $ 22,122 $ 17,539 (1) This amount includes $ 90 of loans receivable included in Other assets on the condensed consolidated balance sheets. Future Lease Payments Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the three months ending December 31, 2024 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands): Year Tenant Lease Payments Three Months Ending December 31, 2024 $ 29,904 2025 120,765 2026 116,612 2027 102,150 2028 89,696 2029 81,671 Thereafter 387,395 In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant directly, or reimbursed to us from the tenant; however, we would be required to pay operating expenses on the respective properties in the event the tenants fail to pay them. Lease Revenue Reconciliation The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the three and nine months ended September 30, 2024 and 2023, respectively (dollars in thousands): For the three months ended September 30, Lease revenue reconciliation 2024 2023 $ Change % Change Fixed lease payments $ 34,663 $ 31,945 $ 2,718 8.5 % Variable lease payments 4,572 4,519 53 1.2 % $ 39,235 $ 36,464 $ 2,771 7.6 % 13 Table of Contents For the nine months ended September 30, Lease revenue reconciliation 2024 2023 $ Change % Change Fixed lease payments $ 99,536 $ 98,465 $ 1,071 1.1 % Variable lease payments 12,477 13,210 ( 733 ) ( 5.5 ) % $ 112,013 $ 111,675 $ 338 0.3 % Intangible Assets The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of September 30, 2024 and December 31, 2023, respectively, excluding real estate held for sale (dollars in thousands): September 30, 2024 December 31, 2023 Lease Intangibles Accumulated Amortization Lease Intangibles Accumulated Amortization In-place leases $ 96,824 $ ( 64,278 ) $ 98,615 $ ( 63,269 ) Leasing costs 89,565 ( 48,303 ) 84,844 ( 46,096 ) Customer relationships 60,884 ( 36,890 ) 63,185 ( 36,231 ) $ 247,273 $ ( 149,471 ) $ 246,644 $ ( 145,596 ) Deferred Rent Receivable/(Liability) Accumulated (Amortization)/Accretion Deferred Rent Receivable/(Liability) Accumulated (Amortization)/Accretion Above market leases $ 12,747 $ ( 10,488 ) $ 13,431 $ ( 10,675 ) Below market leases and deferred revenue ( 56,616 ) 33,017 ( 59,411 ) 30,087 Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $ 3.6 million and $ 12.9 million for the three and nine months ended September 30, 2024, respectively, and $ 3.6 million and $ 12.9 million for the three and nine months ended September 30, 2023, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income. Total amortization related to above-market lease values was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2024, respectively, and $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2023, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $ 1.7 million and $ 5.5 million for the three and nine months ended September 30, 2024, respectively, and $ 1.8 million and $ 6.2 million for the three and nine months ended September 30, 2023, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the nine months ended September 30, 2024 and 2023, were as follows: Intangible Assets & Liabilities September 30, 2024 September 30, 2023 In-place leases 21.3 18.0 Leasing costs 21.3 18.0 Customer relationships 25.1 22.7 Above market leases 25.1 0.0 All intangible assets & liabilities 22.2 19.6 5. Real Estate Dispositions, Held for Sale and Impairment Charges Real Estate Dispositions We sold six properties during the nine months ended September 30, 2024 and five properties during the nine months ended September 30, 2023. 14 Table of Contents During the nine months ended September 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 program 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, 2024, we sold six non-core properties, located in Columbus, Ohio; Draper, Utah; Richardson, Texas; Egg Harbor, New Jersey; Cumming, Georgia; and Lawrenceville, Georgia, 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, 2024 Aggregate Gain on Sale of Real Estate, net 412,767 $ 36,325 $ 1,193 $ 493 $ 10,554 Our dispositions during the nine months ended September 30, 2024 were not classified as discontinued operations because they did not represent a strategic shift in operations, nor will such dispositions have a major effect on our operations and financial results. Accordingly, the operating results of these properties are included within continuing operations for all periods reported. The table below summarizes the components of operating income from real estate and related assets disposed of during the three and nine months ended September 30, 2024 and 2023 (dollars in thousands): For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Operating revenue $ 80 $ 959 $ 1,400 $ 3,424 Operating expense 4 9,149 (2) 969 (3) 14,902 (5) Other income (expense), net 10,319 (1) ( 224 ) 10,636 (4) ( 748 ) Income (expense) from real estate and related assets sold $ 10,395 $ ( 8,414 ) $ 11,067 $ ( 12,226 ) (1) Includes a $ 10.3 million gain on sale of real estate, net, on the sale of two properties. (2) Includes a $ 6.8 million impairment charge on one property. (3) Includes a $ 0.5 million impairment charge on one property. (4) Includes a $ 10.6 million gain on sale of real estate, net, on the sale of six properties and a $ 0.3 million gain on debt extinguishment, net, on the sale of two of those properties. (5) Includes a $ 10.0 million impairment charge on three properties. Real Estate Held for Sale At September 30, 2024, we had two properties classified as held for sale, located in Fridley, Minnesota and Tifton, Georgia. We consider these assets to be non-core to our long-term strategy. At December 31, 2023, we had three properties classified as held for sale, located in Richardson, Texas; Columbus, Ohio; and Tifton, Georgia. The table below summarizes the components of the assets and liabilities held for sale at September 30, 2024 and December 31, 2023 reflected on the accompanying condensed consolidated balance sheets (dollars in thousands): September 30, 2024 December 31, 2023 Assets Held for Sale Total real estate held for sale $ 16,528 $ 27,496 Lease intangibles, net 436 1,284 Deferred rent receivable, net — 7 Total Assets Held for Sale $ 16,964 $ 28,787 Liabilities Held for Sale Deferred rent liability, net $ 169 $ 676 Total Liabilities Held for Sale $ 169 $ 676 15 Table of Contents Impairment Charges We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the nine months ended September 30, 2024 and did not recognize an impairment charge. We recognized impairment charges of $ 5.0 million on two held for sale assets, located in Richardson, Texas and Fridley, Minnesota during the nine months ended September 30, 2024. In performing our held for sale assessments, the carrying value of these assets were above the fair value, less costs of sale. As a result, we impaired these properties to equal the fair market value less costs of sale. We recognized an impairment charge of $ 9.0 million during the nine months ended September 30, 2023 on two held and used assets, located in Columbus, Ohio and Draper, Utah, and recognized an impairment charge of $ 4.6 million on two held for sale assets, located in Richardson, Texas and Taylorsville, Utah. In performing our held for sale assessment, the carrying value of these assets were above the fair value, less costs of sale. 6. Mortgage Notes Payable and Credit Facility Our $ 125.0 million unsecured revolving credit facility (“Revolver”), $ 160.0 million term loan facility (“Term Loan A”), $ 60.0 million term loan facility (“Term Loan B”), and $ 150.0 million term loan facility (“Term Loan C”), are collectively referred to herein as the “Credit Facility”. Our mortgage notes payable and Credit Facility as of September 30, 2024 and December 31, 2023 are summarized below (dollars in thousands): Encumbered properties at Carrying Value at Stated Interest Rates at Scheduled Maturity Dates at September 30, 2024 September 30, 2024 December 31, 2023 September 30, 2024 September 30, 2024 Mortgage and other secured loans: Fixed rate mortgage loans 44 $ 266,121 $ 298,122 (1) (2) Variable rate mortgage loans 1 7,308 — N/A (2) Premiums and discounts, net — ( 16 ) ( 42 ) N/A N/A Deferred financing costs, mortgage loans, net — ( 1,792 ) ( 2,227 ) N/A N/A Total mortgage notes payable, net 45 $ 271,621 $ 295,853 (3) Variable rate revolving credit facility 87 (6) $ 53,250 $ 75,750 SOFR + 1.35 % (4) 8/18/2026 Total revolver 87 $ 53,250 $ 75,750 Variable rate term loan facility A — (6) $ 160,000 $ 160,000 SOFR + 1.30 % (4) 8/18/2027 Variable rate term loan facility B — (6) 60,000 60,000 SOFR + 1.30 % (4) 2/11/2026 Variable rate term loan facility C — (6) 150,000 150,000 SOFR + 1.30 % (4) 2/18/2028 Deferred financing costs, term loan facility — ( 2,224 ) ( 2,742 ) N/A N/A Total term loan, net N/A $ 367,776 $ 367,258 Total mortgage notes payable and credit facility 132 $ 692,647 $ 738,861 (5) (1) As of September 30, 2024, interest rates on our fixed rate mortgage notes payable varied from 2.80 % to 6.63 %. (2) As of September 30, 2024, we had 39 mortgage notes payable with maturity dates ranging from January 1, 2025 through August 1, 2037. (3) The weighted average interest rate on the mortgage notes outstanding as of September 30, 2024 was approximately 4.23 %. (4) As of September 30, 2024, the Secured Overnight Financing Rate (“SOFR”) was approximately 4.96 %. (5) The weighted average interest rate on all debt outstanding as of September 30, 2024 was approximately 5.47 %. (6) The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 87 unencumbered properties as of September 30, 2024. N/A - Not Applicable 16 Table of Contents Mortgage Notes Payable As of September 30, 2024, we had 39 mortgage notes payable, collateralized by a total of 45 properties with a net book value of $ 453.3 million. We have limited recourse liabilities that could result from any one or more of the following circumstances: a borrower voluntarily filing for bankruptcy, improper conveyance of a property, fraud or material misrepresentation, misapplication or misappropriation of rents, security deposits, insurance proceeds or condemnation proceeds, or physical waste or damage to the property resulting from a borrower’s gross negligence or willful misconduct. As of September 30, 2024, we did not have any mortgages subject to recourse. We will also indemnify lenders against claims resulting from the presence of hazardous substances or activity involving hazardous substances in violation of environmental laws on a property. During the nine months ended September 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 nine months ended September 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 We did not make any payments for deferred financing costs during the three months ended September 30, 2024 and we made payments of $ 0.04 million for deferred financing costs during the nine months ended September 30, 2024. We made payments of $ 0.3 million and $ 0.4 million for deferred financing costs during the three and nine months ended September 30, 2023, respectively. Scheduled principal payments of mortgage notes payable for the three months ending December 31, 2024, and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands): Year Scheduled Principal Payments Three Months Ending December 31, 2024 $ 2,383 2025 34,346 2026 35,069 2027 95,090 2028 37,108 2029 20,911 Thereafter 48,522 Total $ 273,429 (1) (1) This figure does not include $( 0.02 ) million of premiums and (discounts), net, and $ 1.8 million of deferred financing costs, which are reflected in mortgage notes payable, net on the condensed consolidated balance sheets. We believe we will be able to address all mortgage notes payable maturing over the next 12 months through a combination of refinancing our existing indebtedness, cash from operations, proceeds from one or more equity offerings and availability on our Credit Facility. Interest Rate Cap and Interest Rate Swap Agreements We have entered into interest rate cap agreements that cap the interest rate on certain of our variable-rate debt and we have assumed or entered into interest rate swap agreements in which we hedged our exposure to variable interest rates by agreeing to pay fixed interest rates to our respective counterparty. We have adopted the fair value measurement provisions for our financial instruments recorded at fair value. The fair value guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; 17 Table of Contents Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Generally, we will estimate the fair value of our interest rate caps and interest rate swaps, in the absence of observable market data, using estimates of value including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At September 30, 2024 and December 31, 2023, our interest rate cap agreements and interest rate swaps were valued using Level 2 inputs. The fair value of the interest rate cap agreements is recorded in other assets on our accompanying condensed consolidated balance sheets. We record changes in the fair value of the interest rate cap agreements quarterly based on the current market valuations at quarter end. If the interest rate cap qualifies for hedge accounting, then the change in the estimated fair value is recorded to accumulated other comprehensive income to the extent that it is effective, with any ineffective portion recorded to interest expense in our condensed consolidated statements of operations and comprehensive income. If the interest rate cap does not qualify for hedge accounting, or if it is determined the hedge is ineffective, then any change in the fair value is recognized in interest expense in our consolidated statements of operations and comprehensive income. During the next 12 months, we estimate that an additional $ 1.0 million will be reclassified out of accumulated other comprehensive income into interest expense in our condensed consolidated statements of operations and comprehensive income, as a reduction to interest expense. The following table summarizes the interest rate caps at September 30, 2024 and December 31, 2023 (dollars in thousands): September 30, 2024 December 31, 2023 Aggregate Cost Aggregate Notional Amount Aggregate Fair Value Aggregate Notional Amount Aggregate Fair Value $ 48 (1) $ 60,000 $ 1 $ 65,000 $ 684 (1) We have entered into an interest rate cap agreement on variable rate debt with a SOFR cap of 5.50 %. We have assumed or entered into interest rate swap agreements in connection with certain of our mortgage financings and Credit Facility, whereby we will pay our counterparty a fixed interest rate on a monthly basis and receive payments from our counterparty equivalent to the stipulated floating rate. The fair value of our interest rate swap agreements is recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate swaps as cash flow hedges, and we record changes in the fair value of the interest rate swap agreement to accumulated other comprehensive income on the condensed consolidated balance sheets. We have designated our interest rate swaps as cash flow hedges, and we record changes in the fair value of the respective interest rate swap agreement to accumulated other comprehensive income on the consolidated balance sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. The following table summarizes our interest rate swaps at September 30, 2024 and December 31, 2023 (dollars in thousands): September 30, 2024 December 31, 2023 Aggregate Notional Amount Aggregate Fair Value Asset Aggregate Fair Value Liability Aggregate Notional Amount Aggregate Fair Value Asset Aggregate Fair Value Liability $ 360,787 $ 3,860 $ ( 2,186 ) $ 361,676 $ 6,222 $ ( 670 ) The following table presents the impact of our derivative instruments in the condensed consolidated financial statements (dollars in thousands): Amount of gain, net, recognized in Comprehensive Income Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Derivatives in cash flow hedging relationships Interest rate caps $ ( 62 ) $ ( 654 ) $ ( 690 ) $ ( 2,429 ) Interest rate swaps ( 10,394 ) 5,743 ( 3,878 ) 9,647 Total $ ( 10,456 ) $ 5,089 $ ( 4,568 ) $ 7,218 The following table presents the reclassifications of our derivative instruments out of accumulated other comprehensive income into interest expense in the condensed consolidated financial statements (dollars in thousands): 18 Table of Contents Amount reclassified out of Accumulated Other Comprehensive Income Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Interest rate caps $ 62 $ 409 $ 175 $ 937 Total $ 62 $ 409 $ 175 $ 937 The following table sets forth certain information regarding our derivative instruments (dollars in thousands): Asset (Liability) Derivatives Fair Value at Derivatives Designated as Hedging Instruments Balance Sheet Location September 30, 2024 December 31, 2023 Interest rate caps Other assets $ 1 $ 684 Interest rate swaps Other assets 3,860 6,222 Interest rate swaps Other liabilities ( 2,186 ) ( 670 ) Total derivative liabilities, net $ 1,675 $ 6,236 The fair value of all mortgage notes payable outstanding as of September 30, 2024 was $ 247.5 million, as compared to the carrying value stated above of $ 271.6 million. The fair value is calculated based on a discounted cash flow analysis, using management’s estimate of market interest rates on long-term debt with comparable terms and loan to value ratios. The fair value was calculated using Level 3 inputs of the hierarchy established by ASC 820, “Fair Value Measurements and Disclosures.” Credit Facility On August 18, 2022, we amended, extended and upsized our Credit Facility, increasing our Revolver from $ 100.0 million to $ 120.0 million (and its term to August 2026), adding the new $ 140.0 million Term Loan C, decreasing the principal balance of Term Loan B to $ 60.0 million and extending the maturity date of Term Loan A to August 2027. Term Loan C has a maturity date of February 18, 2028 and a SOFR spread ranging from 125 to 195 basis points, depending on our leverage. On September 27, 2022, we further increased the Revolver to $ 125.0 million and Term Loan C to $ 150.0 million, as permitted under the terms of the Credit Facility. We entered into multiple interest rate swap agreements on Term Loan C, which swap the interest rate to fixed rates from 3.15 % to 3.75 %. We incurred fees of approximately $ 4.2 million in connection with extending and upsizing our Credit Facility. The net proceeds of the transaction were used to repay the then-outstanding borrowings on the Revolver, pay off mortgage debt, and fund acquisitions. The Credit Facility’s current bank syndicate is comprised of KeyBank, Fifth Third Bank, The Huntington National Bank, Bank of America, Synovus Bank, United Bank, First Financial Bank, and S&T Bank. As of September 30, 2024, there was $ 423.3 million outstanding under our Credit Facility, at a weighted average interest rate of approximately 6.27 %, and no outstanding letters of credit. As of September 30, 2024, the maximum additional amount we could draw under the Credit Facility was $ 70.2 million. We were in compliance with all covenants under the Credit Facility as of September 30, 2024. The amount outstanding under the Credit Facility approximates fair value as of September 30, 2024. 7. Commitments and Contingencies Ground Leases We are obligated as lessee under three ground leases. Future minimum rental payments due under the terms of these leases for the three months ending December 31, 2024 and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands): 19 Table of Contents Year Future Lease Payments Due Under Operating Leases Three Months Ending December 31, 2024 $ 115 2025 457 2026 460 2027 467 2028 470 2029 470 Thereafter 3,359 Total anticipated lease payments $ 5,798 Less: amount representing interest ( 1,675 ) Present value of lease payments $ 4,123 Rental expense incurred for properties with ground lease obligations during the three and nine months ended September 30, 2024 was $ 0.1 million and $ 0.2 million, respectively. Rental expense incurred for properties with ground lease obligations during the three and nine months ended September 30, 2023 was $ 0.1 million and $ 0.3 million, respectively. Our ground leases are treated as operating leases and rental expenses are reflected in property operating expenses on the condensed consolidated statements of operations and comprehensive income. Our ground leases have a weighted average remaining lease term of 13.4 years and a weighted average discount rate of 5.30 %. Letters of Credit As of September 30, 2024, there were no outstanding letters of credit. 8. Equity and Mezzanine Equity Stockholders’ Equity The following table summarizes the changes in our equity for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Senior Common Stock Balance, beginning of period $ 1 $ 1 $ 1 $ 1 Issuance of senior common stock, net — — — — Balance, end of period $ 1 $ 1 $ 1 $ 1 Common Stock Balance, beginning of period $ 41 $ 39 $ 40 $ 39 Issuance of common stock, net 2 — 3 1 Repurchase of common stock, net — — — ( 1 ) Balance, end of period $ 43 $ 39 $ 43 $ 39 Series F Preferred Stock Balance, beginning of period $ 1 $ 1 $ 1 $ 1 Issuance of Series F preferred stock, net — — — — Redemption of Series F preferred stock, net — — — — Balance, end of period $ 1 $ 1 $ 1 $ 1 Additional Paid in Capital Balance, beginning of period $ 742,114 $ 728,580 $ 730,256 $ 721,327 Issuance of common stock and Series F preferred stock, net 37,066 690 47,911 6,725 Repurchase of common stock, net — — — 998 Redemption of OP Units — — 3,865 — Redemption of Series F preferred stock, net 1,008 183 1,318 401 20 Table of Contents Retirement of senior common stock, net — — — 52 Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership 17 ( 53 ) ( 3,145 ) ( 103 ) Balance, end of period $ 780,205 $ 729,400 $ 780,205 $ 729,400 Accumulated Other Comprehensive Income Balance, beginning of period $ 13,759 $ 14,297 $ 7,758 $ 11,640 Comprehensive income ( 10,456 ) 5,089 ( 4,568 ) 7,218 Reclassification into interest expense 62 409 175 937 Balance, end of period $ 3,365 $ 19,795 $ 3,365 $ 19,795 Distributions in Excess of Accumulated Earnings Balance, beginning of period $ ( 610,209 ) $ ( 560,719 ) $ ( 584,776 ) $ ( 529,104 ) Distributions declared to common, senior common, and preferred stockholders ( 16,168 ) ( 15,182 ) ( 46,726 ) ( 45,445 ) Redemption of Series F preferred stock, net 2 ( 1 ) ( 4 ) ( 12 ) Net income available to the Company 11,677 1,789 16,808 448 Balance, end of period $ ( 614,698 ) $ ( 574,113 ) $ ( 614,698 ) $ ( 574,113 ) Total Stockholders' Equity Balance, beginning of period $ 145,707 $ 182,199 $ 153,280 $ 203,904 Issuance of common stock and Series F preferred stock, net 37,068 690 47,914 6,726 Repurchase of common stock, net — — — 997 Redemption of OP Units — — 3,865 — Redemption of Series F preferred stock, net 1,010 182 1,314 389 Retirement of senior common stock, net — — — 52 Distributions declared to common, senior common, and preferred stockholders ( 16,168 ) ( 15,182 ) ( 46,726 ) ( 45,445 ) Comprehensive income ( 10,456 ) 5,089 ( 4,568 ) 7,218 Reclassification into interest expense 62 409 175 937 Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership 17 ( 53 ) ( 3,145 ) ( 103 ) Net income available to the Company 11,677 1,789 16,808 448 Balance, end of period $ 168,917 $ 175,123 $ 168,917 $ 175,123 Non-Controlling Interest Balance, beginning of period $ 114 $ 1,524 $ 986 $ 1,790 Distributions declared to Non-controlling OP Unit holders ( 12 ) ( 117 ) ( 172 ) ( 352 ) Redemptions of OP Units — — ( 3,865 ) — Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership ( 17 ) 53 3,145 103 Net income (loss) available (attributable) to OP Units held by Non-controlling OP Unitholders 44 3 35 ( 78 ) Balance, end of period $ 129 $ 1,463 $ 129 $ 1,463 Total Equity $ 169,046 $ 176,586 $ 169,046 $ 176,586 Distributions We paid the following distributions per share for the three and nine months ended September 30, 2024 and 2023: For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Common Stock and Non-controlling OP Units $ 0.30 $ 0.30 $ 0.90 $ 0.90 Senior Common Stock 0.2625 0.2625 0.7875 0.7875 Series E Preferred Stock 0.414063 0.414063 1.242189 1.242189 Series F Preferred Stock 0.375 0.375 1.125 1.125 Series G Preferred Stock 0.375 0.375 1.125 1.125 21 Table of Contents Recent Activity Common Stock ATM Programs On February 22, 2022, we entered into Amendment No. 1 to our At-the-Market Equity Offering Sales Agreement with sales agents Robert W. Baird & Co. Incorporated (“Baird”), Goldman Sachs & Co. LLC (“Goldman Sachs”), Stifel, Nicolaus & Company, Incorporated (“Stifel”), BTIG, LLC, and Fifth Third Securities, Inc. (“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 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. On March 3, 2023, we entered into an At-the-Market Equity Offering Sales Agreement (the “2023 Common Stock Sales Agreement”), with BofA Securities, Inc. (“BofA”), Goldman Sachs, Baird, KeyBanc Capital Markets Inc. (“KeyBanc”), and Fifth Third (collectively the “Common Stock Sales Agents”). In connection with the 2023 Common Stock Sales Agreement, we filed prospectus supplements 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 up to $ 250.0 million of common stock. During the nine months ended September 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. 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 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 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 nine months ended September 30, 2024, we sold 3,450,500 shares of common stock, raising approximately $ 49.5 million in net proceeds under the 2024 Common Stock Sales Agreement. Mezzanine Equity Our 6.625 % Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”), and our 6.00 % Series G Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”) are classified as mezzanine equity in our condensed consolidated balance sheets because both are redeemable at the option of the shareholder upon a change of control of greater than 50 %. A change in control of our company, outside of our control, is only possible if a tender offer is accepted by over 90 % of our shareholders. All other change in control situations would require input from our Board of Directors. In addition, our Series E Preferred Stock and Series G Preferred Stock are redeemable at the option of the applicable shareholder in the event a delisting event occurs. We will periodically evaluate the likelihood that a delisting event or change of control of greater than 50 % will take place, and if we deem this probable, we will adjust the Series E Preferred Stock, and Series G Preferred Stock presented in mezzanine equity to their redemption value, with the offset to gain (loss) on extinguishment. We currently believe the likelihood of a change of control of greater than 50 %, or a delisting event, is remote. Universal Shelf Registration Statements On November 23, 2022, we filed 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 On February 20, 2020, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of our authorized and unissued shares of common stock as shares of Series F Preferred Stock. 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 30,180 shares of our Series F Preferred Stock, raising $ 0.7 million in net proceeds, during the nine months ended September 30, 2024. 22 Table of Contents Non-controlling Interest in Operating Partnership As of September 30, 2024 and December 31, 2023, we owned approximately 99.9 % and 99.2 %, re spectively, of the outstanding OP Units. During the nine months ended September 30, 2024, we redeemed 271,169 OP Units for an equivalent amount of common stock. The Operating Partnership is required to make distributions on each OP Unit in the same amount as those paid on each share of our common stock, with the distributions on the OP Units held by us being utilized to make distributions to our common stockholders. As of September 30, 2024 and December 31, 2023, there were 39,474 and 310,643 outstanding OP Units held by Non-controlling OP Unitholders, respectively. 9. Subsequent Events Distributions On October 8, 2024, our Board of Directors declared the following monthly distributions for the months of October, November and December of 2024: Record Date Payment Date Common Stock and Non-controlling OP Unit Distributions per Share Series E Preferred Distributions per Share Series G Preferred Distributions per Share October 22, 2024 October 31, 2024 $ 0.10 $ 0.138021 $ 0.125 November 20, 2024 November 29, 2024 0.10 0.138021 0.125 December 20, 2024 December 31, 2024 0.10 0.138021 0.125 $ 0.30 $ 0.414063 $ 0.375 Senior Common Stock Distributions Payable to the Holders of Record During the Month of: Payment Date Distribution per Share October November 4, 2024 $ 0.0875 November December 4, 2024 0.0875 December January 3, 2025 0.0875 $ 0.2625 Series F Preferred Stock Distributions Record Date Payment Date Distribution per Share October 24, 2024 November 4, 2024 $ 0.125 November 27, 2024 December 4, 2024 0.125 December 23, 2024 January 3, 2025 0.125 $ 0.375 Equity Activity Subsequent to September 30, 2024 and through November 4, 2024, we raised $ 2.9 million in net proceeds from the sale of 182,368 shares of common stock under our 2024 Common Stock Sales Agreement and we raised $ 0.1 million in net proceeds from the sale of 4,000 shares of Series F Preferred Stock. Financing Activity On October 21, 2024, we fully repaid one mortgage with an outstanding balance of $ 14.8 million collateralized by two properties. This mortgage had a fixed interest rate of 4.04 %. 23 Table of Contents On October 21, 2024, we issued $ 15.2 million of fixed rate mortgage debt, collateralized by two properties, at an interest rate of 5.60 % and a maturity date of August 31, 2029. 24 Table of Contents