What changed in this filing

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Item 1A. Risk Factors

2025-02-18 compared with 2024-02-21 · 58 added, 46 removed, 393 unchanged (21% of the section changed)

33 unchanged sentences

The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance.

If confirmed by the bankruptcy court,

we could be bound by the new terms, and prevented from foreclosing our lien on the property.

If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property.

If the sale-leaseback were re-characterized as a joint venture, we could be treated as a co-venturer with our lessee with regard to the property.

As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property.

As a result, we

could be held liable, under some circumstances, for debts incurred by the lessee relating to the property.

Either of these outcomes could adversely affect our cash flow and our ability to pay distributions to stockholders.

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

With these properties, if the current

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

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

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

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

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

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

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We generally do not have fixed guidelines for industry concentration, but we are restricted from exceeding an industry concentration greater than 20% without approval of our investment committee.

As of December 31, 2023, 14.1% of our total lease revenue was earned from tenants in the Telecommunications industry, 14.0% was earned from tenants in the Automotive industry, 12.5% was earned from tenants in the Diversified/Conglomerate Services industry, and 7.6% was earned from tenants in the Healthcare industry.

As of December 31, 2024, 15.8% of our total lease revenue was earned from tenants in the Diversified/Conglomerate Services industry, 14.5% was earned from tenants in the Automotive industry, 9.9% was earned from tenants in the Buildings and Real Estate industry, and 9.0% was earned from tenants in the Telecommunications industry.

As a result, a downturn in an industry in which we have invested a significant portion of our total assets could have a material adverse effect on us.

Similarly, events and actions that may not affect us directly, such as tariffs or changes in government regulation, could nevertheless have a material adverse effect on us if such events and actions adversely impact our tenants.

The inability of a tenant in a single tenant property to pay rent will reduce our revenues and increase our carrying costs of the building.

1 unchanged sentence

If a tenant defaults, our lease revenues would be reduced and our expenses associated with carrying the property would increase, as we would be responsible for payments such as taxes and insurance.

Lease payment defaults by these tenants could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders.

Lease payment

defaults by these tenants could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders.

In the event of a default by a tenant, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property.

1 unchanged sentence

Liability for uninsured losses or significant increases in our insurance premiums could adversely affect our financial condition.

Losses from disaster-type occurrences (such as wars, floods or earthquakes) may be either uninsurable or not insurable on economically viable terms.

Losses from disaster-type occurrences (such as wars, hurricanes, floods, wildfires, or earthquakes) may be either uninsurable or not insurable on economically viable terms.

Should such a loss occur, we could lose our capital investment or anticipated profits and cash flow from one or more properties.

24 unchanged sentences

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

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

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

Some molds may produce airborne toxins or irritants.

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

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

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

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

23 unchanged sentences

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

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

coverage and a minimum net worth.

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

We are also required to limit our distributions to stockholders to 95% of our FFO.

As of December 31, 2024, we were in compliance with these covenants.

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

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

we will continue to comply with these covenants.

Failure to comply with these covenants would result in a default which, if we were unable to obtain a waiver from the lenders, could accelerate our repayment obligations under the Credit Facility and thereby have a material adverse impact on our liquidity, financial condition, results of operations and ability to pay distributions to stockholders.

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Although we have been gradually reducing our overall leverage over the past few years to lower this risk, if the income generated by our properties and other assets fails to cover our debt service, we could be forced to reduce or eliminate distributions to our stockholders and may experience losses.

Our ability to achieve our investment objectives will be affected by our ability to borrow money in sufficient amounts and on favorable terms.

We expect that we will primarily borrow money that will be secured by our properties and that these financing arrangements will contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage.

Our ability to achieve our investment objectives will be affected by our ability to borrow funds in sufficient amounts and on favorable terms.

We expect that we will primarily borrow funds that will be secured by our properties and that these financing arrangements will contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage.

Accordingly, we may be unable to obtain the degree of leverage we believe to be optimal, which may cause us to have less cash for distribution to stockholders than we would have with an optimal amount of leverage.

7 unchanged sentences

We mortgage our properties, which subjects us to the risk of foreclosure in the event of non-payment.

We intend to acquire additional properties by using our Credit Facility and by continuing to seek long-term mortgage financing, where we will borrow a portion of the purchase price of a potential acquisition and secure the loan with a mortgage on some or all of our existing real property.

We look to regional banks, insurance companies and other non-bank lenders, and, to a lesser extent, the commercial mortgage backed securities (“CMBS”) market to issue mortgages to finance our real estate activities.

For the year ended December 31, 2023, we obtained approximately $9.0 million in long-term financing, which we used to acquire additional properties.

If we are unable to make our debt payments as required, a lender could foreclose on the property securing its loan.

We intend to acquire additional properties by using our Credit Facility, long-term private debt financing and long-term mortgage financing, where we will borrow a portion of the purchase price of a potential acquisition and secure the loan with a mortgage on some or all of our existing real property.

We look to institutional buyers for our bond issuances and we look to regional banks, insurance companies and other non-bank lenders, and, to a lesser extent, the commercial mortgage backed securities (“CMBS”) market to issue mortgages to finance our real estate activities.

For the year ended December 31, 2024, we obtained approximately $15.2 million in long-term mortgage financing and $75.0 million of long-term private debt financing, which we used to acquire additional properties and repay our revolving credit facility and bank term loans.

If we are unable to make our debt payments as required, a mortgage lender could foreclose on the property securing its loan.

This could cause us to lose part or all of our investment in such property which in turn could cause the value of our securities or the amount of distributions to our stockholders to be reduced.

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Certain of our leases contain escalations based on market interest rates and the interest rate on our Credit Facility is variable.

We have no outstanding principal on variable rate mortgages as of December 31, 2023.

We have $7.3 million outstanding principal on variable rate mortgages as of December 31, 2024.

Although we seek to mitigate this risk by structuring such provisions to contain a maximum interest rate or escalation rate, as applicable, and generally obtain rate caps and interest rate swaps to limit our exposure to interest rate risk, these features or arrangements do not eliminate this risk.

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

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

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

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

1 unchanged sentence

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

Adverse changes in our credit ratings could negatively affect our financing activity.

A decline in the credit rating of the 2029 Notes, which we guarantee, will increase our cost of such debt.

In addition, our credit ratings can affect the amount of capital we can access, as well as the terms and pricing of any debt we may incur.

There can be no assurance that we will be able to maintain our current credit ratings, and in the event our credit ratings are downgraded, we would likely incur higher borrowing costs and may encounter difficulty in obtaining additional financing.

Also, a downgrade in our credit ratings may trigger additional payments or other negative consequences under certain of our debt instruments.

Adverse changes in our credit ratings could negatively impact our business and, in particular, our refinancing and other capital market activities, our ability to manage debt maturities, our future growth and our development and acquisition activity.

The 2029 Notes and certain of our other secured loans contain, and any other future indebtedness we incur may contain, various covenants, including business activity restrictions, and the failure to comply with those covenants could materially adversely affect us.

The 2029 Notes and certain of our other secured loans contain, and any other future indebtedness we incur may contain, certain covenants, which, among other things, restrict our activities, including, the incurrence of indebtedness, disposition of assets, mergers and transactions with affiliates.

We are also subject to financial and operating covenants including, as applicable, requirements to maintain certain financial coverage ratios and restrictions on our ability to make distributions to stockholders.

Failure to comply with any of these covenants would likely result in a default under the applicable indebtedness that would permit the acceleration of amounts due thereunder and under other indebtedness and foreclosure of properties, if any, serving as collateral therefor.

The business activity limitations contained in the various covenants will restrict our ability to engage in some business activities that may otherwise be in our best interests.

Risks related to the real estate industry

9 unchanged sentences

The debt obligations of our tenants are dependent upon certain factors, which neither we nor our tenants or borrowers control, such as national, local and regional business and economic conditions, government economic policies, and the level of interest rates.

Competition for real estate may impede our ability to make acquisitions or increase the cost of these acquisitions.

Competition for real estate may impede our ability to make acquisitions or may increase the cost of these acquisitions.

We compete with many other entities to acquire properties, including financial institutions, institutional pension funds, other REITs, foreign real estate investors, other public and private real estate companies and private real estate investors.

4 unchanged sentences

Our ownership of properties through ground leases exposes us to risks which are different than those resulting from our ownership of fee title to other properties.

We have acquired an interest in four of our properties by acquiring a leasehold interest in the land underlying the property, and we may acquire additional properties in the future that are subject to similar ground leases.

In this situation, we have no economic interest in the land underlying the property and do not control this land;

We have acquired an interest in three of our properties by acquiring a leasehold interest in the land underlying the property, and we may acquire additional properties in the future that are subject to similar ground leases.

In this situation, while we own the building that occupies the land subject to the ground lease, we have no economic interest in the land underlying the property and do not control this land;

thus, this type of ownership interest poses potential risks for our business because (i) if the ground lease terminates for any reason, we will lose our interest in the property, including any investment that we made in the property, (ii) if our tenant defaults under the previously existing lease, we will continue to be obligated to meet the terms and conditions of the ground lease without the annual amount of ground lease payments reimbursable to us by the tenant, and (iii) if the third party owning the land under the ground lease disrupts our use either permanently or for a significant period of time, then the value of our assets could be impaired and our results of operations could be adversely affected.

Risks related to our Adviser and Administrator

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

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

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

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

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

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

Although we, through our Adviser and Administrator, engage in customary mitigating activities, such as succession planning, the unplanned departure of any of our executive officers or key personnel from the Adviser or Administrator, as applicable, could have a material adverse effect on our ability to implement our business strategy and to achieve our investment objectives.

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

4 unchanged sentences

As we grow, our Adviser may be required to hire, train, supervise and manage new employees.

Our Adviser’s failure to effectively manage our future growth could have a material adverse effect on our business, financial condition and results of operations.

Adviser’s failure to effectively manage our future growth could have a material adverse effect on our business, financial condition and results of operations.

We may have conflicts of interest with our Adviser and other affiliates.

Our Adviser manages our business and locates, evaluates, recommends and negotiates the acquisition of our real estate investments.

At the same time, our Advisory Agreement permits our Adviser to conduct other commercial activities and provide management and advisory services to other entities, including, but not limited to, Gladstone Capital, Gladstone Investment, and Gladstone Land.

Moreover, with the exception of our chief financial officer, treasurer and president, all of our executive officers and directors are also executive officers and directors of Gladstone Capital and Gladstone Investment, which actively make loans to and invest in lower middle market companies, and with the exception of our chief financial officer and president, all of our executive officers and directors are also officers and directors of Gladstone Land, an agricultural REIT.

Moreover, with the exception of our chief financial officer, treasurer and president, all of our executive officers and directors are also executive officers and directors of Gladstone Capital, Gladstone Investment, and Gladstone Alternative, which actively make loans to and invest in lower middle market companies, and with the exception of our chief financial officer and president, all of our executive officers and directors are also officers and directors of Gladstone Land, an agricultural REIT.

Further, our chief executive officer and chairman is on the board of managers of Gladstone Securities, an affiliated broker dealer that provides us with mortgage financing services pursuant to a contractual agreement and is the 100% indirect owner of and controls Gladstone Securities.

As a result, we may from time to time have conflicts of interest with our Adviser in its management of our business, Gladstone Securities, in its provision of services to us and our other affiliated funds, and with Gladstone Capital, Gladstone Investment and Gladstone Land, which may arise primarily from the involvement of our Adviser, Gladstone Securities, Gladstone Capital, Gladstone Investment, Gladstone Land and their affiliates in other activities that may conflict with our business.

As a result, we may from time to time have conflicts of interest with our Adviser in its management of our business, Gladstone Securities, in its provision of services to us and our other affiliated funds, and with Gladstone Capital, Gladstone Investment, Gladstone Land, and Gladstone Alternative, which may arise primarily from the involvement of our Adviser, Gladstone Securities, Gladstone Capital, Gladstone Investment, Gladstone Land, Gladstone Alternative and their affiliates in other activities that may conflict with our business.

Examples of these potential conflicts include:

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• our Adviser or Gladstone Securities, may earn fee income from our borrowers or tenants;

• our Adviser and other affiliates such as Gladstone Capital, Gladstone Investment and Gladstone Land could compete for the time and services of our officers and directors.

• our Adviser and other affiliates such as Gladstone Capital, Gladstone Investment, Gladstone Land, and Gladstone Alternative could compete for the time and services of our officers and directors.

These and other conflicts of interest between us and our Adviser and other affiliates could have a material adverse effect on the operation of our business and the selection or management of our real estate investments.

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Our Adviser is not obligated to provide a waiver of the incentive fee, which could negatively impact our earnings and our ability to maintain our current level of, or increase, distributions to our stockholders.

The Advisory Agreement contemplates a quarterly incentive fee based on our Core FFO (as defined in the Advisory Agreement).

The Advisory Agreement contemplates a quarterly incentive fee based on our Core Funds from Operations (“FFO”) (as defined in the Advisory Agreement).

Our Adviser has the ability to issue a full or partial waiver of the incentive fee for current and future periods;

1 unchanged sentence

Any waiver issued by our Adviser is a voluntary, non-contractual, unconditional and irrevocable waiver.

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

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

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

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

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

1 unchanged sentence

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

For the year ended December 31, 2024, our Adviser issued a voluntary waiver of a portion of the incentive fee of $2.3 million.

If our Adviser does not issue other voluntary waivers in future quarters, it could negatively impact

our earnings and may compromise our ability to maintain our current level of, or increase, distributions to our stockholders, which could have a material adverse impact on the market price of our securities.

Risks Related to Qualification and Operation as a REIT

52 unchanged sentences

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

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

(ii) an underwriter in a

public offering of our shares;

(iii) a party initially acquiring shares in a transaction involving the issuance of our shares of capital stock, if our Board determines such party will timely distribute such shares such that, following such distribution, such shares will not be deemed excess shares;

4 unchanged sentences

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

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

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

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

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

Our future indebtedness or our subsidiaries’ future indebtedness may also include restrictions with similar effects.

In addition, because we are a holding company, stockholders’ claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our Operating Partnership and its subsidiaries.

In addition, because we are a holding company, stockholders’ claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed funds) of our Operating Partnership and its subsidiaries.

Therefore, in the event of our bankruptcy, liquidation or reorganization, claims of our stockholders will be satisfied only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

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

We may incur unanticipated expenses that may be

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

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

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

16 unchanged sentences

However, the limited partners’ redemption rights may not be exercised if and to the extent that the delivery of the shares upon such exercise would result in any person violating the ownership and transfer restrictions set forth in our charter.

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

If we issued a large number of OP Units in connection with future property acquisitions and/or a large number of OP Units were redeemed, it could result in the issuance of a large number of new shares of our common stock, which could dilute our existing stockholders’ ownership.

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

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

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

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

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

29 unchanged sentences

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

What changed 10-K

Item 1A. Risk Factors