What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 113 added, 61 removed, 269 unchanged (39% of the section changed)

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The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

rates of default on leases for our assets, concentration of our portfolio of assets and limited number of tenants;

the estimated growth in and evolving market dynamics of the regulated cannabis market inflation dynamics;

the impact of the ongoing COVID-19 pandemic, or future pandemics, on us, our business, our tenants, or the economy generally;

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or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law;

rates of default on leases for our assets;

availability of suitable investment opportunities in the regulated cannabis industry;

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the demand for regulated cannabis facilities;

concentration of our portfolio of assets and limited number of tenants;

the estimated growth in and evolving market dynamics of the regulated cannabis market;

the expected medical-use or adult-use cannabis legalization in certain states;

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changes in interest rates and the market value of our assets;

inflation dynamics;

the degree to which any interest rate or other hedging strategies may or may not protect us from interest rate volatility;

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The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report.

In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, Item 1A below.

In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2021, in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and in Part II, Item 1A below.

Those risks continue to be relevant to our performance and financial condition.

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We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100% of the limited partnership interests in our Operating Partnership.

As of March 31, 2022, we had 21 full-time employees.

As of March 31, 2022, we owned 107 properties that were 100% leased to state-licensed cannabis operators and comprising an aggregate of approximately 8.0 million rentable square feet (including approximately 2.4 million rentable square feet under development/redevelopment) in 19 states, with a weighted-average remaining lease term of approximately 16.5 years.

As of March 31, 2022, we had invested approximately $1.9 billion in the aggregate (consisting of purchase price and construction funding and improvements reimbursed to tenants, if any, but excluding transaction costs) and had committed an additional approximately $228.7 million to reimburse certain tenants and sellers for completion of construction and improvements at our properties.

Of the approximately $228.7 million committed to reimburse certain tenants and sellers for the completion of construction and improvements at our properties, approximately $43.4 million was incurred as of March 31, 2022.

These statistics do not include an $18.5 million loan from us to a developer for construction of a regulated cannabis cultivation and processing facility in California and up to $55.0 million that may be funded between June 15, 2022 and July 31, 2022 pursuant to our lease with a tenant at one of our Pennsylvania properties, as the tenant at that property may not elect to have us disburse those funds and pay us the corresponding base rent on those funds.

As of June 30, 2022, we had 22 full-time employees.

As of June 30, 2022, we owned 110 properties that were 100% leased to state-licensed cannabis operators and comprising an aggregate of approximately 8.6 million rentable square feet (including approximately 2.5 million rentable square feet under development/redevelopment) in 19 states, with a weighted-average remaining lease term of approximately 16 years.

As of June 30, 2022, we had invested approximately $2.1 billion in the aggregate (consisting of purchase price and funding of draws for construction funding and improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional approximately $225.2 million to fund draws to certain tenants and sellers for construction and improvements at our properties.

Of the approximately $225.2 million committed to fund draws to certain tenants and sellers for construction and improvements at our properties, approximately $30.8 million was incurred as of June 30, 2022.

These statistics do not include an $18.5 million loan commitment from us to a developer for construction of a regulated cannabis cultivation and processing facility in California, of which we have funded approximately $17.7 million as of June 30, 2022.

Rent collection (calculated as base rent and property management fees collected as a percentage of contractually due base rent and property management fees for the applicable period) was approximately 99% for the six months ended June 30, 2022.

Subsequent to June 30, 2022, Kings Garden defaulted on its obligations to pay any rent at the six properties that Kings Garden leases from us (See Part II, Item 1.

Legal Proceedings and Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information).

Factors Impacting Our Operating Results

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Positive or negative changes in regulatory, economic or other conditions, drought, and natural disasters in the markets where we acquire properties may affect our overall financial performance.

The success of our tenants in operating their businesses and their ability to pay rent continue to be significantly influenced by many challenges including the impact of inflation, labor shortages, supply chain constraints on their cost of doing business, and the ongoing COVID-19 Pandemic.

Additionally, market dynamics and the regulatory regime in the states where they operate create challenges that may impact our tenants’ businesses and/or decrease future demand for regulated cannabis cultivation and production facilities.

The potential impact of current economic challenges on the Company’s financial condition, results of operations, and cash flows is subject to change and continues to depend on the extent and duration of these risks and uncertainties.

Market Dynamics in Regulated Cannabis State Programs

States vary significantly in their market dynamics, driven by many factors, including, but not limited to, regulatory frameworks, enforcement policies with respect to illicit, unlicensed cannabis operations, taxation and licensing structures.

For example, in California, according to Global Go Analytics, t he illicit market for cannabis remains a much larger portion of overall sales in the state, and state and local authorities have assessed significant taxes on regulated cannabis products, both of which have had the impact of significantly limiting the growth and profitability for operators in the state’s regulated cannabis market.

Recently, many states have experienced significant declines in unit pricing for regulated cannabis products, with that decline more pronounced in certain states than in others.

For example, according to New Leaf Data Services, a provider of financial, business and industry data in the cannabis sector, spot wholesale cannabis flower prices in California and Michigan have each declined more than 30% during the six months ended June 30, 2022.

Approximately 12% and 13% of our rental revenues for the six months ended June 30, 2022, were derived from our properties located in California and Michigan, respectively.

Inflation and Supply Chain Constraints

Recently, inflation has trended significantly higher than in prior periods, which may be negatively impacting some of our tenants.

This inflation has impacted costs for labor and production inputs for regulated cannabis operators, in addition to increasing costs of construction for development and redevelopment projects.

Ongoing labor shortages and global supply chain issues, driven in part by the COVID-19 pandemic, geopolitical issues and the war in Ukraine, also continue to adversely impact costs and timing for completion of these development and redevelopment projects, which are resulting in cost overruns and delays in commencing operations on certain of our tenants’ projects.

Reduced Capital Availability for Tenants and the Company

Recently, financial markets have been volatile, reflecting heightened geopolitical risks and material tightening of financial conditions since the U.S.

Federal Reserve began increasing interest rates in spring of 2022 and continued uncertainty regarding monetary policy.

Driven in part by overall macroeconomic conditions, capital availability has significantly declined for regulated cannabis operators and for the Company.

According to Viridian Capital Advisors, total equity and debt capital raising for public and private cannabis companies in North America decreased by approximately 64% year-to-date through July 1, 2022 ($2.6 billion) versus the prior year’s period ($7.3 billion).

In addition, debt issuance year-to-date through July 1, 2022 for cannabis companies represents the most significant percentage of capital raised of the comparable periods of the past four years according to Viridian Capital Advisors, as equity values of cannabis companies have declined significantly.

COVID-19 Pandemic

The ongoing COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, could materially and adversely impact or cause disruption to our tenants and their operations, and in turn our performance, financial condition, results of operations and cash flows.

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Significant Tenants and Concentrations of Risk

As of March 31, 2022, we owned 107 properties located in 19 states.

As of June 30, 2022, we owned 110 properties located in 19 states.

Many of our tenants are tenants at multiple properties.

We seek to manage our portfolio-level risk through geographic diversification and by minimizing dependence on any single property or tenant.

At March 31, 2022, none of our properties accounted for 5% or more of our net real estate held for investment.

See Note 2 in the notes to the condensed consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the three months ended March 31, 2022.

At June 30, 2022, none of our properties accounted for 5% or more of our net real estate held for investment.

See Note 12 “Subsequent Events” in the notes to the condensed consolidated financial statements regarding the status of the Kings Garden Leases.

Competitive Environment

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Investments in Real Estate

See Note 6 in the notes to the condensed consolidated financial statements for information regarding our investments in real estate activity and property portfolio activity during the three months ended March 31, 2022.

Comparison of the Three Months Ended March 31, 2022 and 2021

Comparison of the Three and Six Months Ended June 30, 2022 and 2021

The following table sets forth the results of our operations (in thousands):

For the Three Months Ended

For the Six Months Ended

Rental (including tenant reimbursements)

Other revenue

Total revenues

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Net income attributable to common stockholders

Rental revenues for the three months ended March 31, 2022 increased by approximately $21.2 million, or 50%, to approximately $64.1 million, compared to approximately $42.9 million for the three months ended March 31, 2021.

Approximately $532,000 of the increase in rental revenues was generated by the properties acquired during the three months ended March 31, 2022.

Rental Revenues.

Rental revenues for the three months ended June 30, 2022 increased by approximately $21.1 million, or 43%, to approximately $70.0 million, compared to approximately $48.9 million for the three months ended June 30, 2021.

Approximately $1.3 million of the increase in rental revenues was generated by the properties acquired during the three months ended June 30, 2022.

The remaining approximately $19.8 million increase in rental revenues was generated by properties we acquired in prior periods, including contractual rent escalations and amendments to leases for additional improvement allowances and construction funding at existing properties that resulted in adjustments to rent.

Rental revenues for the three months ended March 31, 2022 and 2021 included approximately $1.9 million and $727,000, respectively, of tenant reimbursements for property insurance premiums and property taxes.

Other revenue for the three months ended March 31, 2022 consists of interest revenue from property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

Rental revenues for the three months ended June 30, 2022 and 2021 included approximately $2.5 million and $498,000, respectively, of tenant reimbursements for property insurance premiums and property taxes.

Rental revenues for the six months ended June 30, 2022 increased by $42.3 million, or 46%, to approximately $134.1 million, compared to approximately $91.8 million for the six months ended June 30, 2021.

Approximately $3.0 million of the increase in rental revenues was generated by the properties acquired during the six months ended June 30, 2022.

The remaining approximately $39.3 million increase in rental revenues was generated by properties we acquired in prior periods, including contractual rent escalations and amendments to leases for additional improvement allowances and construction funding at existing properties that resulted in adjustments to rent.

Rental revenues for the six months ended June 30, 2022 and 2021 included approximately $4.4 million and $1.2 million, respectively, of tenant reimbursements for property insurance premiums and property taxes.

Other Revenues.

Other revenues for the three and six months ended June 30, 2022 consists of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

Property Expenses.

Property expenses for the three months ended March 31, 2022 increased by approximately $1.2 million compared to the three months ended March 31, 2021.

The increase was due to property insurance premiums and property taxes paid for newly acquired properties.

Property expenses for the three and six months ended June 30, 2022 increased by approximately $1.9 million and $3.2 million respectively, compared to the three and six months ended June 30, 2021.

The increase was due to property insurance

premiums and property taxes paid for newly acquired properties and the completion of development or redevelopment of existing properties.

General and Administrative Expense .

General and administrative expense for the three months ended March 31, 2022 increased by approximately $3.2 million to approximately $8.8 million, compared to approximately $5.6 million for the three months ended March 31, 2021.

General and administrative expense for the three months ended June 30, 2022 increased by approximately $3.1 million to approximately $8.7 million, compared to approximately $5.6 million for the three months ended June 30, 2021.

General and administrative expense for the six months ended June 30, 2022 increased by approximately $6.3 million to approximately $17.5 million, compared to approximately $11.2 million for the six months ended June 30, 2021.

The increase in general and administrative expense was primarily due to higher compensation to employees, the hiring of additional employees and higher public company costs, travel and occupancy costs.

Compensation expense for the three months ended March 31, 2022 included approximately $4.4 million of non-cash stock-based compensation.

Compensation expense for the three months ended March 31, 2021 included approximately $2.1 million of non-cash stock-based compensation.

Compensation expense for the three and six months ended June 30, 2022 included approximately $4.4 million and $8.8 million, respectively, of non-cash stock-based compensation.

Compensation expense for the three and six months ended June 30, 2021 included approximately $2.1 million and $4.2 million, respectively of non-cash stock-based compensation.

Depreciation and Amortization Expense.

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Interest and Other Income.

Interest and other income for the three months ended March 31, 2022 decreased by approximately $67,000 compared to the three months ended March 31, 2021.

The decrease was due to lower interest rates on our interest-bearing investments and lower balances of interest bearing investments.

Interest and other income for the three months ended June 30, 2022 increased by approximately $490,000 compared to the three months ended June 30, 2021.

The increase was due to higher balances of interest-bearing investments resulting from proceeds from our common stock offerings and higher interest rates on our interest-bearing investments.

Interest and other income for the six months ended June 30, 2022 increased by approximately $423,000 compared to the six months ended June 30, 2021.

The increase was due to higher balances of interest bearing investments resulting from proceeds from our common stock offerings and higher interest rates on our interest-bearing investments.

Interest Expense.

Interest expense consists of interest on our Exchangeable Senior Notes issued in February 2019 and our Notes due 2026 issued in May 2021.

Interest expense for the three months ended March 31, 2022 and 2021 included approximately $365,000 and $525,000, respectively, of non-cash interest expense.

Comparison of the Three Months Ended March 31, 2022 and 2021

Three months ended March 31,

Interest expense for the three months ended June 30, 2022 and 2021 included approximately $324,000 and $649,000, respectively, of non-cash interest expense;

and interest expense for the six months ended June 30, 2022 and 2021 included approximately $689,000 and $1.2 million, respectively, of non-cash interest expense.

Comparison of the Six Months Ended June 30, 2022 and 2021 (in thousands)

Six Months Ended June 30,

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by financing activities

Ending cash, cash equivalents and restricted cash

Operating Activities

Cash flows provided by operating activities for the three months ended March 31, 2022 and 2021 were approximately $59.9 million and $42.6 million, respectively.

Cash flows provided by operating activities for the six months ended June 30, 2022 and 2021 were approximately $122.0 million and $89.4 million, respectively.

Cash flows provided by operating activities were generally from contractual rent and security deposits from our properties, partially offset by our general and administrative expense.

Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2022 were approximately $81.1 million, of which approximately $196.1 million related to investments in real estate and funding of a portion of the improvement allowances, construction funding at our properties and other investments, partially offset by $115.0 million related to maturities of short-term investments.

Cash flows used in investing activities for the three months ended March 31, 2021 were approximately $13.0 million, of which approximately $93.1 million primarily related to the purchase of investment in real estate and funding of a portion of the improvement allowances and construction funding at our properties, partially offset by cash provided by investing activities of approximately $80.1 million related to the net purchases and maturities of short-term investments.

Cash flows used in investing activities for the six months ended June 30, 2022 were approximately $427.0 million, of which approximately $442.9 million related to investments in real estate and funding of draws for a portion of the improvement allowances, construction funding at our properties and other investments, partially offset by approximately $15.9 million related to net maturities of short-term investments.

Cash flows used in investing activities for the six months ended June 30, 2021 were approximately $287.2 million, of which approximately $257.3 million primarily related to the purchase of investment in real estate and funding of draws for a portion of the improvement allowances and construction funding at our properties.

The remaining approximately $29.9 million related to net purchases and maturities of short-term investments.

Financing Activities

Net cash used by financing activities of approximately $20.2 million during the three months ended March 31, 2022 was the result of approximately $21.1 million in net proceeds from the issuance of our common stock, partially offset by dividend payments of approximately $38.9 million to common and preferred stockholders and approximately $2.4 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees.

Net cash used by financing activities of approximately $33.4 million during the three months ended March 31, 2021 was the result of dividend payments of approximately $30.1 million to common and preferred stockholders and approximately $3.3 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees.

Net cash provided by financing activities of approximately $264.5 million during the six months ended June 30, 2022 was the result of approximately $352.0 million in net proceeds from the issuance of our common stock, partially offset by dividend payments

of approximately $85.1 million to common and preferred stockholders and approximately $2.4 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees.

Net cash provided by financing activities of approximately $228.1 million during the six months ended June 30, 2021 was the result of approximately $293.5 million in net proceeds from the issuance of our Notes due 2026, partially offset by dividend payments of approximately $62.0 million to common and preferred stockholders and approximately $3.4 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees.

Liquidity and Capital Resources

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This source of revenue represents our primary source of liquidity to fund our dividends, interest payments on Exchangeable Senior Notes and Notes due 2026, general and administrative expenses, property development and redevelopment activities, property operating expenses and other expenses incurred related to managing our existing portfolio and investing in additional properties.

Because substantially all our leases are triple net, our tenants are generally responsible for the maintenance, insurance and property taxes associated with the properties they lease from us.

If a tenant defaults on one of our leases or the lease term expires with no tenant renewal, we would incur the property costs not paid by the tenant during the time it takes to re-lease or sell the property.

As of June 30, 2022, the weighted-average remaining terms of our leases was approximately 16 years and we owned 110 properties that were 100% leased.

Subsequent to June 30, 2022, Kings Garden defaulted on its obligations to pay any rent at the six properties that Kings Garden leases from us (See Part II, Item 1.

Legal Proceedings and Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information).

We expect to incur some property-level operating costs from time to time in periods during which properties that become vacant are being remarketed.

In addition, we may recognize an expense for certain property costs, such as insurance premiums and real estate taxes billed in arrears, if we believe the tenant is likely to vacate the property before making payment on those obligations or may be unable to pay such costs in a timely manner.

Property costs are generally not significant to our operations, but the amount of property costs can vary quarter to quarter based on the number of property vacancies and whether we have any underperforming properties.

We may advance certain property costs on behalf of our tenants but expect that the majority of these costs will be reimbursed by the tenant and do not anticipate that they will be significant to our operations.

To the extent additional resources are needed, we expect to fund our investment activity generally through equity or debt issuances either in the public or private markets.

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The terms of the Notes due 2026 are governed by an indenture, which requires compliance with various financial covenants including limits on the amount of total leverage and secured debt maintained by the Operating Partnership and which require the Operating Partnership to maintain minimum levels of debt service coverage.

Management believes that it was in compliance with those covenants as of March 31, 2022.

Management believes that it was in compliance with those covenants as of June 30, 2022.

Subject to the terms of the indenture, any new subsidiary of the Operating Partnership will also guarantee the Notes due 2026 .

In addition, the terms of the indenture provide that if the debt rating on the Notes due 2026 is downgraded or withdrawn entirely, interest on the Notes due 2026 will increase to a range of 6.0% to 6.5% based on such debt rating.

During the three months ended March 31, 2022, we issued 365,842 shares of our common stock upon exchange by holders of approximately $23.9 million of outstanding principal amount of our Exchangeable Senior Notes.

In April 2022, we issued 1,815,790 shares of common stock in an underwritten public offering, which includes the exercise in full of the underwriters’ option to purchase an additional 236,842 shares, resulting in net proceeds of approximately $330.9 million.

During the three and six months ended June 30, 2022, we issued 47,059 and 412,901 shares, respectively, of our common stock upon exchange by holders of approximately $3.1 million and $26.9 million, respectively, of outstanding principal amount of our Exchangeable Senior Notes.

We are party to equity distribution agreements with six sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program, or ATM Program, up to $500.0 million in shares of our common stock.

In March 2022, we sold 117,023 shares of our common stock for net proceeds of approximately $21.1 million under the ATM Program.

As of March 31, 2022, the remaining amount available to be sold under the ATM Program was approximately $209.9 million.

Subsequent to March 31, 2022, in April 2022, we issued 1,815,790 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 236,842 shares, resulting in gross proceeds of approximately $345.0 million.

Subsequent to March 31, 2022, we issued 47,059 shares of our common stock upon exchanges by a holder of approximately $3.1 million of outstanding principal amount of our Exchangeable Senior Notes.

As of June 30, 2022, the remaining amount available to be sold under the ATM Program was approximately $209.9 million.

We have filed an automatic shelf registration statement, which may permit us, from time to time, to offer and sell common stock, preferred stock, warrants and other securities to the extent necessary or advisable to meet our liquidity needs.

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Our investment guidelines also provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.

In recent months, financial markets have been volatile in general, which has also significantly reduced our access to capital.

If sustained, this would have a material adverse effect on our business, financial condition and results of operations, including our ability to continue to make acquisitions of new properties and fund investments for improvements at existing properties.

The Company is required to pay dividends to its stockholders at least equal to 90% of its taxable income in order to qualify and maintain its qualification as a REIT.

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Our ability to continue to pay dividends is dependent upon our ability to continue to generate cash flows, service any debt obligations we have, including our Exchangeable Senior Notes and Notes due 2026, and make accretive new investments.

The following table describes the dividends declared by the Company during the three months ended March 31, 2022:

The following table describes the dividends declared by the Company during the six months ended June 30, 2022:

Security Class

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April 14, 2022

June 15, 2022

March 1, 2022 to June 30, 2022

July 15, 2022

June 15, 2022

Series A preferred stock

April 15, 2022 to July 14, 2022

July 15, 2022

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2022 (in thousands):

The following table summarizes our contractual obligations as of June 30, 2022 (in thousands):

Notes due 2026

2022 (nine months ending December 31)

Additionally, as of March 31, 2022, we had approximately $185.3 million outstanding in commitments related to improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease.

As of March 31, 2022, we also had approximately $3.0 million outstanding in commitments to fund a construction loan, which the developer is required to complete by June 2022, subject to extension in certain circumstances.

In addition, we are obligated to fund up to $55.0 million between June 15, 2022 and July 31, 2022 pursuant to our lease with a tenant at one of our Pennsylvania properties, if the tenant at that property elects to have us disburse those funds.

As of March 31, 2022, these amounts had not been requested.

2022 (six months ending December 31)

Additionally, as of June 30, 2022, we had approximately $194.4 million outstanding in commitments related to improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease.

As of June 30, 2022, we also had approximately $802,000 outstanding in commitments to fund a construction

loan, which the developer is required to complete by December 1, 2022, subject to extension in certain circumstances.

The commitments discussed in this paragraph are excluded from the table of contractual obligations above, as improvement allowances generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease and construction loan funding generally may be requested by the borrower from time to time, subject to satisfaction of certain conditions.

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Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc.

NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, depreciation and amortization and impairment related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures.

NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, depreciation, amortization and impairment related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures.

Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement.

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We believe that by excluding the effect of depreciation, FFO and FFO per share can facilitate comparisons of operating performance between periods.

We report FFO and FFO per share because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs and because FFO per share is consistently reported,

discussed, and compared by research analysts in their notes and publications about REITs.

For these reasons, management has deemed it appropriate to disclose and discuss FFO and FFO per share.

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We calculate AFFO by adjusting Normalized FFO for certain non-cash items.

For the three months ended March 31, 2022, FFO (diluted), Normalized FFO and AFFO, and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock.

As a result, for purposes of calculating FFO (diluted), cash and non-cash interest expense of the Exchangeable Senior Notes was added back to FFO, and the total diluted weighted-average common shares outstanding increased by 507,181 shares, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period.

For the three months ended March 31, 2021, FFO (diluted), Normalized FFO, and AFFO, and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock.

As a result, for purposes of calculating FFO (diluted), cash and non-cash interest expense of the Exchangeable Senior Notes was added back to FFO, and the total diluted weighted-average common shares outstanding increased by 2,170,959 shares, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period.

For the three ended March 31, 2022, 102,333 shares issuable upon vesting PSUs granted to certain employees were dilutive, as the performance thresholds for vesting of these PSUs were met as measured as of March 31, 2022.

For the three months ended March 31, 2021, the performance thresholds for vesting of these PSUs were not met as measured as of March 31, 2021.

For the three and six months ended June 30, 2022 and 2021, FFO (diluted), Normalized FFO and AFFO, and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock.

As a result, for purposes of calculating FFO (diluted), cash and non-cash interest expense of the Exchangeable Senior Notes was added back to FFO, and the total diluted weighted-average common shares outstanding increased by 103,742 shares and 304,348 shares for the three and six months ended June 30, 2022, respectively, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period.

For the three and six months ended June 30, 2021, for purposes of calculating FFO (diluted), cash and non-cash interest expense of the Exchangeable Senior Notes was added back to FFO, and the total diluted weighted-average common shares outstanding increased by 2,182,691 shares for both periods, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period.

For the three and six months ended June 30, 2022 and 2021, as the performance thresholds for vesting of the PSUs were not met as measured as of the respective dates, they were excluded from the calculation of weighted average common shares outstanding – diluted for all periods presented.

Our computation of FFO, Normalized FFO, and AFFO may differ from the methodology for calculating FFO, Normalized FFO and AFFO utilized by other equity REITs and, accordingly, may not be comparable to such REITs.

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FFO, Normalized FFO and AFFO should be considered only as supplements to net income computed in accordance with GAAP as measures of operations.

The table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the three months ended March 31, 2022 and 2021 (in thousands, except share and per share amounts):

The table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the three and six months ended June 30, 2022 and 2021 (in thousands, except share and per share amounts):

For the Three Months Ended

For the Six Months Ended

Net income attributable to common stockholders

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Acquisition-related expense

Financing expense

Loss on exchange of Exchangeable Senior Notes

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For a depreciable long-lived asset, the new cost basis would be depreciated (amortized) over the remaining useful life of that asset.

If a real estate asset is designated as real estate held for sale, it is carried at the lower of the net carrying value or estimated fair value less costs to sell, and depreciation ceases.

estate asset is designated as real estate held for sale, it is carried at the lower of the net carrying value or estimated fair value less costs to sell, and depreciation ceases.

Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flow and property fair values, including determining our estimated holding period and selecting the discount or capitalization rate that reflects the risk inherent in future cash flow.

5 unchanged sentences

For each property where such an indicator occurred, we completed an impairment evaluation.

After completing this process, we determined that for each of the operating properties evaluated, undiscounted cash flows over the holding period were in excess of carrying value and, therefore, we did not record any impairment losses for these properties for the three months ended March 31, 2022 and 2021.

Stock-Based Compensation

9 unchanged sentences

Interest Rate Risk

As of March 31, 2022, we had $300.0 million principal amount of Notes due 2026 and approximately $9.5 million principal amount of Exchangeable Senior Notes outstanding at fixed interest rates, and therefore, if interest rates decline, our required payments may exceed those based on current market rates.

As of June 30, 2022, we had $300.0 million principal amount of Notes due 2026 and approximately $6.5 million principal amount of Exchangeable Senior Notes outstanding at fixed interest rates, and therefore, if interest rates decline, our required payments may exceed those based on current market rates.

It is possible that a property we acquire in the future would be subject to a mortgage, which we may assume.

Impact of Inflation

economy has experienced an increase in inflation rates recently.

We enter into leases that generally provide for fixed increases in rent.

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis