What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-04 · 114 added, 86 removed, 296 unchanged (40% of the section changed)

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

our ability to improve our internal control over financial reporting, including our inability to remediate the identified material weakness, and the costs and the time associated with such efforts;

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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shifts in public opinion regarding regulated cannabis;

the potential impact on us from litigation matters, including rising liability and insurance costs;

the additional risks that may be associated with certain of our tenants cultivating, processing and/or dispensing adult-use cannabis in our facilities;

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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, 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.

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 of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 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 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).

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

As of September 30, 2022, we owned 111 properties comprising approximately 8.7 million square feet (including approximately 2.0 million rentable square feet under development/redevelopment) in 19 states.

As of September 30, 2022, we had invested approximately $2.2 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 $162.3 million to fund draws to certain tenants and sellers for construction and improvements at our properties.

Of the approximately $162.3 million committed to fund draws to certain tenants and sellers for construction and improvements at our properties, approximately $34.7 million was incurred but not funded as of September 30, 2022.

Of these properties, the 109 properties in our operating portfolio were 100% leased to state-licensed cannabis operators, with a weighted-average remaining lease term of approximately 15.5 years.

Rent collection for our operating portfolio (calculated as base rent and property management fees collected as a percentage of contractually due base rent and property management fees, but excluding the security deposits applied as a result of the Kings Garden lease defaults commencing in July 2022) was approximately 97% for the nine months ended September 30, 2022.

We do not include in our operating portfolio two of our properties, which were previously leased to Kings Garden, and an expansion project at a property where Kings Garden continues to occupy the property pursuant to a confidential, contingent settlement agreement, all of which were under development as of September 30, 2022, and together are expected to comprise approximately 395,000 rentable square feet upon completion of development.

Factors Impacting Our Operating Results

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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.

Many states continue to experience significant declines in unit pricing for regulated cannabis products, with that decline more pronounced in certain states than in others, which compresses operating margins for operators.

Inflation and Supply Chain Constraints

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

economy is experiencing a sustained increase in inflation rates, which we believe is negatively impacting 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.

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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.

The extent to which the ongoing COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others.

Furthermore, the impacts of a potential worsening of global economic conditions, acts of war or other hostilities, including the conflict in Ukraine, and the continued disruptions to, and volatility in, the credit and financial markets, supply chains and consumer spending as well as other unanticipated consequences remain unknown.

Our tenants’ ability to pay their rent obligations to us depends, in part, on whether our tenants can continue their regulated cannabis operations and the ability and willingness of consumers to visit dispensary businesses.

In the large majority of states that have legalized cannabis, state governmental authorities have recognized both medical-use and adult-use cannabis operations, including supply chain activities such as cultivation, processing, distribution and dispensary activities, as “essential businesses”, allowing them to remain open and operational.

While laws and practices vary from state to state, state and local governmental authorities and regulated cannabis businesses have taken additional measures to ensure the safety and well-being of employees, patients and consumers, including but not limited to restrictions associated with social distancing requirements and additional levels of protection for medical cannabis patients with more vulnerability to health complications from COVID-19.

Despite these measures, cannabis dispensaries may experience declines in customer traffic or may be required to close in response to new government regulatory orders, which may result from a prolonged outbreak or resurgence of COVID-19 cases, and could have a significant adverse financial impact on certain of our tenants.

According to Viridian Capital Advisors (“Viridian”), total equity and debt capital raising for public and private cannabis companies in North America decreased by approximately 64% year-to-date through September 30, 2022 versus the prior year’s period.

Even more pronounced, total capital raised for the U.S.

regulated cannabis cultivation and retail sector was down 67% year-to-date through September 30, 2022 versus the same period in the prior year, with equity capital raised in the sector down 96% year-to-date through September 30, 2022 and no equity deal in 2022 raising more than $25 million, according to Viridian.

Capital raising activities by U.S.

REITs also experienced a steep decline in the three months ended September 30, 2022.

According to the National Association of Real Estate Investment Trusts, Inc.

(“NAREIT”), U.S.

REITs raised $6.3 billion in debt and equity during the three months ended September 30, 2022, compared to $29.4 billion raised during the three months ended September 30, 2021, representing the lowest level since the fourth quarter of 2009.

Significant Tenants and Concentrations of Risk

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

As of September 30, 2022, we owned 111 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 June 30, 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 and six months ended June 30, 2022.

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

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

See Note 11 “Commitments and Contingencies — Litigation — Kings Garden Lawsuit” to our condensed consolidated financial statements included in this report for more information regarding 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 six months ended June 30, 2022.

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

Comparison of the Three and Nine Months Ended September 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

For the Nine Months Ended

September 30,

Rental (including tenant reimbursements)

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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.

Rental revenues for the three months ended September 30, 2022 increased by approximately $16.4 million, or 31%, to approximately $70.3 million, compared to approximately $53.9 million for the three months ended September 30, 2021.

Approximately $143,000 of the increase in rental revenues was generated by the property acquired during the three months ended September 30, 2022.

The remaining approximately $16.3 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 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.

Rental revenues for the three months ended September 30, 2022 included approximately $2.6 million in security deposits drawn by us for defaults by Kings Garden in its obligations to pay rent commencing in July 2022.

Rental revenues for the three months ended September 30, 2022 and 2021 included approximately $2.7 million and $1.4 million, respectively, of tenant reimbursements for property insurance premiums and property taxes.

Rental revenues during the three months ended September 30, 2022 were negatively impacted by non-collection of rent during the quarter totaling approximately $5.7 million (including approximately $5.3 million of contractual base rents and property management fees and approximately $369,000 for tenant reimbursements for property insurance premiums and property taxes) from two tenants, Kings Garden and affiliates of Medical Investor Holdings, LLC (“Vertical”).

Rental revenues for the nine months ended September 30, 2022 increased by $58.9 million, or 40%, to approximately $204.5 million, compared to approximately $145.6 million for the nine months ended September 30, 2021.

Approximately $6.6 million of the increase in rental revenues was generated by the properties acquired during the nine months ended September 30, 2022.

The remaining approximately $52.3 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.

Rental revenues for the nine months ended September 30, 2022 and 2021 included approximately $7.1 million and $2.6 million, respectively, of tenant reimbursements for property insurance premiums and property taxes.

Rental revenues during the nine months ended September 30, 2022 were negatively impacted by non-collection of rent during the period totaling approximately $6.5 million (including approximately $6.1 million of contractual base rents and property management fees and approximately $369,000 for tenant reimbursements for property insurance premiums and property taxes) from the two tenants, Kings Garden and Vertical.

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.

Other revenues for the three and nine months ended September 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 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.

Property expenses for the three and nine months ended September 30, 2022 increased by approximately $1.5 million and $4.6 million respectively, compared to the three and nine months ended September 30, 2021.

The increase was primarily due to new property acquisitions and additional investment in existing properties which resulted in higher property insurance premiums and property taxes that we paid for our properties.

Property expenses are generally reimbursable to us by the tenants under the terms of the leases.

General and Administrative Expense .

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 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.

General and administrative expense for the three months ended September 30, 2022 increased by approximately $5.5 million to approximately $10.8 million, compared to approximately $5.3 million for the three months ended September 30, 2021.

General and administrative expense for the nine months ended September 30, 2022 increased by approximately $11.8 million to approximately $28.3 million, compared to approximately $16.5 million for the nine months ended September 30, 2021.

The increase in general and administrative expense was primarily due to approximately $2.1 million in litigation-related expense incurred during the three months ended September 30, 2022 related to matters described in Note 11 “Commitments and Contingencies — Litigation” to our condensed consolidated financial statements included in this report, higher compensation to employees, the hiring of additional employees and higher public company costs, travel and occupancy costs.

Compensation expense for the three and nine months ended September 30, 2022 included approximately $4.4 million and $13.2 million, respectively, of non-cash stock-based compensation.

Compensation expense for the three and nine months ended September 30, 2021 included approximately $2.2 million and $6.4 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 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 and other income for the three months ended September 30, 2022 increased by approximately $663,000 compared to the three months ended September 30, 2021.

Interest and other income for the nine months ended September 30, 2022 increased by approximately $1.1 million compared to the nine months ended September 30, 2021.

The increase in both periods 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 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,

Interest expense for the three months ended September 30, 2022 and 2021 included approximately $328,000 and $836,000, respectively, of non-cash interest expense;

and interest expense for the nine months ended September 30, 2022 and 2021 included approximately $1.0 million and $2.0 million, respectively, of non-cash interest expense.

Interest expense for the three months ended September 30, 2022 decreased by approximately $1.8 million compared to the three months ended September 30, 2021 due to exchanges of approximately $110.4 million outstanding principal amount of our Exchangeable Senior Notes in December 2021 and exchanges of approximately $26.9 million outstanding principal amount of our Exchangeable Senior Notes during the nine months ended September 30, 2022.

Interest expense for the nine months ended September 30, 2022 increased by approximately $1.9 million compared to the nine months ended September 30, 2021 due to our Notes due 2026 issued in May 2021, partially offset by exchanges of our Exchangeable Senior Notes during the comparative periods.

Comparison of the Nine Months Ended September 30, 2022 and 2021 (in thousands)

Nine Months Ended September 30,

Net cash provided by operating activities

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Operating Activities

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 for the nine months ended September 30, 2022 and 2021 were approximately $178.8 million and $141.0 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 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.

Cash flows used in investing activities for the nine months ended September 30, 2022 were approximately $401.7 million, of which approximately $488.0 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 $86.3 million related to net purchases and maturities of short-term investments.

Cash flows used in investing activities for the nine months ended September 30, 2021 were approximately $333.5 million, of which approximately $398.6 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, partially offset by approximately $65.1 million related to net purchases and maturities of short-term investments.

Financing Activities

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.

Net cash provided by financing activities of approximately $215.1 million during the nine months ended September 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 $134.5 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 $193.8 million during the nine months ended September 30, 2021 was the result of approximately $293.2 million in net proceeds from the issuance of our Notes due 2026, partially offset by dividend payments of approximately $96.0 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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Sources and Uses of Cash

We derive all of our revenues from the leasing of our properties and collecting rental income, which includes operating expense reimbursements, based on contractual arrangements with our tenants.

We derive substantially all of our revenues from the leasing of our properties and collecting rental income, which includes operating expense reimbursements, based on contractual arrangements with our tenants.

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.

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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).

As of September 30, 2022, we owned 111 properties.

Of these properties, the 109 properties in our operating portfolio were 100% leased to state-licensed cannabis operators, with a weighted-average remaining lease term of approximately 15.5 years.

Rent collection for our operating portfolio (calculated as base rent and property management fees collected as a percentage of contractually due base

rent and property management fees, but excluding the security deposits applied as a result of the Kings Garden lease defaults commencing in July 2022) was approximately 97% for the nine months ended September 30, 2022.

On July 13, 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties that Kings Garden leases from us (See Note 11 “Commitments and Contingencies — Litigation” to our condensed consolidated financial statements included in this report for more information).

Two of our properties, which were previously leased to Kings Garden, and an expansion project at a property where Kings Garden continues to occupy the property pursuant to a confidential, contingent settlement agreement, were under development as of September 30, 2022, and together are expected to comprise approximately 395,000 rentable square feet upon completion of development.

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

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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 June 30, 2022.

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

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

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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.

During the three and nine months ended September 30, 2022, we issued 265 and 413,166 shares, respectively, of our common stock upon exchange by holders of approximately $17,000 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 June 30, 2022, the remaining amount available to be sold under the ATM Program was approximately $209.9 million.

As of September 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 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 six months ended June 30, 2022:

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

Security Class

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June 15, 2022

March 1, 2022 to June 30, 2022

April 1, 2022 to June 30, 2022

July 15, 2022

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July 15, 2022

September 15, 2022

July 1, 2022 to September 30, 2022

October 14, 2022

September 15, 2022

Series A preferred stock

July 15, 2022 to October 14, 2022

October 14, 2022

Contractual Obligations

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

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

Notes due 2026

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.

2022 (three months ending December 31)

Additionally, as of September 30, 2022, we had approximately $127.6 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 September 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.

Supplemental Guarantor Information

In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities.

The amendments became effective on January 4, 2021.

Our Notes due 2026 and our Exchangeable Senior Notes are the unsecured senior obligations of our Operating Partnership and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by us and all of our direct and indirect wholly-owned subsidiaries.

Only the Notes due 2026 and the related guarantees are registered securities under the Securities Act.

See Note 7 “Debt” to our condensed consolidated financial statements included in this report for a description of certain terms of our Notes due 2026.

The offer and sale of the Exchangeable Senior Notes and the related guarantees were not and will not be registered under the Securities Act or the securities laws of any other jurisdiction and instead were issued in reliance upon an exemption from such

registration.

Unless they are subsequently registered under the Securities Act, the Exchangeable Senior Notes and the related guarantees may be offered and sold only in transactions that are exempt from the registration requirements under the Securities Act and the applicable securities laws of any other jurisdiction.

As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 of Regulation S-X is provided, which includes narrative disclosure and summarized financial information.

Accordingly, separate consolidated financial statements of our Operating Partnership and the Subsidiary Guarantors have not been presented.

Furthermore, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for the Operating Partnership and the Subsidiary Guarantors because the combined assets, liabilities, and results of operations of the Operating Partnership and the Subsidiary Guarantors are not materially different than the corresponding amounts in our condensed consolidated financial statements, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.

Non-GAAP Financial Information

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

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.

For the three and nine months ended September 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 100,799 shares and 235,753 shares for the three and nine months ended September 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 nine months ended September 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 2,193,492 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 nine months ended September 30, 2022, the performance share units (“PSUs”) granted to certain employees were not included in dilutive securities as the performance thresholds for vesting of the PSUs were not met as measured as of September 30, 2022.

For the three and nine months ended September 30, 2021, 78,582 shares issuable upon vesting of PSUs granted to certain employees in January 2021 were included in dilutive securities, as the performance thresholds for the vesting of these PSUs were met as measured as of September 30, 2021.

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 and six months ended June 30, 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 nine months ended September 30, 2022 and 2021 (in thousands, except share and per share amounts):

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Net income attributable to common stockholders

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Financing expense

Litigation-related expense

Loss on exchange of Exchangeable Senior Notes

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Critical Accounting Estimates

Our condensed consolidated financial statements have been prepared in accordance with GAAP, which requires us 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ materially from those estimates and assumptions.

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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.

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.

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.

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.

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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 and six months ended June 30, 2022 and 2021.

Stock-Based Compensation

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Interest Rate Risk

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.

As of September 30, 2022, we had $300.0 million principal amount of Notes due 2026 and approximately $6.4 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.

economy is experiencing a sustained increase in inflation rates.

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

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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