What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-02 · 123 added, 181 removed, 272 unchanged (53% of the section changed)

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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 pandemics on us, our business, our tenants, or the economy generally;

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the impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;

our ability to maintain our qualification as a REIT;

our ability to maintain our qualification as a REIT for U.S.

federal income tax purposes;

our ability to maintain our exemption from registration under the Investment Company Act of 1940;

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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, 2022, in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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, 2023.

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 September 30, 2023, we had 21 full-time employees.

As of September 30, 2023, we owned 108 properties comprising approximately 8.9 million square feet (including approximately 1.4 million rentable square feet under development/redevelopment) in 19 states.

As of September 30, 2023, we had invested approximately $2.4 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 $29.5 million to fund draws to certain tenants for construction and improvements at our properties.

Of the approximately $29.5 million committed to fund draws to certain tenants for construction and improvements at our properties, approximately $12.3 million was incurred but not funded as of September 30, 2023.

These statistics do not include a $23.0 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 $21.6 million as of September 30, 2023.

Of these 108 properties, we include 103 properties in our operating portfolio, which were 98.5% leased to state-licensed cannabis operators as of September 30, 2023, with a weighted-average remaining lease term of approximately 14.9 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, including an aggregate of approximately $2.2 million of security deposits applied for payment of rent for our leases with three tenants) was approximately 97% for the three months ended September 30, 2023.

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, including an aggregate of approximately $8.0 million of security deposits applied for payment of rent for our leases with five tenants) was approximately 97% for the nine months ended September 30, 2023.

As of September 30, 2023, we had fully applied approximately $909,000 of security deposit for payment of rent for one of our former leases with Green Peak and fully applied approximately $2.2 million of security deposits for payment of rent for a former lease with Parallel in Texas and a lease with Parallel in Pennsylvania.

Kings Garden paid the stipulated rent during its period of occupancy through September 20, 2023 for the four properties it occupied, and we regained possession of those properties in September 2023.

We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of September 30, 2023, and together are expected to comprise approximately 715,000 rentable square feet upon completion of development/redevelopment):

● Inland Center Drive in San Bernardino, California;

As of March 31, 2024, we had 21 full-time employees.

As of March 31, 2024, we owned 108 properties comprising 8.9 million square feet (including 897,000 rentable square feet under development/redevelopment) in 19 states.

As of March 31, 2024, we had invested $2.4 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 $41.3 million to fund draws to certain tenants and vendors for improvements at our properties.

Of the $41.3 million committed to fund draws to certain tenants and vendors for improvements at our properties, $10.4 million was incurred but not funded as of March 31, 2024.

Of these 108 properties, we include 103 properties in our operating portfolio, which were 95.2% leased as of March 31, 2024, with a weighted-average remaining lease term of 14.8 years.

We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of March 31, 2024, and together are expected to comprise 715,000 rentable square feet upon completion of development/redevelopment):

● Perez Road in Cathedral City, California (pre-leased);

● 63795 19th Avenue in Palm Springs, California;

● Davis Highway in Windsor, Michigan (pre-leased);

● 63795 19th Avenue in Palm Springs, California (pre-leased);

● Inland Center Drive in San Bernardino, California;

● Leah Avenue in San Marcos, Texas.

● Davis Highway in Windsor, Michigan.

Factors Impacting Our Operating Results

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Most states where we own properties issue licenses for cannabis operations for a limited period.

If one or more of our tenants are unable to renew or otherwise maintain their licenses or other state and local authorizations necessary to continue its cannabis operations, such tenants may default on their lease payments to us.

If one or more of our tenants are unable to renew or otherwise maintain their licenses or other state and local authorizations necessary to continue their cannabis operations, such tenants may default on their lease payments to us.

Furthermore, changes in federal law and current favorable state or local laws in the cannabis industry may impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties.

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Inflation and Supply Chain Constraints

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

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

economy has experienced a sustained increase in inflation rates in recent years, 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.

Ongoing labor shortages and global supply chain issues 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.

Sustained inflation has also negatively impacted the level of spending of consumers, including for the purchase of regulated cannabis products.

Reduced Capital Availability for Tenants and the Company

For the past several months, 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 the spring of 2022 and continued uncertainty regarding monetary policy.

Driven in part by overall macroeconomic conditions and substantially increased cost of capital, both capital availability and mergers and acquisitions activity have significantly declined for regulated cannabis operators.

In recent years, 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.

Capital raising activities by U.S.

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Significant Tenants and Concentrations of Risk

As of September 30, 2023, we owned 108 properties located in 19 states leased to 29 tenants.

As of March 31, 2024, we owned 108 properties located in 19 states leased to 30 tenants (not including three non-cannabis tenants in two properties).

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 September 30, 2023, our largest property was located in New York and accounted for approximately 5.4% of our net real estate held for investment.

No other properties accounted for more than 5% of our net real estate held for investment at September 30, 2023.

See Note 2 “Summary of Significant Accounting Policies and Procedures” in the notes to our 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 nine months ended September 30, 2023.

In July 2022, Kings Garden, a tenant of ours at six properties that we own in southern California, defaulted on its obligations to pay rent.

In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and Green Peak defaulted on its obligations to pay rent at one of our properties in Michigan.

In February 2023, Parallel also defaulted on its obligations to pay rent at one of our properties in Texas.

In March 2023, Green Peak was placed into receivership.

See Note 11 “Commitments and Contingencies — Litigation” to our condensed consolidated financial statements included in this report for more information regarding Kings Garden, Parallel and Green Peak.

At March 31, 2024, our largest property was located in New York and accounted for 5.5% of our net real estate held for investment.

No other properties accounted for more than 5% of our net real estate held for investment at March 31, 2024.

See Note 2 “Concentration of Credit Risk” in the notes to our 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, 2024.

Competitive Environment

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securities laws.

Our operating expenses also include costs that we incur for properties that are not leased, including taxes, insurance, maintenance, security, utilities and other property-specific costs.

Our operating expenses also include costs that we incur for properties that are not leased (or are leased but tenant’s rent obligations, including for payment of operating expenses, have not yet commenced), including taxes, insurance, maintenance, security, utilities and other property-specific costs.

We generally structure our leases so that the tenant is responsible for taxes, maintenance, insurance and structural repairs with respect to the premises throughout the lease term.

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Investments in Real Estate

See Note 6 “Investment in Real Estate” in the notes to the condensed consolidated financial statements for information regarding our investments in real estate activity and property portfolio activity during the nine months ended September 30, 2023.

In March 2023, we sold the portfolio of four properties in California previously leased to affiliates of Vertical for $16.2 million (excluding transaction costs) with a secured loan for $16.1 million with the buyer of the properties.

The transaction did not qualify for recognition as a completed sale since not all of the criteria were met.

Accordingly, we have not derecognized the assets transferred.

consideration received, as well as any future payments, from the buyer is recognized as a deposit liability and is included in other liabilities on our condensed consolidated balance sheet until such time the criteria for recognition as a sale have been met.

In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with a gross carrying value of approximately $3.4 million and approximately $13.9 million, respectively, and accumulated depreciation of approximately $1.5 million as of September 30, 2023, remain on the condensed consolidated balance sheet, and the buildings and improvements continue to be depreciated.

During the three and nine months ended September 30, 2023, we received cash interest payments of approximately $402,000 and $939,000, respectively, which has been recorded as a liability as of September 30, 2023.

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

Comparison of the Three Months Ended March 31, 2024 and 2023

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

For the Three Months Ended

For the Nine Months Ended

September 30,

Rental (including tenant reimbursements)

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Income from operations

Interest and other income

Interest income

Interest expense

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Rental Revenues.

Rental revenues for the three months ended September 30, 2023 increased by approximately $7.0 million, or 10%, to approximately $77.3 million, compared to approximately $70.3 million for the three months ended September 30, 2022.

Of that increase, approximately $3.5 million was related to tenant reimbursements for property insurance premiums and property taxes, which increased to approximately $6.2 million for the three months ended September 30, 2023, compared to approximately $2.7 million for the three months ended September 30, 2022.

The increase in tenant reimbursements was primarily due to reimbursements for property taxes starting in January 2023.

Prior to 2023, real estate taxes required to be paid by the tenant under our leases were paid directly by the tenant to the tax authorities and were therefore not reflected in our condensed consolidated financial statements.

The remaining 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 September 30, 2023 included the partial application of approximately $1.3 million of security deposits for payment of rent for two of our leases with Holistic in accordance with lease amendments executed with Holistic in January 2023, the partial application of approximately $191,000 of security deposits for payment of rent for one lease with Temescal in accordance with a lease amendment we executed with Temescal in March 2023 and the partial application of approximately $766,000 of security deposit for payment of rent for one lease with 4Front in accordance with a lease amendment we executed with 4Front in July 2023 (see Note 6 “Investment in Real Estate” in the notes to the condensed consolidated financial statements for more information).

Rental revenues during the three months ended September 30, 2023 were negatively impacted by non-collection of rent during the quarter from properties in our operating portfolio totaling approximately $2.2 million, primarily related to contractual base rents and property management fees from Parallel at one of our Pennsylvania properties.

We regained possession of that property in October 2023.

Kings Garden paid the stipulated rent through September 20, 2023 for the four properties it continued to occupy, including approximately $1.7 million in rent during the three months ended September 30, 2023, and we regained possession of those properties in September 2023.

Rental revenues for the nine months ended September 30, 2023 increased by approximately $24.2 million, or 12%, to approximately $228.7 million, compared to approximately $204.5 million for the nine months ended September 30, 2022.

Of that increase, approximately $9.7 million was related to tenant reimbursements for property insurance premiums and property taxes, which increased to approximately $16.8 million for the nine months ended September 30, 2023, compared to approximately $7.1 million for the nine months ended September 30, 2022.

The increase in tenant reimbursements was primarily due to reimbursements for property taxes starting in January 2023, as described above.

Approximately $3.4 million of the increase in rental revenues was related to rent on the properties acquired during the nine months ended September 30, 2023.

Rental revenues for the nine months ended September 30, 2023 included the full application of approximately $909,000 of security deposit for payment of rent for one of our former leases with Green Peak, the full application of approximately $2.2 million of security deposits for payment of rent for a former lease with Parallel in Texas and an existing lease with Parallel in Pennsylvania, partial application of approximately $3.6 million of security deposits for payment of rent for two of our leases with Holistic in accordance with lease amendments executed with Holistic in January 2023, the partial application of approximately $491,000 of security deposit for payment of rent for one lease with Temescal in accordance with a lease amendment we executed with Temescal in March 2023, and partial application of approximately $766,000 of security deposit for payment of rent for one lease with 4Front in accordance with a lease amendment we executed with 4Front in July 2023 (see Note 6 “Investment in Real Estate” in the notes to the condensed consolidated financial statements for more information).

Rental revenues during the nine months ended September 30, 2023 were negatively impacted by non-collection of rent during the period from properties in our operating portfolio totaling approximately $5.8 million (including approximately $5.6 million of contractual base rents and property management fees and approximately $249,000 of tenant reimbursements for property insurance premiums and property taxes) from primarily three tenants:

Green Peak, affiliates of Vertical and Parallel.

Rental revenues for the three months ended March 31, 2024 decreased by $0.6 million, or 1%, to $74.9 million, compared to $75.5 million for the three months ended March 31, 2023.

The decrease was primarily due to a $5.6 million decline in contractual rent and property management fees received during the three months ended March 31, 2024 related to properties that we took back possession of since March 2023, and a $1.3 million decrease related to two leases that were re-classified as sales-type leases starting January 1, 2024 (see Note 2 “Lease Accounting” to our condensed consolidated financial statements included in this report for more information).

The decrease was partially offset by a $6.0 million increase to contractual rent and property management fees, which was primarily driven by contractual rent escalations and amendments to leases for additional improvement allowances at existing properties that resulted in adjustments to rent, a full period of contractual rent and property management fees related to the two properties acquired during the three months ended March 31, 2023, and new leases entered into since March 31, 2023.

The decrease was also partially offset by a $0.3 million increase to tenant reimbursements, which was primarily due to higher property tax reimbursements collected during the period.

While we have re-leased several properties taken back since March 2023, rent commencement on certain of those properties is contingent on the tenants obtaining the requisite approvals to operate, and temporary rent abatements in certain instances as tenants transition into the properties and commence operations.

As a result, we do not expect to recognize rental revenue from those properties until that has occurred.

No security deposits were applied for rent during the three months ended March 31, 2024.

Rental revenue received for the three months ended March 31, 2023 included the application of $4.2 million of security deposits for payment of rent.

Other Revenues.

Other revenues for the three and nine months ended September 30, 2023 and 2022 consisted of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

Other revenues for the three months ended March 31, 2024 and 2023 consisted 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 nine months ended September 30, 2023 increased by approximately $3.5 million and approximately $10.5 million compared to the three and nine months ended September 30, 2022.

The increase was primarily due to the recognition of property taxes incurred and paid or to be paid by us starting in January 2023, as described above.

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

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

Property expenses for the three months ended March 31, 2024 increased by $1.1 million to $6.7 million compared to $5.6 million for the three months ended March 31, 2023.

The increase was due to additional investment in existing properties, which resulted in higher property tax that we paid for our properties, as well as higher property expenses related to properties that we have taken possession of but not yet leased.

Property expenses related to leased properties 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 September 30, 2023 increased by approximately $177,000 to approximately $11.0 million, compared to approximately $10.8 million for the three months ended September 30, 2022.

General and administrative expense for the nine months ended September 30, 2023 increased by approximately $3.6 million to approximately $31.9 million, compared to approximately $28.3 million for the nine months ended September 30, 2022.

The increase in general and administrative expense was primarily due to approximately $2.5 million in litigation-related expense incurred during the nine months ended September 30, 2023 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, higher public company costs and occupancy costs.

Compensation expense for the three and nine months ended September 30, 2023 included approximately $4.9 million and $14.6 million, respectively, of non-cash stock-based compensation.

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.

General and administrative expense for the three months ended March 31, 2024 decreased by $0.8 million to $9.6 million, compared to $10.4 million for the three months ended March 31, 2023.

The decrease in general and administrative expense was primarily due to lower litigation-related expense incurred during the period and lower compensation to employees.

The lower compensation was primarily due to the expiration of the PSUs granted in 2021 on December 31, 2023 (which were forfeited in their entirety as they failed to meet the threshold for any payout as of that date) and lower payroll related fees for relocation, which was partially offset by higher payroll salary and bonus expense.

Compensation expense for three months ended March 31, 2024 and 2023 included $4.3 million and $4.8 million, respectively, of non-cash stock-based compensation.

Depreciation and Amortization Expense.

The increase in depreciation and amortization expense was related to depreciation on properties that we acquired and the placement into service of construction and improvements at certain of our properties.

Interest and Other Income.

Interest and other income for the three months ended September 30, 2023 increased by approximately $1.3 million to approximately $2.1 million, compared to the three months ended September 30, 2022.

Interest and other income for the nine months ended September 30, 2023 increased by approximately $5.2 million to approximately $6.6 million, compared to the nine months ended September 30, 2022.

The increase in both periods was due to higher interest rates on our interest-bearing investments, as well as approximately $414,000 and $959,000 of interest received on our construction loan during the three and nine months ended September 30, 2023, respectively.

Depreciation and amortization expense for the three months ended March 31, 2024 increased $0.4 million to $17.2 million, compared to $16.7 million for the three months ended March 31, 2023.

The increase in depreciation and amortization expense was related to depreciation on properties that we acquired in 2023 and the placement into service of construction and improvements at certain of our properties.

Interest Income.

Interest income for the three months ended March 31, 2024 decreased by $0.4 million to $1.8 million, compared to $2.2 million the three months ended March 31, 2023.

The decrease was due to having less interest-bearing investments during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Interest Expense.

Interest expense consists of interest on our Exchangeable Senior Notes and our Notes due 2026.

Interest expense for the three months ended September 30, 2023 decreased by approximately $183,000 to approximately $4.3 million, compared to the three months ended September 30, 2022.

Interest expense for the three months ended September 30, 2023 and 2022 included approximately $344,000 and $328,000, respectively, of non-cash interest expense.

Interest expense for the nine months ended September 30, 2023 decreased by approximately $461,000 to approximately $13.3 million, compared to the nine months ended September 30, 2022 due to exchanges of approximately $26.9 million outstanding principal amount of our Exchangeable Senior Notes during the year ended December 31, 2022, and also due to the exchanges of $2.0 million outstanding principal amount of our Exchangeable Senior Notes and capitalization of approximately $214,000 of interest during the nine months ended September 30, 2023.

Interest expense for the nine months ended September 30, 2023 and 2022 both included approximately $1.0 million of non-cash interest expense.

Comparison of the Nine Months Ended September 30, 2023 and 2022 (in thousands)

Nine Months Ended September 30,

Interest expense primarily consists of interest on our Exchangeable Senior Notes and our Notes due 2026.

Interest expense for the three months ended March 31, 2024 decreased by $0.1 million to $4.4 million, compared to $4.5 million for the three months ended March 31, 2023.

The decrease was primarily due to the capitalization of $0.2 million of interest during the three months ended March 31, 2024, partially offset by $55,000 non-cash interest expense related to the Revolving Credit Facility.

Interest expense for the three months ended March 31, 2024 and 2023 included $0.4 million and $0.3 million, respectively, of non-cash interest expense.

Comparison of the Three Months Ended March 31, 2024 and 2023 (in thousands)

Three Months Ended March 31,

Net cash provided by (used in) operating activities

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Operating Activities

Cash flows provided by operating activities for the nine months ended September 30, 2023 and 2022 were approximately $189.5 million and $178.8 million, respectively.

Cash flows provided by operating activities for the three months ended March 31, 2024 and 2023 were $71.6 million and $64.6 million, respectively.

Cash flows provided by operating activities were generally from contractual rent from our properties, partially offset by our general and administrative expense, interest expense, property expenses in excess of tenant reimbursements and property expenses at properties that were not leased.

Cash flows provided by operating activities for the three months ended March 31, 2024 also included $4.8 million received in advance from our tenant Holistic Industries Inc.

relating to the expected sale of our property in Los Angeles, California and concurrent lease termination (see Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information).

Investing Activities

Cash flows used in investing activities for the nine months ended September 30, 2023 were approximately $6.0 million, of which approximately $167.9 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 $161.9 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 maturities of short-term investments.

Cash flows used in investing activities for the three months ended March 31, 2024 were $14.4 million, of which $16.5 million was related to funding of draws for improvement and construction funding at our properties, partially offset by $2.1 million related to net purchases and maturities of short-term investments.

Cash flows used in investing activities for the three months ended March 31, 2023 were $62.7 million, of which $101.3 million was related to investments in real estate and funding of draws for improvement and

construction funding at our properties and other investments, partially offset by $38.6 million related to net purchases and maturities of short-term investments.

Financing Activities

Net cash used in financing activities of approximately $153.6 million during the nine months ended September 30, 2023 was the result of dividend payments of approximately $153.0 million to common and preferred stockholders and approximately $568,000 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 used in financing activities of $45.4 million during the three months ended March 31, 2024 was the result of $11.8 million in net proceeds from the issuance of our common stock, offset by dividend payments of $51.8 million to common and preferred stockholders, principal payment on the Exchangeable Senior Notes of $4.4 million and $1.0 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees and payment of deferred financing costs.

Net cash used in financing activities of $51.4 million during the three months ended March 31, 2023 was the result of dividend payments of $50.8 million to common and preferred stockholders and $0.6 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

Liquidity is a measure of our ability to meet potential cash requirements.

We expect to use significant cash to acquire additional properties, develop and redevelop existing properties, pay dividends to our stockholders, fund our operations, service our Exchangeable Senior Notes and Notes due 2026, and meet other general business needs.

Sources and Uses of Cash

Liquidity is a measure of our ability to meet potential cash requirements.

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 our 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.

This source of revenue represents our primary source of liquidity to fund the acquisition of additional properties, the development and redevelopment of existing properties, dividends to our stockholders, obligations under our Notes due 2026, repayment of borrowings and interest payments under our Revolving Credit Facility, 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 of 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 property costs not paid by the tenant during the time it takes to re-lease or sell the property.

As of September 30, 2023, we owned 108 properties.

Of these properties, the 103 properties in our operating portfolio were 98.5% leased to state-licensed cannabis operators, with a weighted-average remaining lease term of approximately 14.9 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, including an aggregate of approximately $8.0 million of security deposits applied for payment of rent for five tenants) was approximately 97% for the nine months ended September 30, 2023.

In July 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties that Kings Garden leases from us.

In September 2023, we regained possession of the four remaining properties that Kings Garden had occupied, where Kings Garden paid stipulated rent during its period of occupancy until September 20, 2023.

In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and we regained possession of that property in October 2023.

Also in November 2022, Green Peak defaulted on its obligations to pay rent at one of our properties in Michigan.

In March 2023, a receiver was appointed over substantially all of Green Peak’s assets, and we subsequently regained possession of one property that was under redevelopment as a regulated cannabis cultivation and processing facility and two retail properties in Michigan.

In February 2023, Parallel also defaulted on its obligations to pay rent at one of our properties in Texas, and we regained possession of that property in March 2023.

As of March 31, 2024, we owned 108 properties.

Of these properties, the 103 properties in our operating portfolio were 95.2% leased, with a weighted-average remaining lease term of 14.8 years.

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

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In addition, for properties that are not leased and are under development or redevelopment, we may make significant additional investments in these properties in order to get them ready for their intended use and to re-lease them.

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.

For the three months ended March 31, 2024, property expenses included $0.7 million of non-reimbursed expenses related to operating properties that were not leased.

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 along with draws on our Revolving Credit Facility.

Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction.

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We sought to obtain an investment grade rating to facilitate access to the investment grade unsecured debt market as part of our overall strategy to maximize our financial flexibility and manage our overall cost of capital.

On May 25, 2021, our Operating Partnership issued $300.0 million aggregate principal amount of Notes due 2026.

The Notes due 2026 are the Operating Partnership’s general unsecured and unsubordinated obligations, are fully and unconditionally guaranteed by us and all of the direct and indirect subsidiaries of the Operating Partnership, and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, including the Exchangeable Senior Notes.

In May 2021, our Operating Partnership issued $300.0 million aggregate principal amount of Notes due 2026.

The Notes due 2026 are the Operating Partnership’s general unsecured and unsubordinated obligations, are fully and unconditionally guaranteed by us, and rank equally in right of payment with all of the Operating Partnership’s future senior unsecured indebtedness.

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 September 30, 2023.

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

Management believes that it was in compliance with those covenants as of March 31, 2024.

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 nine months ended September 30, 2023, we issued 32,200 shares, respectively, of our common stock upon exchange by holders of $2.0 million of outstanding principal amount of our Exchangeable Senior Notes.

In January 2023, we terminated the previously existing “at-the-market” offering program and entered into new equity distribution agreements with four sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program (the “ATM Program”) up to $500.0 million in shares of our common stock.

As of September 30, 2023, we had not sold any shares of common stock under the ATM Program.

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.

On October 23, 2023, our Operating Partnership entered into a loan and security agreement (the “Loan Agreement”) with a federally regulated commercial bank, as lender and as agent for lenders that become party thereto from time to time.

In February 2024, we issued 28,408 shares of our common stock and paid $4.3 million in cash upon exchange by holders of $4.3 million principal amount of Exchangeable Senior Notes and paid off the remaining $0.1 million principal amount, in accordance with terms of the indenture for the Exchangeable Senior Notes.

In January 2023, we entered into equity distribution agreements with four sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program (the “ATM Program”) up to $500.0 million in shares of our common stock.

During the three months ended March 31, 2024, we sold 123,224 shares of our common stock pursuant to the ATM Program for net proceeds of $11.8 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, debt, warrants and other securities to the extent necessary or advisable to meet our liquidity needs.

In October 2023, our Operating Partnership entered into a loan and security agreement (the “Loan Agreement”) with a federally regulated commercial bank, as lender and as agent for lenders that become party thereto from time to time.

The Loan Agreement matures on October 23, 2026, and provides $45.0 million in aggregate commitments for secured revolving loans (the “Revolving Credit Facility”) .

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The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default.

There were no amounts outstanding under the Loan Agreement as of November 2, 2023.

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

There were no amounts outstanding under the Loan Agreement as of March 31, 2024.

Subsequent to March 31, 2024, we sold a property in Los Angeles, California for $9.1 million (excluding closing costs), received a lease termination fee from the tenant concurrent with the closing of $3.9 million and received tenant reimbursement of our closing and other costs related to the sale of the property.

We expect to meet our liquidity needs through cash and investments on hand, cash flows from operations, our Revolving Credit Facility and cash flow from sources discussed above.

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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 this environment continues for a prolonged period of time or worsens, 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.

In the long term, we may also voluntarily repurchase our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise.

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

If sustained, this could 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.

As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can.

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 nine months ended September 30, 2023:

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 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, 2024:

Security Class

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April 15, 2024

June 15, 2023

April 1, 2023 to June 30, 2023

July 14, 2023

June 15, 2023

Series A preferred stock

April 15, 2023 to July 14, 2023

July 14, 2023

September 15, 2023

July 1, 2023 to September 30, 2023

October 13, 2023

September 15, 2023

Series A preferred stock

July 15, 2023 to October 14, 2023

October 13, 2023

Contractual Obligations

The following table summarizes our contractual obligations as of September 30, 2023 (in thousands):

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

Notes due 2026

2023 (three months ending December 31)

Additionally, as of September 30, 2023, we had approximately $17.2 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, 2023, we also had approximately $1.4 million outstanding in commitments to fund a construction loan, which the developer is required to complete by December 31, 2023, 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.

2024 (nine months ended December 31)

Additionally, as of March 31, 2024, we had (1) $24.1 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;

(2) $6.8 million outstanding in commitments related to contracts with vendors for improvements at our properties, which are expected to be incurred by December 31, 2024;

and (3) $1.0 million outstanding in commitments to fund a construction loan.

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, there is no explicit time frame for incurring the obligations related to our contracts with vendors, 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.

Our Notes due 2026 are the unsecured senior obligations of our Operating Partnership and are fully and unconditionally guaranteed on an unsecured basis by us.

The Notes due 2026 and the related guarantee 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.

Accordingly, separate consolidated financial statements of our Operating Partnership 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 because the assets, liabilities, and results of operations of the Operating Partnership 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 cash and non-cash items.

For the three and nine months ended September 30, 2023, 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 75,682 and 83,007 shares for the three and nine months ended September 30, 2023, 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, 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 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, 2023 and 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 the respective periods.

For the three months ended March 31, 2024 and 2023, 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 38,079 and 102,210 shares for the three months ended March 31, 2024 and 2023, respectively, 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, 2024 and 2023, 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 the respective periods.

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 nine months ended September 30, 2023 and 2022 (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 months ended March 31, 2024 and 2023 (in thousands, except share and per share amounts):

For the Three Months Ended

For the Nine Months Ended

September 30,

Net income attributable to common stockholders

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FFO attributable to common stockholders (diluted)

Financing expense

Litigation-related expense

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Interest income on seller-financed note (1)

Deferred lease payments received on sale-type leases (2)

Stock-based compensation

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Weighted average common shares outstanding – diluted

(1) Amount reflects the non-refundable interest paid on the seller-financed note issued to us by the buyer in connection with our disposition of a portfolio of four properties in southern California previously leased to affiliates of Vertical, which is recognized as a deposit liability and is included in other liabilities in our condensed consolidated balance sheet as of September 30, 2023, as the transaction did not qualify for recognition as a completed sale.

(1) Amount reflects the non-refundable interest received on the seller-financed note issued to us by the buyer in connection with our disposition of a portfolio of four properties in southern California previously leased to affiliates of Vertical, which is recognized as a deposit liability and is included in other liabilities in our condensed consolidated balance sheet as of March 31, 2024, as the transaction did not qualify for recognition as a completed sale.

(2) Amount reflects the non-refundable lease payments received on two sales-type leases which are recognized as a deposit liability starting on January 1, 2024, and is included in other liabilities in our condensed consolidated balance sheet as of March 31, 2024, as the transaction did not qualify for recognition as a completed sale (see Note 2 “Lease Accounting” to our condensed consolidated financial statements included in this report for more information).

Prior to the lease modifications on January 1, 2024, which extended the initial lease terms, the leases were classified as operating leases and the lease payments received were recognized as rental revenue and therefore, included in net income attributable to common stockholders.

Critical Accounting Estimates

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The following critical accounting estimates discussion reflects what we believe are the most significant estimates and assumptions used in the preparation of our consolidated financial statements.

This discussion of our critical accounting estimates is intended to supplement and should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 “Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our condensed consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates and assumptions.

For further discussion of our significant accounting policies, see Note 2 “Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 and to our condensed consolidated financial statements included in this report.

Lease Accounting

We account for our leases under ASC 842 “Leases”, which requires significant estimates and judgments by management in its application.

We account for our leases under Accounting Standards Codification 842, Leases, which requires significant estimates and judgments by management in its application.

Upon lease inception or lease modification, we assess the lease classification of both the land and building components of the property.

The determination of lease classification requires the calculation of the rate implicit in the lease, which is driven by significant estimates relating to the unguaranteed residual value of the assets at the end of the non-cancelable lease term.

A decrease of 5% in the estimated unguaranteed residual value of our properties would result in changes to the lease classification of one lease that was modified during the three months ended March 31, 2024.

Acquisition of Rental Property, Depreciation and Impairment

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The accounting model for asset acquisitions requires that the acquisition consideration (including acquisition costs) be allocated to the individual assets acquired and liabilities assumed on a relative fair value basis.

We exercise judgement to determine key assumptions used in each valuation technique.

We exercise judgment to determine key assumptions used in each valuation technique (cost, income, and sales approach).

For example, we are required to use judgment and make a number of assumptions, including those related to projected growth in rental rates and operating expenses, anticipated trends and market/economic conditions.

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When we evaluate for potential impairment our real estate assets to be held and used, we first evaluate whether there are any indicators of impairment.

If any impairment indicators are present for a specific real estate asset, we then perform an undiscounted cash flow analysis and compare the net carrying amount of the real estate asset to the real estate asset’s estimated undiscounted future cash flow over the anticipated holding period.

If the estimated undiscounted future cash flow is less than the net carrying amount of the real estate asset, we perform an impairment loss calculation to determine if the fair value of the real estate asset is less than the net

carrying value of the real estate asset.

cash flow over the anticipated holding period.

Our impairment loss calculation compares the net carrying amount of the real estate asset to the real estate asset’s estimated fair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals.

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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.

Estimating projected cash flow is highly subjective as it requires assumptions related to future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, and occupancy levels.

We are also required to make a number of assumptions relating to future economic and market events and prospective operating trends.

Determining the appropriate capitalization rate also requires significant judgment and is typically based on many factors including the prevailing rate for the market or submarket, as well as the quality and location of the properties.

Further, capitalization rates can fluctuate resulting from a variety of factors in the overall economy or within regional markets.

If the actual net cash flow or actual market capitalization rates significantly differ from our estimates, the impairment evaluation for an individual asset could be materially affected.

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 nine months ended September 30, 2023 and 2022.

Stock-Based Compensation

Compensation cost for all share-based awards requires an estimate of fair value on the grant date and compensation cost is recognized on a straight-line basis over the service vesting period, which represents the requisite service period.

The grant date fair value for compensation programs that contain market conditions, like modifiers based on total stockholder return (a “market condition”), are performed using Monte Carlo simulation pricing models that require the input of assumptions, including judgments to estimate expected stock price volatility, risk-free interest rate, and discount for post vesting restriction.

The expected share price volatility was based on the historical volatility of our shares of common stock over a period of approximately the applicable performance periods.

The risk-free interest rate was based on the zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the applicable valuation date.

The discount for the post vesting restriction was estimated using the Finnerty model.

Significant adverse changes in the critical accounting estimates used in the impairment evaluation are required for the undiscounted cash flows over the holding period to be less than the carrying value as of March 31, 2024.

Impact of Real Estate and Credit Markets

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credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

In recent years, the commercial real estate market generally has experienced significant disruptions from, among other things, significant increases in interest rates and changing tenant preferences for space.

Interest Rate Risk

As of September 30, 2023, we had $300.0 million principal amount of Notes due 2026 and approximately $4.4 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.

As of March 31, 2024, we had $300.0 million principal amount of Notes due 2026 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.

Our Revolving Credit Facility bears interest at a variable rate based on the greater of the prime rate and an applicable margin and a stipulated interest rate;

therefore, if interest rates increase, our required payments on any amounts outstanding on our Revolving Credit Facility may also increase.

As of March 31, 2024, we had no outstanding borrowings on our Revolving Credit Facility.

Impact of Inflation

economy is experiencing a sustained increase in inflation rates.

economy has experienced a sustained increase in inflation rates in recent years.

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

During times when inflation is greater than the fixed increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.

Our Revolving Credit Facility bears interest at a variable rate based on the greater of the prime rate and an applicable margin and a stipulated interest rate;

therefore, if interest rates increase, our required payments on any amounts outstanding on our Revolving Credit Facility may also increase.

As of March 31, 2024, we had no outstanding borrowings on our Revolving Credit Facility.

Our business has not been, and we do not expect our business in the future to be, subject to material seasonal fluctuations.

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