What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-27 · 140 added, 133 removed, 288 unchanged (49% of the section changed)

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For a discussion of such risk factors, see Item 1A, “Risk Factors.”

We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated cannabis facilities.

We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties in the United States.

Our properties are leased to experienced, state-licensed operators for their regulated cannabis facilities.

We have leased and expect to continue to lease our properties on a triple-net lease basis, where the tenant is generally responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, real estate taxes and insurance.

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As of December 31, 2024, we had 22 full-time employees.

As of December 31, 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 December 31, 2023, we had invested approximately $2.4 billion in the aggregate (consisting of purchase price and funding of draws for improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional approximately $40.1 million to fund draws to certain tenants and vendors for improvements at our properties.

Of the approximately $40.1 million committed to fund draws to certain tenants and vendors for improvements at our properties, approximately $9.6 million was incurred but not funded as of December 31, 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 $22.0 million as of December 31, 2023.

Of these properties, we include 103 properties in our operating portfolio, which were 95.8% leased as of December 31, 2023, with a weighted-average remaining lease term of approximately 14.6 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 $8.7 million of security deposits applied for payment of rent for our leases with five tenants) was approximately 98% for the year ended December 31, 2023.

Rent collection for our operating portfolio (including approximately $767,000 of security deposits applied for payment of rent from our lease with one tenant) was 100% for the three months ended December 31, 2023.

We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of December 31, 2023, and together are expected to comprise approximately 715,000 rentable square feet upon completion of development/redevelopment):

As of December 31, 2024, we owned 109 properties comprising 9.0 million square feet (including 666,000 rentable square feet under development/redevelopment) in 19 states.

As of December 31, 2024, we had invested $2.4 billion in the aggregate (consisting of purchase price and funding of draws for improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional $38.3 million to fund draws to certain tenants and vendors for improvements at our properties.

Of the $38.3 million committed to fund draws to certain tenants and vendors for improvements at our properties, $11.4 million was incurred but not funded as of December 31, 2024.

Of these properties, we include 106 properties in our operating portfolio, which were 98.3% leased as of December 31, 2024, with a weighted-average remaining lease term of 13.7 years.

We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of December 31, 2024, and together are expected to comprise 491,000 rentable square feet upon completion of development/redevelopment):

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

● Inland Center Drive in San Bernardino, California;

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

● 63795 19th Avenue in Palm Springs, California;

● Leah Avenue in San Marcos, Texas.

● Davis Highway in Dimondale, Michigan (pre-leased).

Factors Impacting Our Operating Results

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● rent collection, which primarily relates to each of our current and future tenant’s financial condition and ability to make rent payments to us on time.

The properties that we acquire consist of real estate assets that support the regulated cannabis industry.

The properties that we acquire consist of primarily real estate assets that support the regulated cannabis industry.

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.

Current unfavorable market dynamics in the regulated cannabis industry have adversely affected our ability to re-lease properties upon tenant defaults at the rental rates we currently receive and, in some cases, for prolonged periods.

See the section entitled “Business – Tenant Concentration” for a discussion of our recent tenant defaults.

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

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

consumer financial health.

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

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

Our tenants primarily operate in the regulated cannabis industry.

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

These challenges include federal, state and local taxation burdens;

ineffective enforcement policies with respect to the illicit cannabis market;

declines in unit pricing for regulated cannabis products;

limited access to capital;

and inflation and supply chain constraints.

The resulting adverse impact on the Company’s and our tenants’ financial condition, results of operations, and cash flows depends on the extent and duration of these challenges in the regulated cannabis markets where we own properties, which are further described below.

Market Dynamics in Regulated Cannabis State Programs

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

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

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.

As a result, certain regulated cannabis operators have announced that they are consolidating operations or shuttering certain operations to reduce costs, which if prolonged, could have a material negative impact on operators’ demand for regulated cannabis facilities, including our existing tenants.

I neffective enforcement policies with respect to illicit cannabis sales in a particular state may significantly limit the growth and profitability of operators in that state’s regulated cannabis market.

Unit Pricing for Regulated Cannabis Products

Many states have experienced 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.

As a result, certain regulated cannabis operators have consolidated operations or shuttered certain operations to reduce costs, which could have a negative impact on operators’ demand for regulated cannabis facilities, including our existing tenants.

Inflation and Supply Chain Constraints

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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.

Reduced Capital Availability for Tenants and the Company

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

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.

Capital Availability for Tenants

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

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

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

According to Viridian, worldwide cannabis capital raises in 2023 constituted a multi-year low, with less than $2 billion in total capital raises, versus over $4.3 billion in 2022 and over $12 billion in 2021.

Total equity and debt capital raising for public and private cannabis cultivation and retail companies in the United States decreased 74% from 2022 and were lower than any previous year since before 2018, with debt accounting for over 80% of all capital raised for cannabis cultivation operations.

According to Viridian, as of December 31, 2023, cannabis stock prices (as measured by the MSOS ETF) had declined 87% since their February 2021 peak.

Also according to Viridian, mergers and acquisitions activity in the North American regulated cannabis industry declined significantly in 2023 to $1.75 billion, down from $4.95 billion in 2022.

Driven in part by overall macroeconomic conditions, since 2021 capital availability has declined for regulated cannabis operators.

According to Viridian Capital Advisors (“Viridian”), worldwide cannabis capital raises in 2024 increased slightly over 2023, with less than $2.3 billion in total capital raises, versus over $1.9 billion in 2023, $4.3 billion in 2022 and over $12.0 billion in 2021.

Also, according to Viridian, mergers and acquisitions activity in the North American regulated cannabis industry declined in 2024 to $1.2 billion, down from $1.8 billion in 2023.

Capital raising activities by U.S.

REITs continued to be subdued in 2023, after experiencing a significant decline in the latter part of 2022.

According to the NAREIT, U.S.

REIT 2023 capital raising was modestly higher than 2022, though 2022 represented the lowest level since 2009.

REITs continued to increase in 2024 with $85 billion of capital raised compared to $62 billion in 2023.

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

(“NAREIT”), U.S.

REIT 2024 capital raising was higher than 2022 and 2023, but remained lower than 2019-2021 levels.

Significant Tenants and Concentrations of Risk

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

At December 31, 2023, our largest property was located in New York and accounted for approximately 5.4% of our net real estate held for investment.

At December 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 December 31, 2024.

See Note 2 “Summary of Significant Accounting Policies and Procedures” in the notes to the consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the year ended December 31, 2024.

See Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak, which defaulted on their obligations under certain leases with us.

Competitive Environment

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All 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 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 gross carrying values of approximately $3.4 million and approximately $13.9 million, respectively, and accumulated depreciation of approximately $1.6 million as of December 31, 2023, remain on the consolidated balance sheet, and the buildings and improvements continue to be depreciated.

During the year ended December 31, 2023, we received cash interest payments of approximately $1.3 million, which has been recorded as a liability as of December 31, 2023.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a comparison of the years ended December 31, 2022 and December 31, 2021.

In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with gross carrying values of $3.4 million and $13.9 million, respectively, and accumulated depreciation of $2.0 million as of December 31, 2024, remain on the consolidated balance sheets, and the buildings and improvements continue to be depreciated.

During the year ended December 31, 2024, we received cash interest payments of $1.1 million, which has been recorded as a liability as of December 31, 2024.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 27, 2024, for a comparison of the years ended December 31, 2023 and December 31, 2022.

Comparison of the Years Ended December 31, 2024 and 2023 (in thousands)

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Total expenses

Gain on sale of real estate

Gain (loss) on sale of real estate

Income from operations

Interest and other income

Interest income

Interest expense

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Rental Revenues.

Rental revenues for the year ended December 31, 2023 increased by approximately $33.0 million, or 12%, to approximately $307.4 million, compared to approximately $274.4 million for the year ended December 31, 2022.

Of that increase, approximately $13.3 million was related to tenant reimbursements for property insurance premiums and property taxes, which increased to approximately $23.4 million for the year ended December 31, 2023, compared to approximately $10.1 million for the year ended December 31, 2022.

The increase in tenant reimbursements was primarily due to a change in our policy, starting in January 2023, from allowing tenants to pay property taxes directly to taxing authorities to us making tax payments directly to taxing authorities and then billing tenants for property

tax reimbursements.

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 consolidated financial statements.

The remaining approximately $19.7 million increase in rental revenue was attributable to:

● The two properties we acquired in 2023 which generated approximately $5.2 million of rental revenue in 2023;

● The nine properties we acquired in 2022 which generated approximately $17.8 million of rental revenue in 2023, including a rent adjustment on a lease amendment for an additional improvement allowance at one of these properties, compared to approximately $10.2 million in 2022, a net increase of approximately $7.6 million;

● A net increase of approximately $6.9 million in rental revenue generated by properties we acquired prior to 2022, including contractual rent escalations, rent adjustments for amendments to leases for additional improvement allowances at existing properties that resulted in adjustments to rent.

Rental revenues for the year ended December 31, 2023 included the application of approximately $8.7 million of security deposits applied for rent for our leases with five tenants and approximately $888,000 of security deposits applied for tenant reimbursements for property insurance premiums and property taxes for our leases with three tenants.

Rental revenues for the year ended December 31, 2023 also included approximately $1.7 million as partial payment of a consent order against Parallel for its failure to pay rent at one of our Pennsylvania properties previously leased to Parallel and approximately $243,000 in payments from Kings Garden pursuant to an offer of judgment relating to certain properties previously leased to Kings Garden (see Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements included in this report for more information).

Rental revenues for the year ended December 31, 2023 were negatively impacted by non-collection of rent during the period from properties in our operating portfolio totaling approximately $4.8 million (consisting of approximately $4.5 million of contractual base rents and property management fees from three tenants and approximately $289,000 for tenant reimbursements for property insurance premiums and property taxes from three tenants), and the termination of certain leases with Green Peak, Kings Garden and Parallel.

Rental revenues for the year ended December 31, 2024 were $306.9 million, compared to $307.4 million for the year ended December 31, 2023, reflecting a decrease of $0.4 million or less than 1%.

This decrease in rental revenues was primarily related to certain properties we took back possession of or sold since 2023, lease amendments that adjusted and deferred rent for certain properties, partial payment of rent by certain tenants and two leases that were classified as sale-type leases starting in January 2024 where rental revenue collected is recognized as a deposit liability and is included in other liabilities in our consolidated balance sheet as of December 31, 2024.

The decrease was partially offset by the $3.9 million disposition-contingent lease termination fee that was received in

connection with the sale of our property in Los Angeles, California, amendments to leases for additional improvement allowances at existing properties that resulted in adjustments to rent, revenue from the two properties we acquired in 2024 and contractual rent escalations on our other existing properties.

For the year ended December 31, 2024, we applied $7.7 million of security deposits for payment of contractual rent on properties leased to six tenants.

For the year ended December 31, 2023, we applied $8.7 million of security deposits for payment of contractual rent on properties leased to five tenants.

Rental revenues for the year ended December 31, 2024 were negatively impacted by non-collection of rent from properties in our operating portfolio totaling $5.5 million.

While we have re-leased several properties that we regained possession of, the rent commencement on certain of these properties is contingent on the tenants obtaining the requisite approvals to operate.

We have also granted 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 such events have occurred.

Other Revenues.

Other revenues for the year ended December 31, 2023 consists of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

Other revenues for the year ended December 31, 2023 increased by approximately $175,000, or 9%, to approximately $2.2 million, compared to approximately $2.0 million for the year ended December 31, 2022.

The increase was primarily due to recognizing a full year of interest revenue in 2023 related to the two properties acquired in 2022 that did not satisfy the requirements for sale-leaseback accounting.

Other revenues for the years ended December 31, 2024 and 2023 consist of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

The decrease in other revenues for the year ended December 31, 2024 was primarily due to non-collection of $0.6 million in rent from one property, partially offset by the application of $0.2 million of security deposits.

Property Expenses .

Property expenses for the year ended December 31, 2023 increased by approximately $14.4 million, compared to 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 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.

Property expenses for the year ended December 31, 2024 increased by $3.6 million, or 14%, to $28.5 million, compared to $24.9 million for the year ended December 31, 2023.

The increase was primarily 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 regained 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 year ended December 31, 2023 increased by approximately $4.3 million, or 11%, to approximately $42.8 million, compared to approximately $38.5 million for the year ended December 31, 2022.

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

Compensation expense for the years ended December 31, 2023 and 2022 included approximately $19.6 million and $17.5 million, respectively, of non-cash stock-based compensation.

The increase in non-cash stock-based compensation expense was primarily due to additional grants of stock-based awards to existing and new employees.

Non-cash stock-

based compensation for the years ended December 31, 2023 and 2022 each included approximately $4.0 million relating to performance share units (“PSUs”) granted to certain employees in 2021 and approximately $6.7 million relating to the PSUs granted to certain employees in 2022.

As measured as of December 31, 2023, the performance thresholds for the vesting of the PSUs were not met for any of the applicable awards, and the PSUs granted in January 2021 were forfeited in their entirety pursuant to the terms of the agreements.

General and administrative expense for the year ended December 31, 2024 decreased by $5.4 million, or 13%, to $37.4 million, compared to $42.8 million for the year ended December 31, 2023.

The decrease in general and administrative expense was primarily due to lower tenant litigation-related expense incurred, which decreased by $1.8 million compared to 2023, and lower compensation to employees compared to the prior year.

The lower compensation was primarily due to the expiration of the performance share units (“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) resulting in a decrease of $4.0 million in PSU related stock-based compensation, which was partially offset by an increase to non-PSU related stock-based compensation for employees and directors.

Compensation expense for the year ended December 31, 2024 and 2023 included $17.3 million and $19.6 million, respectively, of non-cash stock-based compensation.

Depreciation and Amortization Expense.

Depreciation and amortization expense for the year ended December 31, 2023 increased by approximately $5.9 million, or 10%, to approximately $67.2 million, compared to approximately $61.3 million for the year ended December 31, 2022.

The approximately $5.9 million increase was related to depreciation and amortization on properties that we acquired and the placement into service of construction at certain of our properties, of which approximately $1.0 million was related to the two properties we acquired in 2023, approximately $1.7 million was related to nine properties we acquired in 2022, and the remaining increase related to properties acquired prior to 2022.

Interest and Other Income .

Interest and other income for the year ended December 31, 2023 increased by approximately $5.2 million to approximately $8.4 million, compared to the year ended December 31, 2022.

Approximately $4.2 million of the increase was due to higher interest rates on our interest-bearing cash and cash equivalents along with our short-term investments.

The remaining increase of approximately $1.0 million was related to interest received on our construction loan during the year ended December 31, 2023.

Depreciation and amortization expense for the year ended December 31, 2024 increased by $3.6 million, or 5%, to $70.8 million, compared to $67.2 million for the year ended December 31, 2023.

The increase in depreciation and amortization expense was primarily related to depreciation on the two properties we acquired in 2024 and the placement into service of construction and improvements at certain of our properties.

Loss on Sale of Real Estate.

Amount relates to the sale of one property in Los Angeles, California (see Note 6 “Investments in Real Estate” to our consolidated financial statements included in this report for more information).

Interest Income .

Interest income for the year ended December 31, 2024 increased by $2.6 million, or 30%, to $11.0 million, compared to $8.4 million for the year ended December 31, 2023.

The increase in interest income was primarily due to an additional $3.3 million of interest received on our construction loan, which was partially offset by a $0.7 million decrease to interest earned on our interest-bearing cash and cash equivalents and short-term investments.

Interest Expense .

Interest expense is primarily related to our Exchangeable Senior Notes issued in February 2019 and Notes due 2026 issued in May 2021.

For the year ended December 31, 2023, interest expense decreased by approximately $834,000, or 5%, to approximately $17.5 million, compared to $18.3 million for the year ended December 31, 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 $627,000 of interest during the year ended December 31, 2023.

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

The increase to interest expense was due to a $0.3 million increase of non-cash interest expense related to the Revolving Credit Facility, which was partially offset by a decrease in interest expense on our Exchangeable Senior Notes as a result of their maturity in February 2024.

The following summary discussion of our cash flows is based on the consolidated statements of cash flows in Item 8, “Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (in thousands):

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Operating Activities

Cash flows provided by operating activities for the years ended December 31, 2023 and 2022 were approximately $255.5 million and $234.1 million, respectively.

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

Cash flows provided by operating activities increased from 2022 to 2023 primarily due to leases for properties we acquired during these time periods, annual escalations of base rent on our leases, and amendments to existing leases to increase improvement allowances at those properties, which resulted in a corresponding increase in base rents, partially offset by rent payment defaults by certain tenants, higher cash compensation to employees and higher public company costs.

Cash flows provided by operating activities for the years ended December 31, 2024 and 2023 were $258.4 million and $255.5 million, respectively.

Cash flows provided by operating activities were generally from contractual rent and tenant reimbursements 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.

The increase in cash flows provided by operating activities from 2023 to 2024 was primarily due to the $3.9 million disposition-contingent lease termination fee that was received concurrently with the sale of our property in Los Angeles, California.

Investing Activities

Cash flows used in investing activities for the year ended December 31, 2023 included approximately $189.0 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by approximately $182.2 million of net maturities of short-term investments.

Cash flows used in investing activities for the year ended December 31, 2022 included approximately $545.9 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by approximately $126.2 million of net maturities of short-term investments and receipt of $23.5 million of proceeds from sale of one of our Pennsylvania properties previously leased to a subsidiary of Maitri Holdings, LLC.

Cash flows used in investing activities for the year ended December 31, 2024 included $82.6 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by $9.1 million in proceeds related to the sale of our Los Angeles, California property and $17.5 million of net maturities of short-term investments.

Cash flows used in investing activities for the year ended December 31, 2023 included $189.0 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by $182.2 million of net maturities of short-term investments.

The year-over-year decrease in purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments was due to smaller acquisitions and lower development activities as certain projects were completed during 2024.

Financing Activities

Cash flows used in financing activities for the year ended December 31, 2023 were approximately $195.6 million, primarily related to dividend payments of approximately $204.1 million to common and preferred stockholders, approximately $561,000 related to payment of deferred financing costs on the Revolving Credit Facility, and approximately $568,000 related to the net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees, partially offset by approximately $9.6 million in net proceeds from the issuance of our common stock.

Cash flows provided by financing activities for the year ended December 31, 2022 were approximately $164.2 million, primarily related to approximately $351.9 million in net proceeds from the issuance of our common stock, partially offset by dividend payments of approximately $185.3 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.

Cash flows used in financing activities for the year ended December 31, 2024 were $197.9 million, primarily related to dividend payments of $213.5 million to common and preferred stockholders, principal payment on the Exchangeable Senior Notes of $4.4 million, and $1.4 million related to the 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, partially offset by $11.8 million in net proceeds from the issuance of our common stock and $9.6 million in net proceeds from the issuance of our Series A Preferred Stock pursuant to our ATM program.

Cash flows used in financing activities for the year ended December 31, 2023 were $195.6 million, primarily related to dividend payments of $204.1 million to common and preferred stockholders and $1.1 million related to the 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, partially offset by $9.6 million in net proceeds from the issuance of our common stock.

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.

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 Notes due 2026 and meet other general business needs.

Sources and Uses of Cash

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This source of revenue represents our primary source of liquidity to fund our dividends, Notes due 2026 interest payments, repayments 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 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.

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 December 31, 2023, we owned 108 properties.

Of these properties, we include 103 properties in our operating portfolio, which were 95.8% leased, with a weighted-average remaining lease term of approximately 14.6 years.

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

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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 three retail properties in Michigan.

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

In February 2024, we regained possession of the remaining regulated cannabis cultivation and processing facility that was leased to Green Peak.

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.

See Part I, Item 3.

Legal Proceedings and Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak.

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.

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

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

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

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.

For the year ended December 31, 2023, property expenses included approximately $844,000 of non-reimbursed expenses related to operating properties that were not leased.

In May 2024, Temescal Wellness defaulted on its obligations to pay rent at one of our properties in Massachusetts and we regained possession of that property in September 2024.

In December 2024, PharmaCann defaulted on its obligations to pay rent for the month of December under six of its eleven leases for properties located in Illinois, Massachusetts, Michigan, New York, Ohio and Pennsylvania.

December rent, including base rent, property management fees and estimated tax and insurance payments, totaled $4.3 million for these six properties.

In January 2025, we entered into lease amendments with PharmaCann with respect to nine of its leases for properties located in New York, Illinois, Pennsylvania, Ohio, and Colorado.

Those amendments reduced cumulative total base rent from $2.8 million per month to $2.6 million per month, with cash rent payments commencing February 1, 2025, and provided for pro-rata replenishment of security deposits over thirty-six months commencing February 1, 2027.

We also entered into amendments with PharmaCann with respect to two of its leases for cultivation properties in Michigan and Massachusetts.

Those amendments provide that monthly base rent of $1.3 million for these two properties will be abated in full effective February 1, 2025 and, if the properties have not been transitioned to new tenant(s) by August 1, 2025, we will regain full control over the properties.

We applied security deposits held by us pursuant to all of the PharmaCann leases for the payment in full of all defaulted rent for December 2024 and January 2025 and certain penalties.

If PharmaCann is not able to refinance its existing senior secured credit facility maturing June 30, 2025, all modifications to our leases with PharmaCann described above will immediately be null and void and the leases will revert to the terms in effect as of January 1, 2025.

We directly pay for all property insurance and most property taxes, which are typically reimbursed to us by our tenants.

Some tenants have elected to pay property taxes directly.

From time to time, we incur non-reimbursed property-level operating costs when properties become vacant and are being re-marketed or re-positioned.

These costs vary

quarterly based on vacancy levels and underperforming properties.

Additionally, for properties that are not leased and are under development or redevelopment, we may invest significant capital to prepare them for their intended use and re-leasing.

For the year ended December 31, 2024, property expenses included $4.1 million in non-reimbursed costs related to vacant properties or non-payment.

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.

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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 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.

The Notes due 2026 are the Operating Partnership’s general unsecured obligations, 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 which matured in February 2024.

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 December 31, 2024.

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

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

During the year ended December 31, 2023, we issued 32,200 shares 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 the ATM Program up to $500.0 million in shares of our common stock.

During the year ended December 31, 2023, we sold 101,061 shares of our common stock under the ATM Program for net proceeds of approximately $9.6 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, debt securities of our Operating Partnership and other securities to the extent necessary or advisable to meet our liquidity needs.

We, or our affiliates, may at any time and from time to time, purchase our Notes due 2026 for cash through open market purchases, privately negotiated transactions, a tender offer or otherwise.

Such purchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

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 May 2024, we terminated the previously existing “at-the-market” offering program (the “Prior ATM 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”), including on a forward basis, shares of our common stock and 9.00% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”) , up to an aggregate offering price of $500.0 million .

During the year ended December 31, 2024, we sold 123,224 shares of our common stock pursuant to the Prior ATM Program for net proceeds of $11.8 million.

During the year ended December 31, 2024, we sold 402,673 shares of our Series A Preferred Stock pursuant to the ATM Program for net proceeds of $9.6 million.

We intend to file an automatic shelf registration statement, which may permit us, from time to time, to offer and sell common stock, preferred stock, warrants, debt securities of our Operating Partnership 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.

The Loan Agreement matures on October 23, 2026, and provides $30.0 million in aggregate commitments for the Revolving Credit Facility, which was increased to $45.0 million in aggregate commitments pursuant to an amendment to the Loan Agreement executed subsequent to year-end .

The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving loan commitments up to a specified amount.

The Loan Agreement matures on October 23, 2026, and was most recently amended in November 2024 to increase aggregate commitments for secured revolving loans to $87.5 million (the “Revolving Credit Facility”) .

The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving incremental loan commitments up to a specified amount.

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.

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See Note 7 “Debt” to our consolidated financial statements included in this report for more information.

Subsequent to year-end, we issued 28,408 shares of our common stock and paid approximately $4.3 million in cash upon exchange by holders of approximately $4.3 million principal amount of Exchangeable Senior Notes and paid off the remaining $100,000 principal amount at maturity, in accordance with the terms of the indenture for the Exchangeable Senior Notes.

In May 2024, we sold a property in Los Angeles, California for $9.1 million (excluding closing costs), received a disposition-contingent lease termination fee from the tenant concurrently 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 short-term and long-term liquidity needs through cash and short-term investments on hand, cash flows from operations and cash flows from sources discussed above.

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During 2024, we declared cash dividends on our common stock totaling $7.52 per share, and cash dividends on our Series A Preferred Stock totaling $2.25 per share.

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 make accretive new investments.

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.

Year Ended December 31,

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The common stock distribution with a record date of December 31, 2024 was a split-year distribution, with $0.83 allocable to 2024 for federal income tax purposes and $1.07 allocable to 2025 for federal income tax purposes.

The common stock distribution with a record date of December 30, 2022 was a split-year distribution, with $0.33 allocable to

2022 for federal income tax purposes and $1.47 allocable to 2023 for federal income tax purposes.

The common stock distribution with a record date of December 29, 2023 was a split-year distribution, with $0.83 allocable to 2023 for federal income tax purposes and $0.99 allocable to 2024 for federal income tax purposes.

The common stock distribution with a record date of December 30, 2022 was a split-year distribution, with $0.33 allocable to 2022 for federal income tax purposes and $1.47 allocable to 2023 for federal income tax purposes.

Contractual Obligations

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Notes due 2026

As of December 31, 2023, we had (1) approximately $18.7 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) approximately $11.8 million outstanding in commitments related to contracts with vendors for improvements at our properties, which are expected to be incurred by December 31, 2024;

As of December 31, 2024, we had (1) $37.1 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) $1.2 million outstanding in commitments related to contract with vendors for improvements at our properties;

and (3) $0.2 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.

There were no amounts outstanding under the Loan Agreement as of December 31, 2023.

There were no amounts outstanding under the Revolving Credit Facility as of December 31, 2024.

See Note 7 “Debt” to our consolidated financial statements included in this report for more information.

Supplemental Guarantor Information

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, which are listed on Exhibit 22.1 hereto and which we refer to collectively as “Subsidiary Guarantors.” Only the Notes due 2026 and the related guarantees are registered securities under the Securities Act.

See Note 7 “Debt” in the notes to our consolidated financial statements 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.

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 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 and Other Metrics

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

The Company also excludes the disposition-contingent lease termination fee relating to the sale of our property in Los Angeles, California.

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

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

We compute normalized funds from operations (“Normalized FFO”) by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and/or not related to our core real estate operations.

related to our core real estate operations.

Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Normalized FFO and Normalized FFO per share provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of other companies, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis.

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

For all periods presented FFO (diluted), Normalized FFO, 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.

The Exchangeable Senior Notes were anti-dilutive for purposes of calculating earnings per diluted share for all periods presented, and as such, were treated as anti-dilutive for purposes of calculating FFO, Normalized FFO, AFFO and FFO, Normalized FFO and AFFO per diluted share for such periods.

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

For the year ended December 31, 2021, 81,414 shares issuable upon vesting of the PSUs were dilutive, as the performance thresholds for vesting of these PSUs were met as measured as of December 31, 2021.

Other than for the three months ended December 31, 2024, September 30, 2024 and June 30, 2024, FFO (diluted), Normalized FFO, 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.

For the three months ended September 30 and June 30, 2024, 25,352 shares and 20,713 shares, respectively, issuable upon vesting of the PSUs were dilutive, as the performance thresholds for vesting of these PSUs were met as measured as of the respective periods.

No shares were issuable upon vesting of the PSUs for all other periods presented, as the performance thresholds for vesting of the PSUs were not met as measured as of the end of those respective periods.

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Real estate depreciation and amortization

Gain on sale of real estate

Loss (gain) on sale of real estate

Disposition-contingent lease termination fee, net of loss on sale of real estate (1)

FFO attributable to common stockholders (basic)

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Interest income on seller-financed note (2)

Deferred lease payments received on sales-type leases (3)

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 consolidated balance sheet as of December 31, 2023, as the transaction did not qualify for recognition as a completed sale.

(1) Amount reflects the $3.9 million disposition-contingent lease termination fee received concurrently with the sale of our property in Los Angeles, California, net of the loss on sale of real estate of $3.4 million (see Note 6 “Investments in Real Estate” to our consolidated financial statements included in this report for more information).

(2) 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 consolidated balance sheet as of December 31, 2024 and 2023, as the transaction did not qualify for recognition as a completed sale.

(3) 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 consolidated balance sheets as of December 31, 2024, as the transaction did not qualify for recognition as a completed sale (see Note 2 “Lease Accounting” to our 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 stockholder.

The tables below are reconciliations of quarterly net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the years ended December 31, 2024 and 2023 (in thousands, except share and per share amounts):

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Real estate depreciation and amortization

Disposition-contingent lease termination fee, net of loss on sale of real estate (2)

FFO attributable to common stockholders (basic)

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Litigation-related expense

Loss (gain) on exchange of Exchangeable Senior Notes

Normalized FFO attributable to common stockholders (diluted)

Interest income on seller-financed note (3)

Deferred lease payments received on sales-type leases (4)

Stock-based compensation

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Real estate depreciation and amortization

Gain on sale of real estate

FFO attributable to common stockholders (basic)

Cash and non-cash interest expense

Cash and non-cash interest expense on Exchangeable Senior Notes

FFO attributable to common stockholders (diluted)

Financing expense

Litigation-related expense

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Normalized FFO attributable to common stockholders (diluted)

Interest income on seller-financed note (3)

Stock-based compensation

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(1) The sum of quarterly financial data may vary from annual data due to rounding and differences in the dilutive effect of potentially issuable shares of each reporting period.

(2) 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 consolidated balance sheet as of December 31, 2023, as the transaction did not qualify for recognition as a completed sale.

(2) Amount reflects the $3.9 million disposition-contingent lease termination fee received concurrently with the sale of our property in Los Angeles, California, net of the loss on sale of real estate of $3.4 million (see Note 6 “Investments in Real Estate” to our consolidated financial statements included in this report for more information)

(3) 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 consolidated balance sheets as of December 31, 2024 and 2023, as the transaction did not qualify for recognition as a completed sale.

(4) 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 consolidated balance sheets as of December 31, 2024, as the transaction did not qualify for recognition as a completed sale (see Note 2 “Lease Accounting” to our consolidated financial statements included in this report for more information).

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.

insight into the information used by management when evaluating significant estimates and assumptions.

This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our 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 included in this report.

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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 classifications of two leases that were modified during the year ended December 31, 2023.

A decrease of 5% in the estimated unguaranteed residual value of our properties would result in a change to the lease classification of one lease that was modified during the year ended December 31, 2024.

Acquisition of Rental Property, Depreciation and Impairment

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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 years ended December 31, 2024, 2023 and 2022.

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 December 31, 2023.

Significant adverse changes in the critical accounting estimates and judgements used in the impairment evaluation would need to occur for the undiscounted cash flows over the holding period to be less than the carrying value for each operating property evaluated as of December 31, 2024.

Impact of Real Estate and Credit Markets

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Interest Rate Risk

As of December 31, 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 December 31, 2024, we had $300.0 million principal amount of Notes due 2026 outstanding at a fixed interest rate of 5.50%, 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.

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.

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 December 31, 2024, we had no outstanding borrowings on our Revolving Credit Facility.

Impact of Inflation

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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-K

Item 7. Management’s Discussion and Analysis