What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 168 added, 119 removed, 203 unchanged (59% of the section changed)

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New risks and uncertainties may arise over time and it is not possible for us to predict those events or how they may affect us.

Many of the risks identified have been and will continue to be heightened as a result of the ongoing numerous adverse effects arising from the novel coronavirus and instability in macroeconomic conditions.

We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

We are an internally managed real estate company that acquires, owns and manages a diversified portfolio of single-tenant, retail commercial real estate subject to long-term net leases with high credit quality tenants across the United States.

Our diversified portfolio consists of 361 single-tenant retail net leased properties spanning 42 states, with 71 different tenants represented across 23 retail sectors.

Our diversified portfolio consists of 381 single-tenant retail net leases spanning 42 states, with 75 different tenants represented across 24 retail sectors.

Our portfolio generates ABR (1) of $84.2 million and is 100% occupied, with a weighted average lease term (“WALT”) of 9.5 years and consisting of approximately 65% and 16% of investment grade tenants and investment grade profile tenants, respectively, by ABR, which we believe provides us with a strong, stable source of recurring cash flow.

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We believe these characteristics make our tenants' businesses e-commerce resistant and resilient through all economic cycles.

We continue to monitor the global outbreak of COVID-19 and to take steps to mitigate the potential risks to us posed by the pandemic.

We continue to monitor the global outbreak of COVID-19 and to take steps to mitigate the potential risks to us posed by the pandemic, including new variants of the virus.

In addition, we continue to stay in close contact with our tenants and monitor the timeliness of rental payments and any significant changes in our tenants' businesses.

See “Note 2 – Summary of Significant Accounting Policies” to our condensed consolidated financial statements included herein.

The Company’s operations and cash flows for the three months ended March 31, 2022 and 2021 were not materially impacted by COVID-19.

(1) ABR is calculated by multiplying (i) cash rental payments (a) for the month ended March 31, 2022 (or, if applicable, the next full month's cash rent contractually due in the case of rent abatements, rent deferrals, recently acquired properties and properties with contractual rent increases, other than properties under development) for leases in place as of March 31, 2022, plus (b) for properties under development, the first full month's estimated permanent cash rent contractually due after the development period by (ii) 12.

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The Company’s operations and cash flows for the three and six months ended June 30, 2022 and 2021 were not materially impacted by COVID-19.

(1) Annualized base rent, or ABR, is calculated by multiplying (i) cash rental payments (a) for the month ended June 30, 2022 (or, if applicable, the next full month's cash rent contractually due in the case of rent abatements, rent deferrals, recently acquired properties and properties with contractual rent increases, other than properties under development) for leases in place as of June 30, 2022, plus (b) for properties under development, the first full month's permanent cash rent contractually due after the development period by (ii) 12.

Financing Activities

On January 13, 2022, we completed a registered public offering of 10,350,000 shares of our common stock at a public offering price of $22.25 per share.

On January 13, 2022, we completed a registered public offering of 10,350,000 shares of common stock at a public offering price of $22.25 per share.

In connection with the offering, we entered into forward sale agreements for 10,350,000 shares of our common stock.

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We may also elect to cash settle or net share settle all or a portion of our obligations under a forward sale agreement if we conclude it is in our best interest to do so.

If we elect to cash settle a forward sale agreement, we may not receive any proceeds and we may owe cash to the relevant forward counterparty in certain circumstances.

If we elect to cash settle a forward sale agreement, we may not receive any proceeds and may owe cash to the relevant forward counterparty in certain circumstances.

On June 23, 2022, we settled 2,397,035 shares of common stock at a price of $22.25 per share in accordance with the forward sale agreements.

We received net proceeds from the offering of $50.0 million, net of underwriting discounts and offering costs of $3.3 million.

On March 30, 2022, we settled 3,440,962 shares of common stock at a price of $22.25 per share in connection with the forward sale agreements.

We received net proceeds from the offering of $72.0 million, net of underwriting discounts and offering costs of $4.6 million.

On September 1, 2021, we entered into a $250.0 million ATM Program through which, from time to time, we may sell shares of our common stock in registered transactions.

During the first quarter of 2022, we issued 163,774 shares of common stock at a weighted average price of $22.08 per share in connection with the ATM Program for net proceeds of approximately $3.5 million, net of sales commissions and offering costs of less than $0.1 million.

On September 1, 2021, we entered into a $250.0 million at-the-market equity program (the “ATM Program”) through which, from time to time, we may sell shares of our common stock in registered transactions.

During the first two quarters of 2022, we issued 163,774 shares of common stock at a weighted average price of $22.08 per share in connection with the ATM Program for net proceeds of approximately $3.5 million, net of sales commissions and offering costs of less than $0.1 million.

Results of Operations

The Company continued to grow its assets held for investment during the first quarter of 2022 by increasing its property portfolio from 328 properties as of December 31, 2021 to 363 properties as of the end of March 31, 2022.

This includes nine real estate development projects owned by the Company, one property under development with a non-binding option to purchase, and one property fully collateralized by an investment in loan receivable.

This growth was financed through the settlement of shares of common stock through our forward sale agreements in an amount of $72.0 million, the issuance of common stock under the ATM Program in an amount of $3.5 million, and net borrowings of $56.0 million on our Revolver during the three months ended March 31, 2022.

During the three months ended March 31, 2022, we acquired 34 properties for a total purchase price of $90.0 million, including $1.2 million of capitalized acquisition costs.

The Company continued to grow its assets held for investment during the first half of 2022 by increasing its property portfolio from 328 properties as of December 31, 2021 to 384 properties as of the end of June 30, 2022.

This includes six real estate development projects owned by the Company and two properties fully collateralized by an investment in mortgage loan receivables.

This growth was financed through the settlement of shares of common stock through our forward sale agreements in an amount of $122.0 million, the issuance of common stock under the ATM Program in an amount of $3.5 million, and net borrowings of $173.0 million on our Revolver during the six months ended June, 30, 2022.

During the three months ended June 30, 2022, we acquired 22 properties for a total purchase price of $117.3 million, including $0.7 million of capitalized acquisition costs.

The acquisitions were all accounted for as asset acquisitions.

These properties are located in 11 states with a WALT of approximately 10.9 years.

The underwritten weighted-average capitalization rate on first quarter acquisitions was approximately 6.3%.

During the three months ended March 31, 2022, we invested $5.0 million in our property developments, including the acquisition of one new build-to-suit project with an initial purchase price of $1.0 million.

During the three months ended March 31, 2022, we completed development on one project under development and reclassified approximately $4.7 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

The remaining nine developments are expected to be substantially completed with rent commencing at various points throughout 2022.

The purchase price, including acquisitions costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets of March 31, 2022.

During the three months ended March 31, 2022, we sold one property for a total sales price, net of disposal costs of $2.3 million, recognizing a net gain of $0.2 million on the sale.

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Investment in Mortgage Loan Receivable

The underwritten weighted-average capitalization rate on the Company’s second quarter acquisitions was approximately 6.7%.

During the six months ended June, 30, 2022, we acquired 56 properties for a total purchase price of $207.3 million million, including $1.9 million of capitalized acquisition costs.

The acquisitions were all accounted for as asset acquisitions.

These properties are located in 24 states with a WALT of approximately 9.8 years.

The underwritten weighted-average capitalization rate on the Company’s year-to-date acquisitions was approximately 6.5%.

During the three months ended June 30, 2022, we invested $4.6 million in our property developments and completed three developments projects, reclassifying approximately $9.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

During the six months ended June, 30, 2022, we invested $9.6 million in our property developments, including the acquisition of one new build-to-suit project with an initial purchase price of $1.0 million.

During the six months ended June, 30, 2022, we

completed development on four projects and reclassified approximately $14.7 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

The remaining six developments are expected to be substantially completed with rent commencing at various points throughout 2022.

The purchase price, including acquisitions costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets of June 30, 2022.

During the three months ended June 30, 2022, we sold two properties for a total sales price, net of disposal costs, of $9.9 million, recognizing a gain of $1.9 million on the sales.

During the six months ended June, 30, 2022, we sold three properties for a total sales price, net of disposal costs, of $12.2 million, recognizing a gain of $2.0 million on the sales.

Investment in Mortgage Loan Receivables

On January 26, 2022, we executed a fully collateralized $40.3 million loan receivable with a stated interest rate of 6.0%.

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The loan receivable is collateralized by real estate that is leased by three separate investment-grade tenants.

The funds provided under the loan, in addition to loan origination costs of $0.1 million, are included in loan receivable, net in the accompanying condensed consolidated balance sheets as of March 31, 2022.

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

The funds provided under the loan, in addition to loan origination costs of $0.1 million, are included in loan receivables, net in the accompanying condensed consolidated balance sheets as of June 30, 2022.

On June 30, 2022, we executed a fully collateralized $6.0 million loan receivable with a stated interest rate of 6.5%.

The scheduled maturity date is June 30, 2023, however the Company has the right, subject to certain terms and conditions, to purchase the underlying collateralized properties.

The loan receivable is collateralized by real estate that is leased by two separate tenants, one of which is an investment grade profile tenant.

The funds provided under the loan, in addition to loan origination costs of less than $0.1 million, are included in loan receivables, net in the accompanying condensed consolidated balance sheets as of June 30, 2022.

Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021

The following table sets forth our operating results for the periods indicated (in thousands):

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Rental revenue (including reimbursable) $ 22,048 $ 13,798

Interest income on mortgage loan receivable 411 —

Interest income on mortgage loan receivables 586 —

Total revenues 22,634 13,798

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Gain on sales of real estate, net 1,858 497

Other income 36 —

Total other income (expense), net 372 (397)

Net income before income tax expense 2,057 791

Net income (loss) before income taxes 2,103 (2,630)

Income tax expense (93) —

Net income $ 1,966 $ 741

Revenue for the three months ended March 31, 2022 increased by $9.4 million to $21.3 million from $11.9 million for the three months ended March 31, 2021.

This is primarily due to an increase in the real estate portfolio from 203 operating properties as of January 1, 2021 to 352 operating properties as of March 31, 2022.

The increase includes an increase in cash rental receipts of $6.7 million, combined with net increases of property expense reimbursements of $1.7 million, of which $0.9 million was related to tax reimbursements, an increase of $0.4 million in straight-line rental revenue, and an increase of $0.4 million related to interest income on the mortgage loan receivable.

Net income (loss) $ 2,010 $ (2,630)

Revenue for the three months ended June 30, 2022 increased by $8.8 million to $22.6 million from $13.8 million for the three months ended June 30, 2021.

This is primarily due to an increase in the real estate portfolio from 203 operating properties as of January 1, 2021 to 376 operating properties as of June 30, 2022.

The increase includes an increase in cash rental receipts of $6.9 million, combined with net increases of property expense reimbursements of $1.2 million, of which $0.6 million was related to tax reimbursements and $0.5 million was related to reimbursable maintenance expenses, and an increase of $0.6 million related to interest income on mortgage loan receivables.

Total Operating Expenses.

Total expenses increased by $8.1 million to $18.3 million for the three months ended March 31, 2022 as compared to $10.2 million for the three months ended March 31, 2021.

The increase in operating expenses is primarily attributed to the increase in the number of operating properties with the most significant increases being depreciation and amortization expense and property-specific expenses, in addition to an increase in stock-based compensation.

Total expenses increased by $4.9 million to $20.9 million for the three months ended June 30, 2022 as compared to $16.0 million for the three months ended June 30, 2021.

The increase in operating expenses is primarily attributed to the increase in the number of operating properties with the most significant increases being depreciation and amortization expense, property-specific reimbursable expenses, stock-based compensation, and other general and administrative expenses associated with our growth, offset by fewer provisions for impairment.

Total operating expenses include the following:

• Property Expenses.

Property expenses increased $1.9 million to $2.9 million for the three months ended March 31, 2022.

Property expenses increased $1.4 million to $2.7 million for the three months ended June 30, 2022 from $1.3 million for the three months ended June 30, 2021.

The increase is primarily attributed to the increase in the real estate portfolio from 203 to 376 operating properties.

The largest increases are from reimbursable property taxes of $0.6 million, reimbursable maintenance expense of $0.3 million, and non-reimbursable expenses of $0.3 million.

• General and Administrative Expenses.

General and administrative expenses increased $0.9 million to $4.9 million for the three months ended June 30, 2022 from $4.0 million for the three months ended June 30, 2021.

The increase is primarily due to an increase in stock-based compensation expense of $0.3 million, an increase of in payroll expenses of $0.2 million, and increases in professional and consulting expenses of $0.4 million.

• Depreciation and Amortization.

Depreciation and amortization expense increased $4.7 million to $11.8 million for the three months ended June 30, 2022 from $7.1 million for the three months ended June 30, 2021.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period primarily with associated increases in building depreciation expense of $2.0 million, in-place lease amortization expense of $1.6 million, building improvements depreciation expense of $0.8 million, and leasehold improvement depreciation expense of $0.2 million.

• Provision for Impairment.

For the three months ended June 30, 2022, we recorded a provision for impairment of $1.1 million on one property which was also sold during the period.

For the three months ended June 30, 2021, we recorded a provision for impairment of $3.5 million on two properties which were classified as held-for-sale as of June 30, 2021 and subsequently sold.

These impairments and subsequent disposals relate to our plan of strategically identifying properties that can be re-leased or disposed of in an effort to improve returns and manage risk exposure.

• Transaction costs.

Transaction costs increased by $0.3 million to $0.5 million for the three months ended June 30, 2022 from $0.2 million for the three months ended June 30, 2021 which primarily relate to costs incurred for abandoned acquisitions.

Interest Expense.

Interest expense increased by $0.6 million to $1.5 million for the three months ended June 30, 2022 from $0.9 million for the three months ended June 30, 2021.

An increase of $0.8 million is primarily due to the increase in the average balances outstanding under the Revolver (as defined in “Note 6 – Debt” to our condensed consolidated financial statements), offset by a $0.1 million decrease in facilities fees incurred for unused capacity, further offset by an increase in capitalized interest on our property developments.

Gain on sales of real estate, net.

Net gain on sales of real estate increased by $1.4 million to $1.9 million for the three months ended June 30, 2022 from $0.5 million for the three months ended June 30, 2021.

The table below summarizes the properties sold for the periods indicated (dollars in thousands):

Three Months Ended

Number of properties sold 2 5

Sales price, net of disposal costs $ 9,884 $ 12,319

Gain on sales of real estate, net $ 1,858 $ 497

Net income (loss).

Net income (loss) increased $4.6 million to $2.0 million for the three months ended June 30, 2022 from a net loss of $2.6 million for the three months ended June 30, 2021.

Net income (loss) increased primarily due to the growth in the size of our real estate investment portfolio, which generated additional rental revenues, including interest income associated with our mortgage loan receivables, in addition to decreases in provisions for impairment, and an increase associated with net gains on the sale of real estate, offset by the impact of increases in depreciation and amortization expenses, increases in interest expense, and to increases in general and administrative expenses, as set forth above.

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

The following table sets forth our operating results for the periods indicated (in thousands):

Six Months Ended

Rental revenue (including reimbursable) $ 42,970 $ 25,730

Interest income on mortgage loan receivables 997 —

Total revenues 43,967 25,730

Operating expenses

Property 5,617 2,265

General and administrative 9,057 7,127

Depreciation and amortization 22,730 13,004

Provisions for impairment 1,114 3,539

Transaction costs 653 332

Total operating expenses 39,171 26,267

Other income (expense)

Interest expense, net (2,691) (1,799)

Gain on sales of real estate, net 2,019 497

Other income 36 —

Total other income (expense), net (636) (1,302)

Net income (loss) before income taxes 4,160 (1,839)

Income tax expense (184) (50)

Net income (loss) 3,976 (1,889)

Revenue for the six months ended June 30, 2022 increased by $18.3 million to $44.0 million from $25.7 million for the six months ended June 30, 2021.

This is primarily due to an increase in the real estate portfolio from 203 operating properties as of January 1, 2021 to 376 operating properties as of June 30, 2022.

The increase includes an increase in cash rental receipts of $13.6 million, combined net increases of property expense reimbursements of $3.0 million, of which $1.4 million was related to tax reimbursements and $1.4 million was related to reimbursable maintenance expenses, an increase of $1.0 million related to interest income on mortgage loan receivables, and an increase of $0.7 million was related to straight-line rental revenue.

Total Operating Expenses.

Total expenses increased by $12.9 million to $39.2 million for the six months ended June 30, 2022 as compared to $26.3 million for the six months ended June 30, 2021.

The increase in operating expenses is primarily attributed to the increase in the number of operating properties with the most significant increases being depreciation and amortization expense, property-specific reimbursable expenses, stock-based compensation, and other general and administrative expenses associated with our growth, offset by fewer provisions for impairment.

Total operating expenses include the following:

• Property Expenses.

Property expenses increased $3.3 million to $5.6 million for the six months ended June 30, 2022 from $2.3 million for the six months ended June 30, 2021.

The increase is primarily attributed to the increase in the real estate portfolio from 203 to 376 operating properties.

The largest increases are from reimbursable property taxes of $1.4 million and reimbursable maintenance expense of $1.0 million.

Remaining net increases are from non-reimbursable expenses of $0.2 million.

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• General and Administrative Expenses.

General and administrative expenses increased $1.1 million to $4.2 million for the three months ended March 31, 2022.

The increase is primarily due to an increase in stock-based compensation expense of $0.5 million and due to increases in payroll and payroll-related expenses of $0.2 million associated with the Company’s continued growth.

General and administrative expenses increased $2.0 million to $9.1 million for the six months ended June 30, 2022 from $7.1 million for the six months ended June 30, 2021.

The increase is primarily due to an increase in stock-based compensation expense of $0.7 million, an increase of in payroll expenses of $0.2 million, increases in professional and consulting expenses of $0.5 million, and additional combined net increases in other general expenses of $0.6 million.

• Depreciation and Amortization.

Depreciation and amortization expense increased $5.1 million to $11.0 million for the three months ended March 31, 2022.

Depreciation and amortization expense increased $9.7 million to $22.7 million for the six months ended June 30, 2022 from $13.0 million for the six months ended June 30, 2021.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period primarily with associated increases in building depreciation expense of $4.1 million, in-place lease amortization expense of $3.4 million, building improvements depreciation expense of $1.7 million, and leasehold improvement depreciation expense of $0.3 million.

• Provision for Impairment.

For the three months ended March 31, 2022, no provision for impairment was recorded, however, we recorded a provision for impairment of approximately $0.1 million for the three months ended March 31, 2021 on one property which was classified as held-for-sale as of December 31, 2020 and sold in April 2021.

This impairment and subsequent disposal relate to our plan of strategically identifying properties that can be re-leased or disposed of in an effort to improve returns and manage risk exposure.

For the six months ended June 30, 2022, we recorded a provision for impairment of $1.1 million on one property which was also sold during the period.

For the six months ended June 30, 2021, we recorded a provision for impairment of $3.5 million on three properties, two of which were classified as held-for-sale as of June 30, 2021 and subsequently sold.

These impairments and subsequent disposals relate to our plan of strategically identifying properties that can be re-leased or disposed of in an effort to improve returns and manage risk exposure.

• Transaction costs.

Transaction costs increased by $0.4 million to $0.7 million for the six months ended June 30, 2022 from $0.3 million for the six months ended June 30, 2021 which primarily relate to costs incurred for abandoned acquisitions.

Interest Expense.

Interest expense increased by $0.3 million to $1.2 million for the three months ended March 31, 2022.

The increase is primarily due to the increase in the average balances outstanding under the Revolver (as defined in “Note 6 - Debt” to our condensed consolidated statements of operations and comprehensive income), offset by decreases in facilities fees incurred for unused capacity and interest expense associated with the interest rate swap.

Interest expense increased by $0.9 million to $2.7 million for the six months ended June 30, 2022 from $1.8 million for the six months ended June 30, 2021.

An increase of $1.2 million is primarily due to the increase in the average balances outstanding under the Revolver (as defined in “Note 6 – Debt” to our condensed consolidated financial statements), offset by a $0.2 million decrease in facilities fees incurred for unused capacity, further offset by an increase of $0.1 million in capitalized interest on our property developments.

Gain on sales of real estate, net.

For the three months ended March 31, 2022, we recorded a net gain on the sales of real estate of $0.2 million.

No disposals occurred during the three months ended March 31, 2021.

Net gain on sales of real estate increased by $1.5 million to $2.0 million for the six months ended June 30, 2022 from $0.5 million for the six months ended June 30, 2021.

The table below summarizes the properties sold for the periods indicated (in thousands):

Three Months Ended

Six Months Ended

Number of properties sold 3 5

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Gain on sales of real estate, net $ 2,019 $ 497

Net income increased $1.3 million to $2.0 million for the three months ended March 31, 2022.

Net income increased primarily due to the growth in the size of our real estate investment portfolio, which generated additional rental revenues, offset by the impact of increases in depreciation and amortization expenses and to increases in general and administrative expenses, as set forth above.

Net income (loss).

Net income (loss) increased $5.9 million to $4.0 million for the six months ended June 30, 2022 from a net loss of $1.9 million for the six months ended June 30, 2021.

Liquidity and Capital Resources

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Our capital resources primarily consist of cash from operations, sales of equity securities and borrowings under our senior credit facility.

As of March 31, 2022, we had a $175.0 million senior secured term loan (“Term Loan”) and $120.0 million of borrowings outstanding under our $250.0 million senior secured revolving credit facility (“Revolver”, and collectively with the Term Loan, the “Credit Facility”).

Additionally, as of March 31, 2022, we had 6,909,038 shares that were unsettled under open forward equity contracts.

We believe that the availability of proceeds from future issuances of shares of our common stock under the ATM Program and the physical settlement of forward sales of our common stock, coupled with our cash flows from operations and available borrowing capacity, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital for at least the next 12 months.

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As of June 30, 2022, we had a $175.0 million senior secured term loan (“Term Loan”) and $237.0 million of borrowings outstanding under our $250.0 million senior secured revolving credit facility (“Revolver”, and collectively with the Term Loan, the “Credit Facility”).

Additionally, as of June 30, 2022, we had 4,512,003 shares that were unsettled under open forward equity contracts.

ongoing operations and to fund our debt service requirements, capital expenditures and working capital for at least the next 12 months.

We anticipate funding our long-term capital needs through cash provided from operations, borrowings under our Revolver, and issuances of common stock.

Contractual Obligations and Commitments

As of March 31, 2022, our contractual obligations include the maturity of our $175.0 million Term Loan with the scheduled principal payment due on December 23, 2024 and repayment of borrowings on our $250.0 million Revolver with a maturity of December 23, 2023.

During the three months ended March 31, 2022, we borrowed $128.0 million and repaid $72.0 million on our Revolver at a weighted-average interest rate of 1.39% to fund specifically identified property acquisitions.

The following table provides information with respect to our commitments as of March 31, 2022 (in thousands):

As of June 30, 2022, our contractual obligations include the maturity of our $175.0 million Term Loan with the scheduled principal payment due on December 23, 2024 and repayment of borrowings on our $250.0 million Revolver with a maturity of December 23, 2023.

During the six months ended June, 30, 2022, we borrowed $245.0 million and repaid $72.0 million on our Revolver at a weighted-average interest rate of 1.78% to fund specifically identified property acquisitions.

The following table provides information with respect to our commitments as of June 30, 2022 (in thousands):

Payment Due by Period

Total From April 1, 2022 to December 31, 2022 1 – 3 Years 3 – 5 Years

Total From July 1, 2022 to December 31, 2022 1 – 3 Years 3 – 5 Years

Contractual Obligations

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Unutilized borrowing fees on Revolver (2)

562 244 318 —

Property development under contract 19,054 19,054 — —

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(1) Effective September 28, 2020, we entered into an interest rate hedge to fix the base interest rate (one-month LIBOR) on our Term Loan.

Accordingly, the projected interest rate obligations for the variable rate Term Loan are based on the hedged fixed rate of 0.21% compared to the variable Term Loan one-month LIBOR rate as of March 31, 2022 of 0.23%, plus a margin of 1.15% based on the $175.0 million Term Loan outstanding through the maturity date of December 23, 2024.

Accordingly, the projected interest rate obligations for the variable rate Term Loan are based on the hedged fixed rate of 0.21% compared to the variable Term Loan one-month LIBOR rate as of June 30, 2022 of 1.06%, plus a margin of 1.15% based on the $175.0 million Term Loan outstanding through the maturity date of December 23, 2024.

(2) We are subject to a variable unutilized borrowing fee on the unused portion of our $250.0 million Revolver.

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The Company began operating out of the new office in February 2022.

The lease has an initial noncancellable term of 10.3 years that expires on July 31, 2032, with a one-time option to terminate in 2029 exercisable by the Company.

The lease is also renewable at the Company’s option for two additional periods of five years.

Future minimum base rental payments under the lease are outlined in “Note - 3 - Leases”.

Annual rent expense, excluding operating expenses, is expected to be approximately $0.5 million during the initial term.

The lease has an initial noncancellable term of 10.3 years that expires on July 31, 2032 and is renewable at the Company’s option for two additional periods of five years.

Future minimum base rental payments under the lease are outlined in “Note 3 – Leases.” Annual rent expense, excluding operating expenses, is approximately $0.5 million during the initial term.

Additionally, in the normal course of business, the Company enters into various types of commitments to purchase real estate properties or fund development projects.

These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated or receives an option to purchase the properties.

As of March 31, 2022, the Company had commitments to fund properties under development totaling $20.9 million, all of which is expected to be funded over the next 12 months.

As of June 30, 2022, the Company had commitments to fund properties under development totaling $19.1 million, all of which is expected to be funded over the next six months.

Credit Facility

In December 2019, the Company entered into the Credit Facility which consisted of (i) the $175.0 million Term Loan and (ii) the $250.0 million Revolver.

Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is the administrative agent under the Credit Facility (the “Administrative Agent”).

In December 2019, the Company entered into a senior credit facility consisting of (i) the $175.0 million Term Loan and (ii) the $250.0 million Revolver.

Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is administrative agent under the Credit Facility (the “Administrative Agent”).

The Term Loan matures on December 23, 2024 and the Revolver matures on December 23, 2023, subject to extension up to one year.

The Credit Facility, effective during the fourth quarter of 2020, is unsecured as the Administrative Agent released the collateral in connection with the Company’s satisfaction of the collateral release requirements.

Therefore interest rates under the Credit Facility are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of the Term Loan either (i) LIBOR, plus a margin ranging from 1.15% to 1.60%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.15% to 0.60%, based on the Company’s

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consolidated total leverage ratio and (B) in the case of the Revolver either (i) LIBOR, plus a margin ranging from 1.20% to 1.80%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.20% to 0.80%, based on the Company’s consolidated total leverage ratio.

Therefore interest rates under the Credit Facility are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of Term Loan either (i) LIBOR, plus a margin ranging from 1.15% to 1.60%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.15% to 0.60%, based on the Company’s consolidated total leverage ratio and (B) in the case of Revolving Loans either (i) LIBOR, plus a margin ranging from 1.20% to 1.80%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.20% to 0.80%, based on the Company’s consolidated total leverage ratio.

Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings.

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Historical Cash Flow Information

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Three Months Ended

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

Six Months Ended

(In thousands) (Unaudited)

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Cash Flows Provided By Operating Activities.

Net cash provided by operating activities increased by $4.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Net cash provided by operating activities increased by $8.5 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The increase was largely attributed to the increase in the size of the Company’s real estate investment portfolio with an increase in rental receipts of $13.6 million, offset primarily by increases in operating and general and administrative expenses paid associated with our larger portfolio.

Cash Flows Used In Investing Activities.

Net cash used in investing activities increased by $43.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The increase was primarily due to acquisitions, including an investment in a mortgage loan receivable of $40.4 million.

The remaining increase is related primarily to acquisition and development activity, which increased $4.9 million compared to the prior period, offset by $2.3 million more of proceeds received from the sale of assets.

Net cash used in investing activities increased by $91.1 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The increase is primarily due to acquisitions, including investments in mortgage loan receivables of $46.5 million and increases in earnest money deposits of $40.0 million.

The remaining increase is related primarily to real estate development and improvements, which increased $2.4 million compared to the prior period.

Cash Flows Provided By Financing Activities.

Net cash provided by financing activities increased by $115.0 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The increase was primarily attributed to issuances of common stock in connection with our ATM Program and physical settlement of our common stock under the forward sale agreements, for combined net proceeds of $75.5 million.

Additionally, we paid $3.0 million more of dividends and distributions during the three months ended March 31, 2022.

Lastly, we net borrowed $43.0 million more under the Revolver during the three months ended March 31, 2022 than the prior period.

Net cash provided by financing activities increased by $99.4 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The increase was primarily attributed to the increase in net borrowings of $173.0 million under our Revolver during the six months ended June 30, 2022, offset by $68.7 million of fewer proceeds received in 2022 in connection with our ATM Program and physical settlement of our common stock under the forward sale agreements, than from our April 2021 public offering.

Lastly, the increase is further offset by $4.6 million of additional dividends and distributions paid during 2022 than the prior period.

The Company elected to be treated and qualify as a REIT for U.S.

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In general, our TRS may perform services for tenants of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate-related business.

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During three months ended March 31, 2022 and 2021, the Company recognized franchise and other state and local tax expenses in general and administrative expense and recognized state and federal income tax expense in income tax expense in the accompanying condensed consolidated statements of operations and comprehensive income.

During the three and six months ended June 30, 2022, the Company recognized franchise and other state and local tax expenses which are included in general and administrative and recognized state and federal income tax expense which is included in income tax expense in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

Recent Accounting Pronouncements

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There have been no material changes to these policies during the periods covered by this quarterly report.

Purchase Price Allocation of Acquired Properties

We evaluate each acquisition transaction to determine whether the acquired asset meets the definition of a business and therefore accounted for as a business combination or if the acquisition transaction should be accounted for as an asset acquisition.

Under Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805):

Clarifying the Definition of a Business” (“ASU 2017-01”), an acquisition does not qualify as a business when substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Transaction costs related to acquisitions that qualify as asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred.

We allocate the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values.

Tangible assets may include land, buildings, site improvements and tenant improvements.

Intangible assets include the value of in-place leases and above-market leases and intangible liabilities include below-market leases.

The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets.

The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant’s lease.

We estimate the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses.

The fair value of above-market or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases.

In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including real estate valuations prepared by an independent valuation firm.

We also consider information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real

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e.g., location, size, demographics, value and comparative rental rates;

tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business.

Additionally, we consider information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired.

Impairment of Long-Lived Assets

Fair value measurement of an asset group occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset group is no longer recoverable.

An example of an event or changed circumstance is a reduction in the expected holding period of a property.

If indicators are present, we will prepare a projection of the undiscounted future cash flows of the property, excluding interest charges, and determine if the carrying amount of the asset group is recoverable.

When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair market value.

We estimate fair value using data such as operating income, estimated capitalization rates or multiples, leasing prospects, local market information, and with regard to assets held for sale, based on the estimated or negotiated selling price, less estimated costs of disposal.

Non-GAAP Financial Measures

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FFO, Core FFO and AFFO do not measure whether cash flow is sufficient to fund our cash needs, including principal amortization, capital improvements and distributions to stockholders.

FFO, Core FFO and AFFO do not represent cash flows

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from operating, investing or financing activities as defined by GAAP.

FFO, Core FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP.

Further, FFO, Core FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO, Core FFO and AFFO.

The following table sets forth a reconciliation of FFO, Core FFO and AFFO for the periods presented to net income before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands):

Three Months Ended March 31,

Net income $ 1,966 $ 741

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(Unaudited) (Unaudited)

Net income (loss) $ 2,010 $ (2,630) $ 3,976 $ (1,889)

Depreciation and amortization of real estate 11,598 6,997 22,460 12,849

Provision for impairment — 69

Gain on sales of real estate, net (161) —

Provisions for impairment 1,114 3,469 1,114 3,539

Gain on sale of real estate, net (1,858) (497) (2,019) (497)

FFO 12,864 7,339 25,531 14,002

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AFFO $ 13,738 $ 8,066 $ 26,877 $ 15,012

EBITDA, EBITDAre and Adjusted EBITDAre

EBITDA, EBITDA re and Adjusted EBITDA re

We compute EBITDA as earnings before interest expense, income tax expense, and depreciation and amortization.

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NAREIT defines EBITDA re as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and impairment charges on depreciable real property.

Adjusted EBITDA re is a non-GAAP financial measure defined as EBITDA re further adjusted to exclude straight-line rent and non-cash compensation expense.

Adjusted EBITDA re is a non-GAAP financial measure defined as EBITDA re further adjusted to exclude straight-line rent, non-cash compensation expense, and gain on insurance proceeds.

We present EBITDA, EBITDA re and Adjusted EBITDA re as they are measures commonly used in our industry.

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The following table sets forth a reconciliation of EBITDA, EBITDA re and Adjusted EBITDA re for the periods presented to net income before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands):

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Three Months Ended March 31,

Net income $ 1,966 $ 741

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(Unaudited) (Unaudited)

Net income (loss) $ 2,010 $ (2,630) $ 3,976 $ (1,889)

Depreciation and amortization of real estate 11,598 6,997 22,460 12,849

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Provision for impairments 1,114 3,469 1,114 3,539

Gain on sales of real estate, net (161) —

Gain on sale of real estate, net (1,858) (497) (2,019) (497)

14,479 8,077 28,376 15,582

Straight-line rent adjustments (346) (222) (872) (463)

Gain on insurance proceeds (36) — (36) —

Non-cash compensation expense 1,298 1,041 2,343 1,598

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You should not consider our NOI and Cash NOI as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

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The following table sets forth a reconciliation of NOI and Cash NOI for the periods presented (in thousands):

Three Months Ended March 31,

Net income $ 1,966 $ 741

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(Unaudited) (Unaudited)

Net income (loss) $ 2,010 $ (2,630) $ 3,976 $ (1,889)

General and administrative 4,865 3,991 9,057 7,127

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Income tax expense 93 — 184 50

Interest income on mortgage loan receivable (411) —

Interest income on mortgage loan receivables (586) — (997) —

Other income (36) — (36) —

NOI 19,363 12,483 37,353 23,465

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis