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Item 2. Management’s Discussion and Analysis

2024-04-29 compared with 2023-10-25 · 172 added, 243 removed, 205 unchanged (67% 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.

Business Overview

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.

We also invest in property developments and mortgage loans secured by real estate.

As of September 30, 2023, we owned or had investments in 547 single-tenant retail net leased properties that were diversified by tenant, industry and geography, including 85 different tenants, across 26 retail sectors in 45 states.

We are an internally managed real estate company that acquires, owns, invests in 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.

As of March 31, 2024, we owned or had investments in 628 single-tenant retail net leased properties that were diversified by tenant, industry and geography, including 88 different tenants, across 26 retail sectors in 45 states.

This excludes 16 property developments where rent has yet to commence.

We focus on tenants in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including home improvement, auto parts, drug stores and pharmacies, general retail, grocers, convenience stores, discount stores, and quick-service restaurants, all of which we refer to as defensive retail industries.

As of September 30, 2023, our investments generated ABR 1 of $124.3 million.

As of March 31, 2024, our investments generated ABR 1 of $140.3 million.

Approximately 71% of our ABR is from investment grade 2 credit rated tenants and an additional 13% of our ABR is derived from tenants with an investment grade profile 3 .

Exclusive of mortgage loans receivable, our portfolio was 100% occupied with a weighted average remaining lease term (“WALT”) of 9.2 years, which we believe provides us with a strong stable source of recurring cash flow from our portfolio.

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.

We have issued or committed to issue shares of common stock in connection with the ATM Program for the periods presented as follows:

• On September 14, 2023, we entered into a forward confirmation with respect to 7,500,000 shares of our common stock under the ATM Program.

On September 28, 2023, we partially physically settled 1,516,289 shares of common stock at a price of $16.49 per share under such forward confirmation for net proceeds of approximately $24.8 million, net of sales commissions and offering costs of $0.2 million.

We contributed the net proceeds to the Operating Partnership in exchange for 1,516,289 Class A OP Units.

5,983,711 shares remain unsettled under the forward confirmation as of September 30, 2023.

• In September 2023, we issued 46,228 shares of common stock at a weighted average price of $17.09 per share for net proceeds of approximately $0.8 million, net of sales commissions and offering costs of less than $0.1 million.

• In August 2023, we issued 109,725 shares of common stock at a weighted average price of $17.18 per share for net proceeds of approximately $1.8 million, net of sales commissions and offering costs of $0.1 million.

As of September 30, 2023, we have $99.6 million remaining gross proceeds available for future issuances of shares of common stock under the ATM Program, inclusive of 5,983,711 shares remaining unsettled under the outstanding forward confirmation.

January Follow-On Offering

In January 2024, we completed a registered public offering of 11,040,000 shares of our common stock at a public offering price of $18.00 per share.

In connection with the offering, we entered into forward sale agreements for 11,040,000 shares of our common stock.

We did not initially receive any proceeds from the sale of shares of common stock by the forward purchasers.

We expect to physically settle the forward sale agreements (by delivery of shares of common stock) and receive proceeds from the sale of those shares upon one or more forward settlement dates, which shall occur no later than January 9, 2025.

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 counterparty in certain circumstances.

No physical settlement has occurred under the January 2024 forward sale agreements through March 31, 2024.

2023 ATM Program

On October 25, 2023, we entered into a $300.0 million at-the-market equity program (the “2023 ATM Program”) through which, from time to time, we may sell shares of our common stock in registered transactions.

On March 28, 2024, we entered into a forward sale agreement for 107,500 shares of our common stock under the 2023 ATM Program at a public offering price of $18.29 per share.

As of March 31, 2024, we had $222.7 million in remaining gross proceeds available for future issuances of shares of our common stock under the 2023 ATM Program, inclusive of unsettled shares under forward confirmation.

2029 Term Loan

On July 3, 2023, we entered into an agreement (“2029 Term Loan Agreement”) related to a $250.0 million sustainability-linked senior unsecured term loan (the “2029 Term Loan”) which may, subject to the terms of the 2029 Term Loan Agreement, be increased to an amount of up to $400.0 million at our request.

The 2029 Term Loan contains a 12-month delayed draw feature and $150.0 million was drawn on July 3, 2023.

The 2029 Term Loan is prepayable at our option in whole or in part without premium or penalty.

The 2029 Term Loan matures on July 3, 2026, subject to extension options at our election on two occasions, by one year and, on one occasion, by six months (subject to certain conditions).

1 Annualized base rent (“ABR”) is annualized base rent as of September 30, 2023, for all leases that commenced, and annualized cash interest on mortgage loans receivable in place as of that date.

On July 3, 2023, we entered into an agreement (the “2029 Term Loan Agreement”) related to a $250.0 million sustainability-linked senior unsecured term loan (the “2029 Term Loan”) which may, subject to the terms of the 2029 Term Loan Agreement, be increased to an amount of up to $400.0 million at our request.

We drew an additional $100.0 million under the 2029 Term Loan on March 1, 2024.

We have hedged the entire $250.0 million of the 2029 Term Loan at an all-in fixed interest rate of 4.99%, through January 2029, which consists of the fixed rate SOFR swap of 3.74%, plus a credit spread adjustment of 0.10% and, at current leverage levels, a borrowing spread of 1.15%.

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

See further discussion of our debt, interest rate, and interest rate hedges included in “Note 6 - Debt” in “Item 1 - Financial Statements (unaudited).”

( 1 ) Annualized base rent (“ABR”) is annualized base rent as of March 31, 2024, for all leases that commenced, and annualized cash interest on mortgage loans receivable in place as of that date.

(2) We define “investment grade” tenants as tenants, or tenants that are subsidiaries of a parent entity, with a credit rating of BBB- (S&P/Fitch), Baa3 (Moody's) or NAIC2 (National Association of Insurance Commissioners) or higher.

(3) We define “investment grade profile” tenants as tenants with metrics of more than $1.0 billion in annual sales and a debt to adjusted EBITDA ratio of less than 2.0x but do not carry a published rating from S&P, Moody’s or NAIC.

We hedged the entire $250.0 million of the 2029 Term Loan at an all-in fixed interest rate of 4.99%, through January 2029, which consists of the fixed rate SOFR swap of 3.74%, plus a credit spread adjustment of 0.10% and, at current leverage levels, a borrowing spread of 1.15%.

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

See further discussion of our debt, interest rate, and interest rate hedges included in “Note 6 - Debt.”

Results of Operations

We continued to grow our assets during the nine months ended September 30, 2023 through the acquisition of properties, property developments, and investment in mortgage loans receivable.

This growth was financed through the settlement of shares of common stock through our forward sale agreements in an amount of $141.1 million, the issuance of common stock under the ATM Program in an amount of $53.7 million, the execution of the 2029 Term Loan Agreement and receipt of proceeds of $150.0 million under the 2029 Term Loan, net borrowings on our $400.0 million senior unsecured revolving credit facility (the “Revolver”), and cash flows from operations during nine months ended September 30, 2023.

During the three months ended September 30, 2023, we acquired 21 properties for a total purchase price of $95.3 million, inclusive of $0.8 million of capitalized acquisition costs.

The acquisitions were all accounted for as asset acquisitions.

These properties are located in 10 states with a WALT of approximately 10.0 years.

The underwritten weighted-average capitalization rate on our third quarter acquisitions was approximately 7.0%.

During the nine months ended September 30, 2023, we acquired 69 properties for a total purchase price of $259.2 million, inclusive of $2.4 million of capitalized acquisition costs.

We continued to grow our assets during the first quarter of 2024 through the acquisition of properties, property developments, and investment in mortgage loans receivable.

This growth was financed through a $100.0 million draw on our 2029 Term Loan, the usage of existing cash balances as a result of borrowings on our Revolver, the usage of existing restricted cash balances as a result of tax-free exchanges under Section 1031 of the Internal Revenue Code of 1986, and cash flows from operations during the three months ended March 31, 2024.

During the three months ended March 31, 2024, we acquired 28 properties for a total purchase price of $95.2 million, inclusive of $1.2 million of capitalized acquisition costs.

The acquisitions were all accounted for as asset acquisitions.

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The underwritten weighted-average capitalization rate on our year to date acquisitions was approximately 7.3%.

As of September 30, 2023, we had 27 property developments under construction.

During the three months ended September 30, 2023, we invested $33.2 million in property developments, including the land acquisition of 14 new developments with a combined initial purchase price of $9.6 million.

During the nine months ended September 30, 2023, we invested $55.5 million in property developments, including the land acquisition of 34 new developments with a combined initial purchase price of $21.6 million.

During the nine months ended September 30, 2023, we completed development on 12 projects and reclassified approximately $38.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

Rent commenced for seven of the 12 completed developments during the nine months ended September 30, 2023, while rent is expected to commence for the other five completed developments in the fourth quarter of 2023.

The remaining 27 developments in progress are expected to be substantially completed with rent commencing at various points throughout the next twelve months.

The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of September 30, 2023.

During the three months ended September 30, 2023, we sold four properties for a total sales price, net of disposal costs of $7.2 million, recognizing a gain of $0.4 million.

During the nine months ended September 30, 2023, we sold fourteen properties for a total sales price, net of disposal costs of $26.5 million, recognizing a gain of $0.7 million.

As of March 31, 2024, we had 13 property developments under construction.

During the three months ended March 31, 2024, we invested $11.0 million in property developments, including the land acquisition of two new developments with a combined initial purchase price of $0.8 million.

During the three months ended March 31, 2024, we completed development on seven projects and reclassified approximately $18.4 million from property under development to land, buildings and improvements, and other assets (leasing commissions) in the accompanying condensed consolidated balance sheets.

Rent commenced for four of the seven completed developments in the first quarter of 2024, while rent is expected to commence for the other three completed developments in the second quarter of 2024.

The remaining 13 developments are expected to be substantially completed with rent commencing at various points throughout 2024.

The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of March 31, 2024.

During the three months ended March 31, 2024, we sold 12 properties for a total sales price, net of disposal costs, of $20.5 million, recognizing a net loss of $1.0 million.

Investment in Mortgage Loans Receivable

During the three months ended September 30, 2023, we invested $7.2 million in fully collateralized mortgage loans receivable with stated interest rates ranging from 7.00% to 8.50%.

During the nine months ended September 30, 2023, we invested $68.8 million in fully collateralized mortgage loans receivable with stated interest rates ranging from 6.89% to 9.55%.

The mortgage loans receivable are collateralized by real estate.

The funds provided under the loans, in addition to discount and loan origination costs of $0.1 million and $0.1 million, respectively, are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of September 30, 2023.

See “Note 4 - Real Estate Investments” for further discussion on our mortgage loans receivable portfolio.

During the three months ended March 31, 2024, we invested an additional $10.2 million in fully collateralized mortgage loans receivable with stated interest rates of 10.25%.

The mortgage loans receivable are collateralized by real estate, primarily leased by investment grade credit rated tenants.

The funds provided under the loans, in addition to loan origination costs, net of loan origination fees of less than $0.1 million, are included in mortgage loans receivable, net in the accompanying consolidated balance sheets as of March 31, 2024.

See “Note 4 - Real Estate Investments” in “Item 1 - Financial Statements (unaudited)” for further discussion on our mortgage loans receivable portfolio.

Economic and Financial Environment

The average inflation rate for the nine months ended September 30, 2023 was 4.4%.

While the Federal Reserve has been raising interest rates in an effort to lower inflation, the pace at which it may continue to do so is unclear leading to uncertainties in the financing market and a volatile economy.

The average inflation rate for the three months ended March 31, 2024 was 3.5% as compared to 5.0% for the prior year period.

While the Federal Reserve had been raising interest rates in an effort to lower inflation throughout 2022 and the first half of 2023, there continues to be uncertainty entering into 2024 as to whether rates will be maintained or potentially cut, and the timing of potential cuts, leading to uncertainties in the financing market and a volatile economy.

In the commercial real estate market, property prices generally continue to fluctuate which may impact our investment capitalization rates and operating costs.

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We continually monitor the commercial real estate and credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

Three Months Ended September 30, 2023 Compared with Three Months Ended September 30, 2022

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

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

Three Months Ended

September 30,

Rental revenue (including reimbursable) $ 35,189 $ 28,474

Interest income on loans receivable 2,484 978

Other revenue 550 —

Total revenues 37,673 29,452

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Total operating expenses 31,141 23,903

Other income (expense)

Other (expense) income

Interest expense, net (6,180) (3,944)

Gain on sales of real estate, net 373 143

Other income, net 367 —

Total other income (expense), net (3,206) (2,874)

Gain (loss) on sales of real estate, net 997 (319)

Other (expense) income, net (280) 152

Total other (expense) income, net (5,463) (4,111)

Net income before income taxes 1,069 1,438

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Net income $ 1,052 $ 1,481

Revenue for the three months ended September 30, 2023 increased by $9.0 million to $34.0 million from $25.0 million for the three months ended September 30, 2022, which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans.

The increase includes additional cash rental receipts of $6.1 million, combined with net increases of property expense reimbursements of $1.1 million, an increase of $1.6 million related to interest income on mortgage loans receivable, and an increase of $0.6 million in other revenue related to the receipt of legal settlement proceeds associated with a lease termination.

The increase in revenue is offset by a $0.1 million decrease in straight-line rental revenue, a $0.1 million increase in reserves for uncollectible amounts, and a $0.1 million decrease in amortization of above- and below-market lease related intangible assets.

Revenue for the three months ended March 31, 2024 increased by $8.2 million to $37.7 million from $29.5 million for the three months ended March 31, 2023 which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans.

The increase includes additional cash rental receipts of $6.9 million, combined with net increases of property expense reimbursements of $0.1 million, an increase of $1.5 million related to interest income on mortgage loans receivable, and an increase in straight-line rental revenue of $0.2 million.

The increase in revenue is offset by a $0.2 million decrease in above/below market lease adjustments and a $0.3 million decrease related to prior year recoveries.

Total Operating Expenses.

Total expenses increased by $6.0 million to $26.5 million for the three months ended September 30, 2023 as compared to $20.5 million for the three months ended September 30, 2022.

The increase is primarily attributed to an increase in the number of operating properties, with the most significant increases being depreciation and amortization expense, provisions for impairment, property-specific reimbursable expenses, and payroll costs.

Total expenses increased by $7.2 million to $31.1 million for the three months ended March 31, 2024 as compared to $23.9 million for the three months ended March 31, 2023.

Total operating expenses include the following:

• Property Expenses.

Property expenses increased $1.4 million to $3.9 million for the three months ended September 30, 2023 from $2.5 million for the three months ended September 30, 2022.

The increase is primarily attributed to an increase in the number of operating properties, including combined net increases of reimbursable property expenses of $1.3 million, of which $0.7 million, $0.5 million, and $0.1 million were related to reimbursable property taxes, reimbursable common area maintenance costs, and reimbursable insurance costs, respectively.

Property expenses increased $0.2 million to $4.1 million for the three months ended March 31, 2024 from $3.9 million for the three months ended March 31, 2023.

The increase is primarily attributed to the increase in the number of operating properties, including combined net increases of reimbursable property expenses, including $0.3 million of reimbursable property taxes, offset by a decrease of $0.3 million of reimbursable common area maintenance costs.

Additionally, non-reimbursable expenses increased by $0.1 million, primarily consisting of roof repairs.

• General and Administrative Expenses.

General and administrative expenses increased $0.5 million to $5.1 million for the three months ended September 30, 2023 from $4.6 million for the three months ended September 30, 2022.

The increase is primarily due to an increase in bonus expenses of $0.4 million and an increase in payroll expenses of $0.1 million.

General and administrative expenses increased $0.8 million to $5.7 million for the three months ended March 31, 2024 from $4.9 million for the three months ended March 31, 2023.

The increase is primarily due to an increase in employee severance of $0.8 million, including cash severance of $0.5 million and the expense associated with the accelerated vesting of stock-based compensation of $0.3 million, an increase of $0.4 million of stock-based compensation, offset by a decrease of $0.2 million of payroll expenses, and other combined net decreases of $0.2 million.

While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale.

• Depreciation and Amortization.

Depreciation and amortization expense increased $2.4 million to $15.8 million for the three months ended September 30, 2023 from $13.4 million for the three months ended September 30, 2022.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases in building depreciation expense of $1.5 million, building improvements depreciation expense of $0.5 million, and in-place lease amortization expense of $0.4 million.

• Provisions for Impairment.

For the three months ended September 30, 2023, we recorded provisions for impairment of $1.5 million on seven properties, which were either previously classified as held-for-sale, newly classified as held-for-sale or disposed of during the three months ended September 30, 2023.

For the three months ended September 30, 2022, we recorded no provisions for impairment.

For the three months ended September 30, 2023, we sold two properties that were impaired.

These disposals relate to management’s continuous assessment of the Company’s portfolio in an effort to improve returns and manage risk exposure.

• Transaction costs.

Transaction costs increased by less than $0.1 million for the three months ended September 30, 2023 from less than $0.1 million for the three months ended September 30, 2022, which primarily relates to an increase in costs incurred for abandoned acquisitions.

Interest Expense.

Interest expense increased by $0.9 million to $3.9 million for the three months ended September 30, 2023 from $3.0 million for the three months ended September 30, 2022.

The increase is primarily attributed to an increase of $0.7 million of interest incurred under our $200.0 million senior unsecured term loan (the “2028 Term Loan”), an increase of $2.2 million of interest incurred under the 2029 Term Loan, and an increase of $0.3 million in loan fee amortization.

This is offset by $1.1 million in amortization of deferred gains on interest rate swaps, $0.3 million of increased capitalized interest on our property developments, and a net decrease of $0.9 million under the Revolver primarily due to a decrease in average borrowings outstanding during the respective periods.

Gain on sales of real estate, net.

Net gain on sales of real estate increased by $0.3 million to a net gain of $0.4 million for the three months ended September 30, 2023 from a net gain of $0.1 million for the three months ended September 30, 2022.

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

Three Months Ended

September 30,

Number of properties sold 4 1

Sales price, net of disposal costs $ 7,224 $ 1,660

Gain on sales of real estate, net

Other income, net.

Other income increased by $0.4 million for the three months ended September 30, 2023.

The increase relates to $0.4 million of interest income earned on our cash, cash equivalents and restricted cash balances as presented in the condensed consolidated balance sheets.

Income tax (expense) benefit.

Income tax expense decreased by $0.2 million for the three months ended September 30, 2023.

The decrease relates to lower provisions for federal and state income taxes on the financial results of our taxable REIT subsidiary (“TRS”).

Net income increased $2.8 million to $4.2 million for the three months ended September 30, 2023 from $1.4 million for the three months ended September 30, 2022.

Net income increased primarily due to increases in rental revenues due to the growth in the size of our real estate investment portfolio, including interest income associated with our mortgage loans receivable.

This is offset by increases in depreciation and amortization expense, interest expense, reimbursable property expenses, and provisions for impairment as set forth above.

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

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

Nine Months Ended

September 30,

Rental revenue (including reimbursable) $ 89,347 $ 67,309

Interest income on loans receivable 5,145 1,671

Other revenue 550 —

Total revenues 95,042 68,980

Operating expenses

Property 11,350 8,156

General and administrative 15,299 13,608

Depreciation and amortization 46,599 36,137

Depreciation and amortization expense increased $2.6 million to $17.5 million for the three months ended March 31, 2024 from $14.9 million for the three months ended March 31, 2023.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases in building depreciation expense of $1.7 million, building improvements depreciation expense of $0.5 million, in-place lease amortization expense of $0.2 million, and leasing commissions amortization expense of $0.2 million.

• Provisions for impairment.

Transaction costs 267 704

Total operating expenses 77,889 59,719

Other income (expense)

Interest expense, net (13,412) (5,708)

Gain on sales of real estate, net 669 2,162

Loss on debt extinguishment (128) —

Other income, net 586 36

Total other income (expense), net (12,285) (3,510)

Net income before income taxes 4,868 5,751

Income tax (expense) benefit 60 (356)

Net income $ 4,928 $ 5,395

Revenue for the nine months ended September 30, 2023 increased by $26.0 million to $95.0 million from $69.0 million for the nine months ended September 30, 2022, which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans.

The increase includes additional cash rental receipts of $20.5 million, combined with net increases of property expense reimbursements of $2.8 million, an increase of $3.5 million related to interest income on mortgage loans receivable, and an increase of $0.6 million in other revenue related to the receipt of legal settlement proceeds associated with a lease termination.

The increase in revenue is offset by a $0.8 million decrease in straight-line rental revenue and a $0.4 million increase in reserves for uncollectible amounts.

Total Operating Expenses.

Total expenses increased by $18.2 million to $77.9 million for the nine months ended September 30, 2023 from $59.7 million for the nine months ended September 30, 2022.

Total operating expenses include the following:

• Property Expenses.

Property expenses increased $3.2 million to $11.4 million for the nine months ended September 30, 2023 from $8.2 million for the nine months ended September 30, 2022.

The increase is primarily attributed to an increase in the number of operating properties, including combined net increases of reimbursable property expenses of $3.1 million, of which $1.3 million, $1.2 million, and $0.6 million were related to reimbursable property taxes, reimbursable common area maintenance costs, and reimbursable insurance costs, respectively.

• General and Administrative Expenses.

General and administrative expenses increased $1.7 million to $15.3 million for the nine months ended September 30, 2023 from $13.6 million for the nine months ended September 30, 2022.

The increase is primarily due to increased payroll expenses of $0.8 million, bonus expenses of $0.7 million, franchise taxes of $0.2 million, corporate office lease expenses of $0.2 million, and executive severance and transition costs of $0.2 million.

This is offset by decreased corporate insurance of $0.3 million and accounting service and consulting fees of $0.3 million.

• Depreciation and Amortization.

Depreciation and amortization expense increased $10.5 million to $46.6 million for the nine months ended September 30, 2023 from $36.1 million for the nine months ended September 30, 2022.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases in building depreciation expense of $5.8 million, in-place lease amortization expense of $2.6 million, building improvements depreciation expense of $2.0 million, and leasehold improvements depreciation expense of $0.2 million.

This is offset by a decrease in assembled workforce amortization expense of $0.2 million.

• Provision for Impairment.

For the nine months ended September 30, 2023, we recorded provisions for impairment of $4.4 million on 10 properties, which were either previously classified as held-for-sale, newly classified as held-for-sale or disposed of during the nine months ended September 30, 2023.

For the nine months ended September 30, 2022, we recorded provisions for impairment of $1.1 million on one property.

For the nine months ended September 30, 2023, we sold two properties that were impaired.

For the three months ended March 31, 2024, we recorded provisions for impairment of $3.7 million on 12 properties, the majority of which were either previously classified as held-for-sale, newly classified as held-for-sale or disposed of during three months ended March 31, 2024.

Four of the properties are held for investment as of the three months ended March 31, 2024.

For the three months ended March 31, 2023, we recorded no provisions for impairment.

For the three months ended March 31, 2024, we sold two properties that were impaired.

These disposals relate to management’s continuous assessment of the Company’s portfolio in an effort to improve returns and manage risk exposure.

• Transaction costs.

Transaction costs decreased by $0.4 million to $0.3 million for the nine months ended September 30, 2023 from $0.7 million for the nine months ended September 30, 2022, which primarily relates to a decrease in costs incurred for abandoned acquisitions.

Interest Expense.

Interest expense increased by $7.7 million to $13.4 million for the nine months ended September 30, 2023 from $5.7 million for the nine months ended September 30, 2022.

The increase is primarily attributed to an increase of $4.7 million of interest incurred under the 2028 Term Loan, an increase of $2.2 million of interest incurred under the 2029 Term Loan, and a net increase of $1.3 million under the Revolver as a result of higher interest rates driving an increase of $2.2 million offset by a decrease in average borrowings outstanding during the respective periods.

Additional increases of $0.4 million and $0.6 million are attributed to increased facility fees and increased loan fee amortization, respectively.

This is offset by $1.1 million in amortization of deferred gains on interest rate swaps, $0.5 million of increased capitalized interest on our property developments.

Gain on sales of real estate, net.

Net gain on sales of real estate decreased by $1.5 million to a net gain of $0.7 million for the nine months ended September 30, 2023 from a net gain of $2.2 million for the nine months ended September 30, 2022.

Interest expense increased by $2.3 million to $6.2 million for the three months ended March 31, 2024 from $3.9 million for the three months ended March 31, 2023.

The increase is primarily attributed to an increase of $2.3 million of interest incurred under the 2029 Term Loan executed on July 3, 2023, an increase of $0.8 million of interest incurred under the 2027 Term Loan (amendment and restatement of the 2024 Term Loan on June 15, 2023), offset by a net decrease of less than $0.1 million under the Revolver as a result of a decrease in average borrowings outstanding which was offset by higher interest rates.

An additional increase of $0.3 million was attributable to increased loan fee amortization.

This is offset by $1.0 million in amortization of deferred gains on interest rate swaps and $0.2 million of increased capitalized interest on our property developments.

Gain (loss) on sales of real estate, net.

Net gain on sales of real estate increased by $1.3 million to $1.0 million for the three months ended March 31, 2024 from a $0.3 million net loss for the three months ended March 31, 2023.

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

Nine Months Ended

September 30,

Three Months Ended

Number of properties sold 12 8

Sales price, net of disposal costs $ 20,466 $ 15,463

Gain on sales of real estate, net

$ 669 $ 2,162

Other income, net.

Other income increased by $0.6 million for the nine months ended September 30, 2023.

The increase relates to $0.6 million of interest income earned on the Company’s cash, cash equivalents and restricted cash balances as presented in the condensed consolidated balance sheets.

Income tax (expense) benefit.

Income tax expense decreased by $0.5 million to an income tax benefit of $0.1 million for the nine months ended September 30, 2023 from an income tax expense of $0.4 million for the nine months ended September 30, 2022.

The decrease relates to lower provisions for federal and state income taxes on the financial results of our TRS.

Net income decreased $0.5 million to $4.9 million for the nine months ended September 30, 2023 from a net income of $5.4 million for the nine months ended September 30, 2022.

Net income decreased primarily due to increases in interest expense, depreciation and amortization expenses, provisions for impairment, payroll expense, as well as a decrease in net gains on sales of real estate, as set forth above.

This is offset primarily by increases in rental revenues due to the growth in the size of our real estate investment portfolio, including interest income associated with our mortgage loans receivable.

Gain (loss) on sales of real estate, net $ 997 $ (319)

Other (expense) income, net.

Other (expense) income, net decreased by $0.4 million for the three months ended March 31, 2024 primarily due to a $0.4 million loss recorded on one property as a result of foundation issues in 2024.

Net income decreased $0.4 million to $1.1 million for the three months ended March 31, 2024 from $1.5 million for the three months ended March 31, 2023.

Net income decreased primarily due to increases in provisions for impairment, interest expense, and depreciation and amortization expense, offset by increases in gains on sales of real estate and additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, including interest income associated with our mortgage loans receivable.

Liquidity and Capital Resources

Our primary capital requirements are to fund property acquisitions and development and investments in mortgage loans receivable and required interest payments, as well as working capital needs, operating expenses, and capital expenditures.

Our primary capital requirements are to fund property acquisitions and developments, fund investments in mortgage loans receivable and required interest payments, and fund working capital needs, operating expenses, and capital expenditures.

Our capital resources primarily consist of cash from operations, sales of equity securities and available borrowing facilities.

As of September 30, 2023, we had $175.0 million outstanding principal amount of the senior unsecured term loan (the “2027 Term Loan”), $200.0 million outstanding principal amount of the 2028 Term Loan, $150.0 million outstanding principal amount of the 2029 Term Loan, and $42.0 million of borrowings outstanding under our Revolver.

Additionally, as of September 30, 2023, we had $99.6 million remaining gross proceeds available for future issuances of shares of our common stock under the ATM Program, inclusive of 5,983,711 shares remaining unsettled under the outstanding forward confirmation.

We believe that the availability of proceeds from future issuances of shares of our common stock under the current ATM Program or subsequent at-the-market sale programs, coupled with our cash flows from operations and available borrowing capacity under the Revolver and 2029 Term Loan, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital requirements for at least the next 12 months.

We anticipate funding our long-term capital needs through cash provided from operations, borrowings under our Revolver, 2029 Term Loan and issuances of common stock.

As of March 31, 2024, we had $175.0 million outstanding principal amount under the senior unsecured term loan (the “2027 Term Loan”), $200.0 million outstanding principal amount under the senior unsecured term loan (the “2028 Term Loan”), $250.0 million outstanding principal amount under the 2029 Term Loan, and $75.0 million of borrowings outstanding under our $400.0 million senior unsecured revolving credit facility (the “Revolver”).

Additionally, as of March 31, 2024, we had $98.5 million and $1.9 million of unsettled forward equity under the 2021 ATM Program and 2023 ATM Program, respectively.

As of March 31, 2024, $222.7 million of remaining gross proceeds were available for future issuances of shares of our common stock under the 2023 ATM Program, inclusive of unsettled shares under forward confirmation.

Lastly, we had $190.5 million of unsettled forward equity under the January 2024 forward sale agreements as of March 31, 2024.

We believe the availability of proceeds from the settlement of unsettled outstanding forward confirmations, future issuances of shares of our common stock under the 2023 ATM Program or subsequent at-the-market sale programs, as well as our cash flows from operations and available borrowing capacity under the Revolver, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital requirements 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 September 30, 2023, our contractual debt obligations primarily include the maturity of our 2027 Term Loan with the scheduled principal payment due on January 15, 2026, the maturity of our 2028 Term Loan with the scheduled principal payment due on February 11, 2028, the maturity of our 2029 Term Loan with the scheduled principal payment due on July 3, 2026, and repayment of borrowings on our Revolver with a maturity of August 11, 2026.

During the nine months ended September 30, 2023, we borrowed $288.0 million at a weighted average interest rate of 5.98% and also repaid $359.0 million on our revolving credit facilities.

The following table provides information with respect to our commitments as of September 30, 2023 (in thousands):

As of March 31, 2024, our contractual debt obligations primarily include the maturity of our 2027 Term Loan with the scheduled principal payment due on January 15, 2026, the maturity of our 2028 Term Loan with the scheduled principal payment due on February 11, 2028, the maturity of our 2029 Term Loan with the scheduled principal payment due on July 3, 2026, and repayment of borrowings on our Revolver with a maturity of August 11, 2026.

During the three months ended March 31, 2024, we borrowed $82.0 million at a weighted average interest rate of 6.54% and also repaid $87.0 million on our revolving credit facilities.

The following table provides information with respect to our commitments as of March 31, 2024 (in thousands):

Payment Due by Period

Total From October 1, 2023 to December 31, 2023 2024 – 2025 2026 – 2027 Thereafter

Total From April 1, 2024 to December 31, 2024 2025 - 2026 2027 - 2028 Thereafter

Contractual Obligations

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10,775 4,132 6,643 — —

Revolver – Borrowings 42,000 — — 42,000 —

Revolver – Variable interest 7,714 674 5,393 1,647 —

Facility Fee (2)

1,717 150 1,200 367 —

2028 Term Loan – Principal 200,000 — — 200,000 —

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28,096 9,348 18,748 — —

Revolver – Borrowings 75,000 — 75,000 — —

Revolver – Variable interest 11,368 3,611 7,757 — —

Facility Fee (4)

1,417 450 967 — —

Mortgage Note – Principal 8,322 123 348 7,851 —

Mortgage Note – Interest 1,328 280 726 322 —

Property developments under contract 37,946 37,946 — — —

Property development under contract 24,961 24,961 — — —

Additional principal under mortgage notes receivable 12,371 12,371 — — —

Tenant improvement allowances 4,089 4,089 — — —

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(1) We entered into five interest rate hedges to fix the base interest rate (daily SOFR) on our 2027 Term Loan.

The hedged fixed rate will reset effective November 27, 2023 to 1.87% and December 23, 2024 to 2.40%.

Accordingly, the projected interest rate obligations for the variable rate 2027 Term Loan are based on the hedged fixed rates of 0.12% through November 27, 2023, 1.87% through December 23, 2024, and 2.40% thereafter, compared to the variable 2027 Term Loan daily SOFR rate as of September 30, 2023 of 5.30%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $175.0 million 2027 Term Loan outstanding through the contractual maturity date of January 15, 2026.

(2) We are subject to a facility fee of 0.15% on our Revolver.

The hedged fixed rate reset effective November 27, 2023 to 1.87% and will reset December 23, 2024 to 2.40%.

Accordingly, the projected interest rate obligations for the variable rate 2027 Term Loan are based on the hedged fixed rate of 1.87% through December 23, 2024, and 2.40% thereafter, compared to the variable 2027 Term Loan daily SOFR rate as of March 31, 2024 of 5.31%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $175.0 million 2027 Term Loan outstanding through the contractual maturity date of January 15, 2026.

(2) We entered into three interest rate hedges to fix the base interest rate (one-month SOFR) on our 2028 Term Loan.

Accordingly, the projected interest rate obligations for the variable rate 2028 Term Loan are based on the hedged fixed rate of 2.63% compared to the variable 2028 Term Loan one-month SOFR rate as of September 30, 2023 of 5.33%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $200.0 million 2028 Term Loan outstanding through the maturity date of February 11, 2028.

Accordingly, the projected interest rate obligations for the variable rate 2028 Term Loan are based on the hedged fixed rate of 2.63% compared to the variable 2028 Term Loan one-month SOFR rate as of March 31, 2024 of 5.33%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $200.0 million 2028 Term Loan outstanding through the maturity date of February 11, 2028.

(3) We entered into four interest rate hedges to fix the base interest rate (daily SOFR) on our 2029 Term Loan.

Accordingly, the projected interest rate obligations for the variable rate 2029 Term Loan are based on the hedged fixed rate of 3.64% compared to the variable 2029 Term Loan daily SOFR rate as of September 30, 2023 of 5.32%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $150.0 million of the 2029 Term Loan outstanding through the contractual maturity date of July 3, 2026.

Accordingly, the projected interest rate obligations for the variable rate 2029 Term Loan are based on the hedged fixed rate of 3.74% compared to the variable 2029 Term Loan daily SOFR rate as of March 31, 2024 of 5.32%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $150.0 million of the 2029 Term Loan outstanding through the contractual maturity date of July 3, 2026.

(4) We are subject to a facility fee of 0.15% on our Revolver.

In August 2021, we entered into a lease agreement on a new corporate office space, which is classified as an operating lease.

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The lease has a remaining noncancellable term of 8.3 years that expires on July 31, 2032 and is renewable at our 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, we enter into various types of commitments to purchase real estate properties or fund development projects.

These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before we are obligated or receive an option to purchase the properties.

As of September 30, 2023, we had commitments to fund properties under development totaling $37.9 million, all of which is expected to be funded over the next two years.

Credit Facilities

See discussion of our debt and interest rate hedges included in “Note 6 - Debt” and “Note 7 - Derivative Financial Instruments”

of our condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

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

Additionally, in the normal course of business, we enter into various types of commitments to purchase real estate properties, fund development projects, or extend funds under mortgage notes receivable.

These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before we are obligated to purchase or extend funding.

As of March 31, 2024, we had commitments to fund properties under development and extend funds under mortgage notes receivable totaling $25.0 million and $12.4 million, respectively, all of which is expected to be funded throughout 2024.

See discussion of our debt and interest rate hedges included in “Note 6 - Debt” and “Note 7 - Derivative Financial Instruments” in “Item 1 – Financial Statements (unaudited).”

Historical Cash Flow Information

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Nine Months Ended

September 30,

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Three Months Ended

(In thousands) (Unaudited)

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Cash Flows Provided By Operating Activities.

Net cash provided by operating activities increased by $12.8 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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 $20.5 million, offset primarily by increases in operating and general and administrative expenses paid associated with our larger portfolio.

Net cash provided by operating activities decreased by $3.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The decrease was largely attributed to the timing of corporate and property related vendor payments and changes to other working capital accounts, including the payment of our annual insurance policies, payments of employee severance and bonus, and increased interest payments along with other net increases in operating and general and administrative expenses associated with our larger portfolio.

This was offset by an increase in rental receipts of $6.9 million and an increase in mortgage loan receivable interest of $1.5 million.

Cash Flows Used In Investing Activities.

Net cash used in investing activities decreased by $35.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The decrease was primarily due to a decrease in cash spent on acquisitions of real estate of $74.3 million, offset by increases in cash spent on investments in mortgage loans receivable of $19.0 million and cash spent on real estate development and improvements of $32.2 million.

Net cash used in investing activities decreased by $5.2 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The decrease was primarily due to decreases in cash spent on investments in mortgage loans receivable of $35.7 million and $1.8 million less in earnest money deposits made, offset by increases in cash spent on acquisitions of real estate and real estate developments and improvements of $27.5 million and $9.8 million, respectively.

The remaining decrease is primarily related to proceeds from the sale of real estate, which increased $5.0 million compared to the prior period.

Cash Flows Provided By Financing Activities.

Net cash provided by financing activities decreased by $119.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The decrease was primarily attributed to a reduction in net borrowings of $37.0 million under our revolving credit facilities, a reduction in term loan proceeds of $50.0 million, a decrease of proceeds from issuances of common stock in connection with our ATM Program of $24.1 million, an increase in payments of common stock dividends of $9.1 million, and a decrease in proceeds under property development incentives of $0.6 million during the nine months ended September 30, 2023.

The decrease was offset by decreases in deferred offering costs and deferred financing costs of $0.8 million and $0.5 million, respectively, during the nine months ended September 30, 2023.

Net cash provided by financing activities increased by $54.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase was primarily attributed to a $100.0 million draw on our 2029 Term Loan during the three months ended March 31, 2024 and an increase in net borrowings of $12.0 million under our Revolver.

The increase was offset by a decrease of $52.9 million from the issuance of our common stock, further offset by an increase in payments of common stock dividends of $3.3 million and increases in the repurchase of common stock for tax withholding obligations of $0.7 million.

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

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The Company intends to make sufficient distributions during 2024 to receive a full dividends paid deduction.

We maintain a TRS which may be subject to U.S.

We maintain a taxable REIT subsidiary (“TRS”) which may be subject to U.S.

federal, state, and local income taxes on its taxable income.

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.

During the three and nine months ended September 30, 2023, 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.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements and their possible effects on our condensed consolidated financial statements is included in “Note 2 – Summary of Significant Accounting Policies” in “Item 1 – Financial Statements (unaudited).”

Critical Accounting Policies and Estimates

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We also disclose the following non-GAAP financial measures:

Funds From Operations (“FFO”), Core FFO, Adjusted FFO (“AFFO”), earnings before interest expense, income tax expense, and depreciation and amortization (“EBITDA”), EBITDA further adjusted to exclude gains (or losses) from the sales of depreciable property and real estate impairment losses (“EBITDAre”), Adjusted EBITDAre, Annualized Adjusted EBITDAre, Net Debt, property-level net operating income (“Property-Level NOI”), property-level cash net operating income (“Property-Level Cash NOI”), property-level cash net operating income estimated run rate (“Property-Level Cash NOI Estimated Run Rate”), and total property-level cash net operating income estimated run rate (“Total Property-Level Cash NOI Estimated Run Rate”), all of which are detailed below.

Funds From Operations (“FFO”), Core FFO, Adjusted FFO (“AFFO”), earnings before interest expense, income tax expense, and depreciation and amortization (“EBITDA”), EBITDA further adjusted to exclude gains (or losses) from the sales of depreciable property and real estate impairment losses (“EBITDA re ”), Adjusted EBITDA re , Annualized Adjusted EBITDA re , Net Debt, Adjusted Net Debt, property-level net operating income (“Property-Level NOI”), property-level cash net operating income (“Property-Level Cash NOI”), property-level cash net operating income estimated run rate (“Property-Level Cash NOI Estimated Run Rate”), and total property-level cash net operating income estimated run rate (“Total Property-Level Cash NOI Estimated Run Rate”), all of which are detailed below.

We believe these non-GAAP financial measures are industry measures used by analysts and investors to compare the operating performance of REITs.

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Core FFO is a non-GAAP financial measure defined as FFO adjusted to remove the effect of unusual and non-recurring items that are not expected to impact our operating performance or operations on an ongoing basis.

These include non-recurring executive transition costs, severance and related charges, gain on insurance proceeds, and loss on debt extinguishments and other related costs.

These include non-recurring executive transition costs, severance and related charges, other loss (gain), net, and loss on debt extinguishments and other related costs.

AFFO is a non-GAAP financial measure defined as Core FFO adjusted for GAAP net income related to non-cash revenues and expenses, such as straight-line rent, amortization of above- and below-market lease-related intangibles, amortization of lease incentives, capitalized interest expense and earned development interest, non-cash interest expense, non-cash compensation expense, amortization of deferred financing costs, amortization of above/below-market assumed debt, and amortization of loan origination costs.

10 unchanged sentences

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

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(Unaudited) (Unaudited)

Three Months Ended March 31,

Net income $ 1,052 $ 1,481

1 unchanged sentence

Provisions for impairment 3,662 —

Gain on sales of real estate, net (373) (143) (669) (2,162)

(Gain) loss on sales of real estate, net (997) 319

FFO 21,179 16,684

Non-recurring executive transition costs, severance and related charges 857 13

Loss on debt extinguishment and other related costs — — 223 —

Gain on insurance proceeds (1) — (47) (36)

Non-recurring other loss (gain), net 414 (12)

Core FFO 22,450 16,685

2 unchanged sentences

Amortization of above/below-market assumed debt 29 29

Amortization of loan origination costs 26 28 83 59

Amortization of loan origination costs and discounts 39 28

Amortization of lease-related intangibles (95) (213)

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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, non-cash compensation expense, non-recurring executive transition costs, severance and related charges, loss on debt extinguishment and other related costs, gain on insurance proceeds, other non-recurring expenses (income), lease termination fees, adjustment for construction in process, and adjustment for intraquarter activities.

Adjusted EBITDA re is a non-GAAP financial measure defined as EBITDA re further adjusted to exclude straight-line rent, non-cash compensation expense, non-recurring executive transition costs, severance and related charges, loss on debt extinguishment and other related costs, other loss (gain), net, other non-recurring expenses (income), lease termination fees, adjustment for construction in process, and adjustment for intraquarter activities.

Annualized Adjusted EBITDA re is Adjusted EBITDA re multiplied by four.

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Additionally, our computation of EBITDA, EBITDA re , Adjusted EBITDA re and Annualized Adjusted EBITDA re may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.

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

Three Months Ended

September 30,

The following table sets forth a reconciliation of EBITDA and EBITDA re 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 $ 1,052 $ 1,481

6 unchanged sentences

EBITDA 24,734 20,146

Provision for impairments 1,538 —

Gain on sales of real estate, net (373) (143)

EBITDAre 25,074 17,586

Provisions for impairments 3,662 —

(Gain) loss on sales of real estate, net (997) 319

27,399 20,465

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

Three Months Ended March 31, 2024

Net income $ 1,052

Depreciation and amortization of real estate 17,462

Amortization of lease-related intangibles (95)

Non-real estate depreciation and amortization 79

Interest expense, net 6,180

Income tax expense (benefit) 17

Amortization of loan origination costs 39

EBITDA 24,734

Provisions for impairments 3,662

(Gain) loss on sales of real estate, net (997)

Straight-line rent adjustments (542)

Non-recurring executive transition costs, severance and related charges 857

Gain on insurance proceeds (1) —

Non-recurring other loss (gain), net 414

Other non-recurring expenses, net 158

Non-cash compensation expense 1,424

Lease termination fees (550) —

Adjustment for construction in process (1)

1 unchanged sentence

Adjusted EBITDA re

$ 27,681 $ 20,061

Annualized Adjusted EBITDA re (3)

Net Debt Adjusted for Outstanding Forward Equity / Annualized Adjusted EBITDA re

(1) Adjustment reflects the estimated cash yield on developments in process balances as of period end.

(2) Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including developments and interest earning loan activity completed during the three months ended September 30, 2023 and 2022 had occurred on July 1, 2023 and July 1, 2022, respectively.

Adjusted Net Debt / Annualized Adjusted EBITDA re

(1) Adjustment reflects the estimated cash yield on developments in process as of March 31, 2024.

(3) We calculate Annualized Adjusted EBITDA re by multiplying Adjusted EBITDA re by four.

Net Debt and Net Debt Adjusted for Outstanding Forward Equity

Net Debt and Adjusted Net Debt

We calculate our Net Debt as our principal amount of total debt outstanding excluding deferred financing costs, net discounts and debt issuance costs less cash, cash equivalents and restricted cash available for future investment.

We further adjust Net Debt by the value of outstanding forward equity as of period end to derive Net Debt Adjusted for Outstanding Forward Equity.

We believe excluding cash, cash equivalents and restricted cash available for future investment from our principal amount in addition to excluding the value of outstanding forward equity, all of which could be used to repay debt, provides an estimate of the net contractual amount of borrowed capital to be repaid.

We further adjust Net Debt by the net value of unsettled forward equity as of period end to derive Adjusted Net Debt.

We believe excluding cash, cash equivalents and restricted cash available for future investment from our principal amount in addition to excluding the net value of unsettled forward equity, all of which could be used to repay debt, provides an estimate of the net contractual amount of borrowed capital to be repaid.

We believe these adjustments are additional beneficial disclosures to investors and analysts.

The following table reconciles the principal amount of total debt to Net Debt Adjusted for Outstanding Forward Equity:

September 30, 2023

The following table reconciles the principal amount of total debt to Net Debt and Adjusted Net Debt:

March 31, 2024

Principal amount of total debt $ 708,322

1 unchanged sentence

Net Debt 685,988

Value of outstanding forward equity (1)

Net Debt Adjusted for Outstanding Forward Equity $ 468,794

(1) There were 5,983,711 unsettled shares under forward equity contracts under the ATM Program as of September 30, 2023 at the available net settlement price of $16.49.

Value of unsettled forward equity (1)

Adjusted Net Debt $ 395,080

(1) There were 17,131,211 unsettled shares under forward equity contracts as of March 31, 2024 at the available weighted-average net settlement price of $16.98.

Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate

Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate are non-GAAP financial measures which we use to assess our operating results.

We compute Property-Level NOI as net income (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, transaction costs, depreciation and amortization, gains (or losses) on sales of depreciable property, real estate impairment losses, interest income on mortgage loans receivable, loss on debt extinguishment, lease termination fees and other income (or expense).

We further adjust Property-Level NOI for non-cash revenue components of straight-line rent and amortization of lease-intangibles to derive Property-Level Cash NOI.

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

The following table sets forth a reconciliation of Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate for the periods presented (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(Unaudited) (Unaudited)

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

Three Months Ended March 31,

Net income $ 1,052 $ 1,481

4 unchanged sentences

Interest expense, net 6,180 3,944

Gain on sales of real estate, net (373) (143) (669) (2,162)

(Gain) loss on sales of real estate, net (997) 319

Income tax expense (benefit) 17 (43)

Loss on debt extinguishment — — 128 —

Interest income on mortgage loans receivable (2,484) (978)

Lease termination fees (550) — (550) —

Other income, net (367) — (586) (36)

Other expense (income), net 280 (152)

Property-Level NOI 31,087 24,538

2 unchanged sentences

Property-Level Cash NOI $ 30,450 $ 24,014

Adjustment for intraquarter acquisitions, dispositions and completed development (1)

Three Months Ended March 31, 2024

Net income $ 1,052

General and administrative 5,707

Depreciation and amortization 17,541

Provisions for impairment 3,662

Transaction costs 129

Interest expense, net 6,180

(Gain) loss on sales of real estate, net (997)

Gain on forfeited earnest money deposit —

Income tax expense (benefit) 17

Interest income on mortgage loans receivable (2,484)

Other expense (income), net 280

Property-Level NOI 31,087

Straight-line rent adjustments (542)

Amortization of lease-related intangibles (95)

Property-Level Cash NOI $ 30,450

Adjustment for intraquarter acquisitions, dispositions and interest earning development (1)

Property-Level Cash NOI Estimated Run Rate 31,808

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Total Cash NOI - Estimated Run Rate $ 34,403

(1) Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including developments completed during the three months ended September 30, 2023 had occurred on July 1, 2023.

(2) Adjustment assumes all loan activity completed during the three months ended September 30, 2023 had occurred on July 1, 2023.

(1) Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including developments completed during the three months ended March 31, 2024 had occurred on January 1, 2024.

(2) Adjustment assumes all loan activity completed during the three months ended March 31, 2024 had occurred on January 1, 2024.

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