What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-04 · 92 added, 128 removed, 194 unchanged (53% of the section changed)

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• change in the demand for postal services delivered by the USPS;

• our ability to come to an agreement with the USPS regarding new leases or lease renewals;

• our ability to come to an agreement with the USPS regarding new leases or lease renewals on the terms and timing we expect, or at all;

• the solvency and financial health of the USPS;

• defaults on, early terminations of or non-renewal of leases or relocation, closure or consolidation of postal offices or delivery routes by the USPS;

• defaults on, early terminations of or non-renewal of leases or relocation, closure or consolidation of postal offices or delivery units by the USPS;

• the competitive market in which we operate;

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We conduct our business through a traditional UPREIT structure in which our properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies or other subsidiaries.

During the nine months ended September 30, 2022, we acquired 266 properties leased to the USPS for approximately $105.7 million, including closing costs.

As of September 30, 2022, our portfolio consists of 1,232 owned properties, located in 49 states and one territory and comprising approximately 5.2 million net leasable interior square feet.

During the three months ended March 31, 2023, we acquired 39 properties leased to the USPS for approximately $17.6 million, including closing costs.

As of March 31, 2023, our portfolio consists of 1,325 owned properties, located in 49 states and one territory and comprising approximately 5.5 million net leasable interior square feet.

We are the sole general partner of our Operating Partnership through which our properties are directly or indirectly owned.

As of November 2, 2022, we owned approximately 80.4% of our outstanding common units of limited partnership interest in our Operating Partnership (the “OP Units”), including long term incentive units of our Operating Partnership (the “LTIP Units”).

As of May 3, 2023, we owned approximately 80.3% of outstanding common units of limited partnership interest in our Operating Partnership (the “OP Units”), including long term incentive units of our Operating Partnership (the “LTIP Units”).

Our Board of Directors oversees our business and affairs.

On December 14, 2020, we entered into separate open market sale agreements for its at-the-market offering program (the "ATM Program") with each of Jefferies LLC, Stifel, Nicolaus & Company, Incorporated, BMO Capital Markets Corp., Janney Montgomery Scott LLC and D.A.

Davidson & Co.

Davidson"), pursuant to which we may offer and sell, from time to time, shares our Class A common stock having an aggregate sales price of up to $50.0 million.

On May 14, 2021, we delivered to D.A.

Davidson a notice of termination of the open market sale agreement with D.A.

Davidson, which termination became effective May 14, 2021.

During the year ended December 31, 2021, 344,717 shares were issued under the ATM Program.

During the nine months ended September 30, 2022, 227,473 shares were issued under the ATM Program.

As of September 30, 2022, we had approximately $39.4 million of availability remaining under the ATM Program.

On November 4, 2022, we entered into separate open market sale agreements for our at-the-market offering program (the "ATM Program") with each of Jefferies LLC, BMO Capital Markets Corp., Janney Montgomery Scott LLC, Stifel, Nicolaus & Company, Incorporated and Truist Securities, Inc., as agents, pursuant to which we may offer and sell, from time to time, shares of our Class A common stock having an aggregate sales price of up to $50.0 million.

The agreements also provide that we may enter into one or more forward sale agreements under separate master forward confirmations and related supplemental confirmations with affiliates of certain agents.

During the three months ended March 31, 2023, 55,082 shares were issued under the ATM Program.

As of March 31, 2023, we had approximately $41.0 million of availability remaining under the ATM Program.

Executive Overview

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Geographic Concentration

As of September 30, 2022, we owned a portfolio of 1,232 properties located in 49 states and one territory and leased primarily to the USPS.

For the nine months ended September 30, 2022, 15.4% of our total rental income was concentrated in Pennsylvania.

As of March 31, 2023, we owned a portfolio of 1,325 properties located in 49 states and one territory and leased primarily to the USPS.

For the three months ended March 31, 2023, approximately 13.7% of our total rental income was concentrated in Pennsylvania.

Emerging Growth Company

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We may continue to be a smaller reporting company even after we are no longer an “emerging growth company.”

We elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our short taxable year ending December 31, 2019.

As long as we qualify as a REIT, we generally will not be subject to federal income tax to the extent that we distribute our taxable income for each tax year to our stockholders.

We elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our short taxable year ended December 31, 2019 and intend to continue to qualify as a REIT.

As long as we qualify as a

REIT, we generally will not be subject to federal income tax to the extent that we distribute our taxable income for each tax year to our stockholders.

Factors That May Influence Future Results of Operations

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As a result, among other consequences, the USPS is unable to fund its mandated expenses and continues to be subject to mandated payments to its retirement system and benefits.

While the USPS has recently undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, such as higher rates and slower deliveries for certain services and potential closure, relocation or consolidation of certain facilities and delivery routes, the USPS has taken the position such measures alone will not be sufficient to maintain its ability to meet all of its existing obligations when due or allow it to make the critical infrastructure investments that have been deferred in recent years.

While the USPS has recently undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, such as higher rates and slower deliveries for certain services and closure, relocation or consolidation of certain facilities and delivery units, the USPS has taken the position such measures alone will not be sufficient to maintain its ability to meet all of its existing obligations when due or allow it to make the critical infrastructure investments that have been deferred in recent years.

These measures have also led to significant criticism and litigation, which may result in reputational or financial harm or increased regulatory scrutiny of the USPS or reduced demand for its services.

The ongoing COVID-19 pandemic (including new or mutated variants of COVID-19) and measures being taken to prevent its spread also continue to have a material and unpredictable effect on the USPS’ operations and liquidity, including volatility in demand for mail services, significant changes in the mix of mail and packages processed through the USPS’ network and significant additional operating expenses caused by pandemic-related disruptions.

The COVID-19 pandemic and other geopolitical and economic factors have also created inflationary pressures resulting in higher compensation, transportation and fuel costs for the USPS.

The COVID-19 pandemic and measures taken to prevent its spread have also had a material and unpredictable effect on the USPS’ operations and liquidity, including significant additional operating expenses caused by pandemic-related disruptions.

The COVID-19 pandemic and other geopolitical and economic factors have also created significant inflationary pressures resulting in higher compensation, benefits, transportation and fuel costs for the USPS.

If the USPS becomes unable to meet its financial obligations or its revenue declines due to reduced demand for its services, the USPS may reduce its demand for leasing postal properties, which would have a material adverse effect on our business and operations.

For additional information regarding the risks associated with the USPS, see the section entitled “Risk Factors - Risks Related to the USPS” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties, and fee and other from the management agreements with respect to the postal properties owned by Andrew Spodek, our chief executive officer, and his affiliates managed by our taxable REIT subsidiary (“TRS”), income recognized from properties accounted for as financing leases and revenue from providing certain advisory services.

We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties and fee and other from the management of postal properties owned by Andrew Spodek, our chief executive officer, and his affiliates managed by our taxable REIT subsidiary (“TRS”), income recognized from properties accounted for as financing leases and revenue from providing certain advisory services.

Rental income represents the lease revenue recognized under leases primarily with the USPS which includes the impact of above and below market lease intangibles as well as tenant reimbursements for payments made by our tenants under the leases to reimburse us for the majority of real estate taxes paid at each property.

Fee and other principally represent (i) revenue our TRS received from postal properties owned by Mr.

Spodek and his affiliates pursuant to the management agreements and is a percentage of the lease revenue for the managed property, (ii) revenue our TRS received from providing advisory services to third-party owners of postal properties and (iii) income recognized from properties accounted for as financing leases.

As of September 30, 2022, properties leased to our tenants had an average remaining lease term of approximately four years.

Fee and other principally represents (i) revenue our TRS received from postal properties owned by Mr.

Spodek and his affiliates pursuant to the management agreements and is a percentage of the lease revenue for the managed properties, (ii) revenue our TRS received from providing advisory services to third-party owners of postal properties and (iii) income recognized from properties accounted for as financing leases.

As of March 31, 2023, properties leased to our tenants had an average remaining lease term of approximately 3.5 years.

Factors that could affect our rental income and fee and other in the future include, but are not limited to:

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Recoveries from the tenant are recognized as revenue on an accrual basis over the periods in which the related expenditures are incurred.

Tenant reimbursements and operating expenses are recognized on a gross basis, because (i) generally, we are the primary obligor with respect to the real estate taxes and (ii) we bear the credit risk in the event the tenant does not reimburse the real estate taxes.

Tenant reimbursements and the related property operating expenses are recognized on a gross basis, because (i) generally, we are the primary obligor with respect to the real estate taxes and (ii) we bear the credit risk in the event the tenant does not reimburse the real estate taxes.

The expenses of owning and operating a property are not necessarily reduced when circumstances, such as market factors and competition, cause a reduction in income from the property.

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Equity-Based Compensation Expense

All equity-based compensation expense is recognized in our Consolidated Statements of Operations and Comprehensive Income as components of general and administrative expense and property operating expenses.

All equity-based compensation expense is recognized in our Consolidated Statements of Operations and Comprehensive (Loss) Income as components of general and administrative expense and property operating expenses.

We issue share-based awards to align our directors' and employees’ interests with those of our investors.

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On August 9, 2021, we entered into a $150.0 million senior unsecured revolving credit facility (the "Revolving Credit Facility") and a $50.0 million senior unsecured term loan facility (the "2021 Term Loan").

In connection with entering into the credit facilities, we terminated our previous credit facility and paid off the outstanding loans thereunder.

On May 11, 2022, we amended the Credit Facilities (the "First Amendment") to, among other things, add a new $75.0 million senior unsecured delayed draw term loan facility (the "2022 Term Loan" and, together with the 2021 Revolving Credit Facility and the 2021 Term Loan, the “Credit Facilities”), replace the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate ("SOFR") as the benchmark interest rate and allow for a decrease in the applicable margin by 0.02% if we achieve certain sustainability targets.

On May 11, 2022, we amended the Credit Facilities (the "First Amendment") to, among other things, add a new $75.0 million senior unsecured delayed draw term loan facility (the "2022 Term Loan" and, together with the Revolving Credit Facility and the 2021 Term Loan, the “Credit Facilities”), replace the London Interbank Offered Rate with the Secured Overnight Financing Rate ("SOFR") as the benchmark interest rate and allow for a decrease in the applicable margin by 0.02% if we achieve certain sustainability targets.

On December 6, 2022, we further exercised $40.0 million of term loan accordion under the 2022 Term Loan.

We intend to use the Credit Facilities for working capital purposes, which may include repayment of mortgage indebtedness, property acquisitions and other general corporate purposes.

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Lease Renewal

As of November 2, 2022, the leases at 72 of our properties, representing approximately 249,000 net leasable interior square feet and $2.4 million in annual contractual rental revenue, were expired and the USPS was occupying such properties as a holdover tenant.

As of May 3, 2023, the leases at 110 of our properties, representing approximately 550,000 net leasable interior square feet, were expired and the USPS was occupying such properties as a holdover tenant.

As of the date of this report, the USPS had not vacated or notified us of its intention to vacate any of these properties.

When a lease expires, the USPS becomes a holdover tenant on a month-to-month basis typically paying the greater of estimated market rent or the rent amount under the expired lease.

While we currently anticipate that we will execute new leases for all properties that have expired or will expire, there can be no guarantee that we will be successful in executing new leases, obtaining positive rent renewal spreads or renewing the

leases on terms comparable to those of the expiring leases.

In 2022, in connection with our lease renewal negotiations with the USPS, we filed claims with the USPS regarding market rent and other amounts due under the expired leases during the holdover period.

The USPS subsequently determined that market rent for the expired leases was generally greater than the rent amount under the expired leases and agreed to pay us

(i) a lump sum catch-up payment for increased rents from the date of lease expiration and (ii) increased rents reflecting the market rent determined by USPS going forward.

However, because the USPS did not accept market rent based on our estimate and other amounts in our claims, we appealed such decisions before the Postal Service Board of Contract Appeals (“PSBCA”) within the period prescribed in the Contract Disputes Act of 1978.

The PSBCA subsequently granted a joint request by the USPS and us to stay the appeals to enable further negotiations between the parties regarding the renewal of the expired leases.

As of the date of this report, we agreed in a letter of intent to preliminary terms on rental rates for 86 properties with leases that had expired in 2022.

However, we had not entered into any definitive documentation with respect to the rental rates or lease renewals for these properties and there can be no guarantee that any lease renewals that we enter into with the USPS will reflect our expectations with respect to terms or timing.

While we currently anticipate that we will renew the leases that have expired or will expire, there can be no guarantee that we will be successful in renewing these leases, obtaining positive rent renewal spreads or renewing the leases on terms comparable to those of the expiring leases.

Even if we are able to renew these expired leases, the lease terms may not be comparable to those of the previous leases.

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Results of Operations

Comparison of the Three Months Ended September 30, 2022 and the Three Months Ended September 30, 2021

Comparison of the Three Months Ended March 31, 2023 and the Three Months Ended March 31, 2022

For the Three Months Ended

September 30,

2022 2021 $ Change % Change

Rental income $ 13,181 $ 10,204 $ 2,977 29.2 %

Fee and other 594 325 269 82.8 %

Total revenues 13,775 10,529 3,246 30.8 %

Operating expenses

Real estate taxes 1,836 1,625 211 13.0 %

Property operating expenses 1,346 983 363 36.9 %

General and administrative 3,040 2,596 444 17.1 %

Depreciation and amortization 4,637 3,743 894 23.9 %

Total operating expenses 10,859 8,947 1,912 21.4 %

Income from operations 2,916 1,582 1,334 84.3 %

Other income 44 159 (115) (72.3) %

Interest expense, net

Contractual interest expense (1,670) (734) (936) 127.5 %

Write-off and amortization of deferred financing fees (156) (295) 139 (47.1) %

Interest income — 1 (1) (100.0) %

Total interest expense, net (1,826) (1,028) (798) 77.6 %

Income before income tax benefit (expense) 1,134 713 421 59.0 %

Income tax benefit (expense) 16 (37) 53 (143.2) %

Net income $ 1,150 $ 676 $ 474 70.1 %

Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants.

Rental income increased by $3.0 million to $13.2 million for the three months ended September 30, 2022 from $10.2 million for the three months ended September 30, 2021 due to the volume of our acquisitions.

Fee and other – Fee and other revenue increased by $0.3 million to $0.6 million for the three months ended September 30, 2022 from $0.3 million for the three months ended September 30, 2021 primarily due to income received from properties accounted for as financing leases.

Operating Expense

Real estate taxes – Real estate taxes increased by $0.2 million to $1.8 million for the three months ended September 30, 2022 from $1.6 million for the three months ended September 30, 2021 due to the volume of our acquisitions.

Property operating expenses – Property operating expenses increased by $0.4 million to $1.3 million for the three months ended September 30, 2022 from $1.0 million for the three months ended September 30, 2021.

Property management expenses are included within property operating expenses and increased by $0.1 million to $0.5 million for the three months ended September 30, 2022 from $0.4 million for the three months ended September 30, 2021 due to expanding our property management staff as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our property management employees.

The remainder of the increase of $0.3 million is related to expenses for repairs and maintenance and insurance, which increase is primarily due to the volume of our acquisitions.

General and administrative – General and administrative expenses increased by $0.4 million to $3.0 million for the three months ended September 30, 2022 from $2.6 million for the three months ended September 30, 2021 primarily due to expanding our staff and increase in information technology costs as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our employees in 2021 and during the three months ended September 30, 2022.

Depreciation and amortization – Depreciation and amortization expense increased by $0.9 million to $4.6 million for the three months ended September 30, 2022 from $3.7 million for three months ended September 30, 2021 due to the volume of our acquisitions.

Other income primarily includes insurance recoveries related to property damage claims.

Other income decreased by $0.1 million to $0.04 million for the three months ended September 30, 2022 from $0.2 million for the three months ended September 30, 2021, primarily due to lower insurance recoveries.

Total Interest Expense, Net

During the three months ended September 30, 2022, we incurred total interest expense, net of $1.8 million compared to $1.0 million for the three months ended September 30, 2021.

The increase in interest expense is primarily related to higher amount of borrowings under the Credit Facilities to finance our acquisitions.

Comparison of the Nine Months Ended September 30, 2022 and Nine Months Ended September 30, 2021

For the Nine Months Ended

September 30,

2022 2021 $ Change % Change

(Amounts in thousands) 2023 2022 $ Change % Change

Rental income $ 14,499 $ 11,349 $ 3,150 27.8 %

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Write-off and amortization of deferred financing fees (165) (129) (36) 27.9 %

Loss on early extinguishment of debt — (202) 202 (100.0) %

Interest income — 1 (1) (100.0) %

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Net income $ 433 $ 721 $ (288) (39.9) %

Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants.

Rental income increased by $9.0 million to $36.7 million for the nine months ended September 30, 2022 from $27.7 million for the nine months ended September 30, 2021 due to the volume of our acquisitions.

Fee and other .

Other revenue increased by $0.6 million to $1.8 million for the nine months ended September 30, 2022 from $1.1 million for the nine months ended September 30, 2021, primarily due to income received from properties accounted for as financing leases.

Operating Expense

Real estate taxes – Real estate taxes increased by $1.3 million to $5.1 million for the nine months ended September 30, 2022 from $3.9 million for the nine months ended September 30, 2021 due to the volume of our acquisitions.

Property operating expenses – Property operating expenses increased by $1.4 million to $4.1 million for the nine months ended September 30, 2022 from $2.7 million for the nine months ended September 30, 2021.

Property management expenses are included within property operating expenses and increased by $0.5 million to $1.6 million for the nine months ended September 30, 2022 from $1.1 million for the nine months ended September 30, 2021.

The remainder of the increase of $0.9 million is related to expenses for repairs and maintenance and insurance, which increase is due to the volume of our acquisitions.

General and administrative – General and administrative expenses increased by $2.1 million to $10.0 million for the nine months ended September 30, 2022 from $7.9 million for the nine months ended September 30, 2021 primarily due to expanding our staff and increase in information technology costs as a result of our continued growth, as well as an increase in equity-based compensation expense related to awards that have been granted to our employees.

Depreciation and amortization – Depreciation and amortization expense increased by $2.8 million to $13.0 million for the nine months ended September 30, 2022 from $10.1 million for the nine months ended September 30, 2021 due to the volume of our acquisitions.

Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants.

Rental income increased by $3.2 million to $14.5 million for the three months ended March 31, 2023 from $11.3 million for the three months ended March 31, 2022, primarily due to the volume of our acquisitions.

Fee and other – Fee and other revenue increased by $0.1 million to $0.6 million for the three months ended March 31, 2023 from $0.6 million for the three months ended March 31, 2022, primarily due to higher income received from properties accounted for as financing leases.

Operating Expenses

Real estate taxes – Real estate taxes increased by $0.4 million to $2.0 million for the three months ended March 31, 2023 from $1.6 million for the three months ended March 31, 2022, primarily due to the volume of our acquisitions.

Property operating expenses – Property operating expenses increased by $0.1 million to $1.6 million for the three months ended March 31, 2023 from $1.5 million for the three months ended March 31, 2022.

Property management expenses are included within property operating expenses and increased by $0.2 million to $0.8 million for the three months ended March 31, 2023 from $0.6 million for the three months ended March 31, 2022 due to expanding our property management staff as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our property management employees throughout 2022 and 2023.

The increase in property management expenses was offset by a decrease of $0.1 million in expenses related to repairs and maintenance.

General and administrative – General and administrative expenses increased by $0.5 million to $4.2 million for the three months ended March 31, 2023 from $3.6 million for the three months ended March 31, 2022, primarily due to expanding our staff and increase in information technology costs as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our employees throughout 2022 and during the three months ended March 31, 2023.

Depreciation and amortization – Depreciation and amortization expense increased by $0.7 million to $4.8 million for the three months ended March 31, 2023 from $4.1 million for three months ended March 31, 2022, primarily due to the volume of our acquisitions.

Other income primarily includes insurance recoveries related to property damage claims.

Other income increased by $0.4 million to $0.7 million for the nine months ended September 30, 2022 from $0.3 million for the nine months ended September 30, 2021, primarily due to higher insurance recoveries.

Other income decreased by $0.4 million to $0.1 million for the three months ended March 31, 2023 from $0.5 million for the three months ended March 31, 2022, primarily due to lower insurance recoveries.

Total Interest Expense, Net

During the nine months ended September 30, 2022, we incurred total interest expense, net of $3.9 million compared to $2.8 million for the nine months ended September 30, 2021.

The increase in interest expense is primarily related due to a higher amount of borrowings under the Credit Facilities to finance our acquisitions.

Comparison of the Nine Months Ended September 30, 2022 and the Nine Months Ended September 30, 2021

We had $4.6 million of cash and $0.3 million of escrows and reserves as of September 30, 2022 compared to $4.0 million of cash and $0.9 million of escrows and reserves as of September 30, 2021.

Cash flow from operating activities – Net cash provided by operating activities increased by $5.1 million to $18.6 million for the nine months ended September 30, 2022 compared to $13.4 million for the same period in 2021.

The increase is primarily due to the volume of properties that we have acquired, all of which have generated additional rental income and related changes in working capital.

Cash flow to investing activities – Net cash used in investing activities for the nine months ended September 30, 2022 primarily consisted of $96.4 million of acquisitions and $4.1 million of escrow deposits for acquisition and construction, capital improvements and other investing activities, offset by $0.6 million of insurance proceeds that were received.

Net cash used in investing activities for the nine months ended September 30, 2021 primarily consisted of $60.7 million of acquisitions.

Cash flow from financing activities – Net cash provided by financing activities increased by $29.5 million to $79.3 million for the nine months ended September 30, 2022 compared to $49.8 million for the nine months ended September 30, 2021.

The increase was primarily related to our 2022 Term Loan, additional borrowings under our 2021 Revolving Credit Facility, proceeds received from our ATM Program and the paydown of two mortgage financings during the nine months ended September 30, 2021, offset by a decrease in net proceeds from issuance of shares and increased payments of dividends and distributions.

During the three months ended March 31, 2023, we incurred total interest expense, net of $2.2 million compared to $0.8 million for the three months ended March 31, 2022.

The increase in interest expense is primarily related to higher amount of borrowings under the Credit Facilities to finance our acquisitions and increased interest rates.

Comparison of the Three Months Ended March 31, 2023 and the Three Months Ended March 31, 2022

We had $2.1 million of cash and $0.7 million of escrows and reserves as of March 31, 2023 compared to $6.0 million of cash and $1.3 million of escrows and reserves as of March 31, 2022.

Cash flows from operating activities – Net cash provided by operating activities increased by $1.1 million to $7.7 million for the three months ended March 31, 2023 compared to $6.6 million for the same period in 2022.

The increase is primarily due to the volume our acquisitions, all of which have generated additional rental income and related changes in working capital.

Cash flows to investing activities – Net cash used in investing activities for the three months ended March 31, 2023 primarily consisted of $17.4 million of acquisitions and $0.6 million of escrow deposits for acquisition and construction, capital improvements and other investing activities.

Net cash used in investing activities for the three months ended March 31, 2022 primarily consisted of $25.5 million of acquisitions and $2.6 million of escrow deposits for acquisition and construction, capital improvements and other investing activities, offset by $0.4 million of insurance proceeds that were received.

Cash flows from financing activities – Net cash provided by financing activities decreased by $10.3 million to $11.0 million for the three months ended March 31, 2023 compared to $21.3 million for the three months ended March 31, 2022.

The decrease was primarily related to lower borrowings under the Revolving Credit Facility.

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately $4.6 million of cash and $0.3 million of escrows and reserves as of September 30, 2022.

On August 9, 2021, we entered into the Credit Facilities, which include the $150.0 million 2021 Revolving Credit Facility and the $50.0 million 2021 Term Loan, with Bank of Montreal, as administrative agent, and BMO Capital Markets Corp., People’s United Bank, National Association, JPMorgan Chase Bank, N.A.

We had approximately $2.1 million of cash and $0.7 million of escrows and reserves as of March 31, 2023.

Revolving Credit Facility and Term loans

On August 9, 2021, we entered into the Credit Facilities, which include the $150.0 million Revolving Credit Facility and the $50.0 million 2021 Term Loan, with Bank of Montreal, as administrative agent, and BMO Capital Markets Corp., M&T Bank, JPMorgan Chase Bank, N.A.

and Truist Securities, Inc.

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Additional participants in the Credit Facilities include Stifel Bank & Trust and TriState Capital Bank.

In connection with entering into the Credit Facilities, we terminated our previous credit facility and paid off the outstanding loans thereunder.

On May 11, 2022, we entered into the First Amendment to, among other things, add the 2022 Term Loan.

As of September 30, 2022, we had $156.0 million of aggregate principal amount outstanding under our Credit Facilities, with $50.0 million drawn on the 2021 Term Loan, $75.0 million drawn on the 2022 Term Loan and $31.0 million drawn on the 2021 Revolving Credit Facility.

The Credit Facilities include an accordion feature which permit us to borrow up to an additional $150.0 million under the 2021 Revolving Credit Facility and up to an additional $75.0 million under the term loans, in each case subject to customary terms and conditions.

On May 11, 2022, we entered into the First Amendment to, among other things, add the 2022 Term Loan (and, together with the 2021 Term Loan, the "Term Loans").

On December 6, 2022, we further exercised $40.0 million of accordion feature under the 2022 Term Loan.

As of March 31, 2023, we had $182.0 million of aggregate principal amount outstanding under our Credit Facilities, with $50.0 million drawn on the 2021 Term Loan, $115.0 million drawn on the 2022 Term Loan and $17.0 million drawn on the Revolving Credit Facility.

The Credit Facilities include an accordion feature which permit us to borrow up to an additional $150.0 million under the Revolving Credit Facility and up to an additional $35.0 million under the Term Loans (after our exercise of the $40.0 million term loan accordion in December 2022), in each case subject to customary terms and conditions.

The Revolving Credit Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, the 2021 Term Loan matures in January 2027 and the 2022 Term Loan matures in February 2028.

Borrowings under the Credit Facilities carry an interest rate of, (i) in the case of the 2021 Revolving Credit Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or Adjusted Term SOFR (as defined below) plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the 2021 Term Loan and the 2022 Term Loan, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or Adjusted Term SOFR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio.

Borrowings under the Credit Facilities carry an interest rate of, (i) in the case of the Revolving Credit Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or Adjusted Term SOFR (as defined below) plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the Term Loans, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or Adjusted Term SOFR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio.

With respect to the Revolving Credit Facility, we will pay, if the usage is equal to or less than 50%, an unused facility fee of 0.20% per annum, or if the usage is greater than 50%, an unused facility fee of 0.15% per annum, in each case on the average daily unused commitments under the Revolving Credit Facility.

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The Credit Facilities also contain certain customary events of default, including the failure to make timely payments under the Credit Facilities, any event or condition that makes other material indebtedness due prior to its scheduled maturity, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency.

As of September 30, 2022, we were in compliance with all of the Credit Facilities’ debt covenants.

We have four interest rate swaps with a total notional amount of $125.0 million that are used to manage our interest rate risk and fix the SOFR component on the Credit Facilities.

Within the $125.0 million, $50.0 million of the swaps mature in January 2027 and fix the interest rate of the 2021 Term Loan at 2.291% as of September 30, 2022.

The additional $50.0 million of the swaps mature in February 2028 and fix the first $50.0 million amount outstanding under the 2022 Term Loan at 4.237% as of September 30, 2022.

The remaining $25.0 million of the swaps mature in February 2028 and fix the remaining $25.0 million amount outstanding under the 2022 Term Loan at 4.81% as of September 30, 2022.

As of March 31, 2023, we were in compliance with all of the Credit Facilities’ debt covenants.

We have five interest rate swaps with a total notional amount of $165.0 million that are used to manage our interest rate risk and fix the SOFR component on the Credit Facilities (together, the "Interest Rate Swaps").

Within the $165.0 million, $50.0 million of the swaps mature in January 2027 and fix the interest rate of the 2021 Term Loan at 2.27% as of March 31, 2023.

An additional $50.0 million of the swaps mature in February 2028 and fix the first $50.0 million amount outstanding under the 2022 Term Loan at 4.217% as of March 31, 2023.

An additional $25.0 million of the swaps mature in February 2028 and fix the additional $25.0 million amount outstanding under the 2022 Term Loan at 4.79% as of March 31, 2023.

remaining $40.0 million of the swaps mature in February 2028 and fix the remaining $40.0 million amount outstanding under the 2022 Term Loan at 4.932% as of March 31, 2023.

Capital Resources and Financing Strategy

Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions.

We expect to meet our short-term liquidity requirements through net cash provided by operations, cash, borrowings under our Credit Facilities and the potential issuance of securities.

Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements.

We have an effective shelf registration statement on file with the SEC under which we may issue equity financing through the instruments and on the terms most attractive to us at such time, including through our $50.0 million ATM Program.

Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, property acquisitions and non-recurring capital improvements.

We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness including our Credit Facilities and mortgage financing, the issuance of equity and debt securities and proceeds from select sales of our properties.

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If we do not have sufficient funds available to us from our operations to fund our business needs, we will need to find alternative ways to fund those needs.

Such alternatives may include, among other things, divesting ourselves of properties (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring

indebtedness or issuing equity securities in public or private transactions, the availability and attractiveness of the terms of which cannot be assured.

Such alternatives may include, among other things, divesting ourselves of properties (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring indebtedness or issuing equity securities in public or private transactions, the availability and attractiveness of the terms of which cannot be assured.

Consolidated Indebtedness

As of September 30, 2022, we had approximately $189.1 million of outstanding consolidated principal indebtedness.

The following table sets forth information as of September 30, 2022 with respect to our outstanding indebtedness (in thousands):

Balance as of September 30, 2022

Rate at September 30, 2022

As of March 31, 2023, we had approximately $215.0 million of outstanding consolidated principal indebtedness.

The following table sets forth information as of March 31, 2023 with respect to our outstanding indebtedness (in thousands):

Balance as of March 31, 2023

Rate at March 31, 2023

Revolving Credit Facility (1)

2021 Revolving Credit Facility $ 31,000 SOFR+150 bps (2)

$ 17,000 SOFR+148 bps (2)

2021 Term Loan (1)

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Explanatory Notes :

(1) See above under "— Analysis of Liquidity and Capital Resources" for details regarding the Credit Facilities.

During the three and nine months ended September 30, 2022, we incurred $0.06 million and $0.2 million, respectively, of unused facility fees related to the 2021 Revolving Credit Facility.

(1) See above under "— Revolving Credit Facility and Term loans " for details regarding the Credit Facilities.

During the three months ended March 31, 2023, we incurred $0.1 million of unused facility fees related to the Revolving Credit Facility.

(2) Based upon the one-month Adjusted Term SOFR, which is SOFR plus a term SOFR adjustment of 0.10%, subject to a 0% floor (the “Adjusted Term SOFR”) .

Upon our achievement of certain sustainability targets for 2022 , the applicable margins for the Credit Facilities were reduced by 0.02% for the year ending December 31, 2023, which is reflected in the margins noted in the table above.

(3) Five properties are collateralized under this loan and Mr.

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The loan has a fixed interest rate of 2.80% with interest-only payments for the first five years and fixed payments of principal and interest thereafter based on a 30-year amortization schedule.

Secured Borrowings as of September 30, 2022

As of September 30, 2022, we had approximately $33.1 million of secured borrowings outstanding, all of which are currently fixed rate debt with a weighted average interest rate of 2.90% per annum.

Secured Borrowings as of March 31, 2023

As of March 31, 2023, we had approximately $33.0 million of secured borrowings outstanding, all of which are currently fixed-rate debt with a weighted average interest rate of 2.89% per annum.

To maintain our qualification as a REIT, we are required to pay dividends to stockholders at least equal to 90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding net capital gains.

During the three and nine months ended September 30, 2022, we paid cash dividends of $0.2325 and $0.69, respectively, per share.

Our Board of Directors approved, and o n October 26, 2022 , we declared a third quarter common stock dividend of $0.2350 per share, which will be paid on November 28, 2022 to stockholders of record as of November 7, 2022

During the three months ended March 31, 2023, we paid cash dividends of $0.2375 per share.

Our Board of Directors approved, and o n April 24, 2023 , we declared a first quarter common stock dividend of $0.2375 per share, which will be paid on May 31, 2023 to stockholders of record as of May 5, 2023.

Because most of our leases provide for fixed annual rental payments without annual rent escalations, our rental revenues are fixed while our property operating expenses are subject to inflationary increases.

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Subsequent Real Estate Acquisitions

Subsequent to September 30, 2022, we have acquired 7 properties in individual or portfolio transactions for an aggregate of approximately $5.9 million, excluding closing costs.

Critical Accounting Policies and Estimates

Refer to the heading titled “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our critical accounting policies and estimates.

New Accounting Pronouncements

As of May 3, 2023 and d uring the period s ubsequent to March 31, 2023, we have acquired seven properties in individual or portfolio transactions for an aggregate of approximately $4.5 million, excluding closing costs.

Critical Accounting Estimates

Refer to the heading titled “Critical Accounting Estimates” under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting estimates.

Recently Adopted Accounting Pronouncements

For a discussion of our adoption of new accounting pronouncements, please see Note 2.

Summary of Significant Accounting Policies in the Notes to the of our Consolidated Financial Statements included herein.

Summary of Significant Accounting Policies in the Notes to our Consolidated Financial Statements included under Item 1 herein.

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