STAG Industrial, Inc. 10-Q

Item 1. Financial Statements STAG Industrial, Inc. Consolidated Balance Sheets (unaudited, in thousands, except share data) March 31, 2023 December 31, 2022 Assets Rental Property: Land $ 645,477 $ 647,098 Buildings and improvements, net of accumulated depreciation of $ 802,584 and $ 763,128 , respectively 4,683,041 4,706,745 Deferred leasing intangibles, net of accumulated amortization of $ 333,672 and $ 328,848 , respectively 483,583 508,935 Total rental property, net 5,812,101 5,862,778 Cash and cash equivalents 17,210 25,884 Restricted cash 963 905 Tenant accounts receivable 116,767 115,509 Prepaid expenses and other assets 78,567 71,733 Interest rate swaps 56,203 72,223 Operating lease right-of-use assets 30,843 31,313 Assets held for sale, net 3,183 4,643 Total assets $ 6,115,837 $ 6,184,988 Liabilities and Equity Liabilities: Unsecured credit facility $ 235,000 $ 175,000 Unsecured term loans, net 1,020,772 1,020,440 Unsecured notes, net 1,195,619 1,295,442 Mortgage notes, net 7,813 7,898 Accounts payable, accrued expenses and other liabilities 94,122 97,371 Tenant prepaid rent and security deposits 44,142 40,847 Dividends and distributions payable 22,484 22,282 Deferred leasing intangibles, net of accumulated amortization of $ 25,506 and $ 24,593 , respectively 30,373 32,427 Operating lease liabilities 34,692 35,100 Total liabilities 2,685,017 2,726,807 Commitments and contingencies (Note 11) Equity: Preferred stock, par value $ 0.01 per share, 20,000,000 shares authorized at March 31, 2023 and December 31, 2022; none issued or outstanding — — Common stock, par value $ 0.01 per share, 300,000,000 shares authorized at March 31, 2023 and December 31, 2022, 179,372,871 and 179,248,980 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 1,794 1,792 Additional paid-in capital 4,188,960 4,188,677 Cumulative dividends in excess of earnings ( 892,676 ) ( 876,145 ) Accumulated other comprehensive income 54,849 70,500 Total stockholders’ equity 3,352,927 3,384,824 Noncontrolling interest 77,893 73,357 Total equity 3,430,820 3,458,181 Total liabilities and equity $ 6,115,837 $ 6,184,988 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents STAG Industrial, Inc. Consolidated Statements of Operations (unaudited, in thousands, except per share data) Three months ended March 31, 2023 2022 Revenue Rental income $ 173,268 $ 158,601 Other income 285 608 Total revenue 173,553 159,209 Expenses Property 35,881 31,775 General and administrative 12,676 12,313 Depreciation and amortization 68,944 67,366 Other expenses 2,979 497 Total expenses 120,480 111,951 Other income (expense) Interest and other income 19 34 Interest expense ( 22,612 ) ( 17,259 ) Gain on the sales of rental property, net 20,128 23,955 Total other income (expense) ( 2,465 ) 6,730 Net income $ 50,608 $ 53,988 Less: income attributable to noncontrolling interest 1,142 1,162 Net income attributable to STAG Industrial, Inc. $ 49,466 $ 52,826 Less: amount allocated to participating securities 53 62 Net income attributable to common stockholders $ 49,413 $ 52,764 Weighted average common shares outstanding — basic 179,196 177,827 Weighted average common shares outstanding — diluted 179,297 178,065 Net income per share — basic and diluted Net income per share attributable to common stockholders — basic $ 0.28 $ 0.30 Net income per share attributable to common stockholders — diluted $ 0.28 $ 0.30 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents STAG Industrial, Inc. Consolidated Statements of Comprehensive Income (unaudited, in thousands) Three months ended March 31, 2023 2022 Net income $ 50,608 $ 53,988 Other comprehensive income (loss): Income (loss) on interest rate swaps ( 16,012 ) 37,237 Other comprehensive income (loss) ( 16,012 ) 37,237 Comprehensive income 34,596 91,225 Income attributable to noncontrolling interest after preferred stock dividends ( 1,142 ) ( 1,162 ) Other comprehensive (income) loss attributable to noncontrolling interest 361 ( 802 ) Comprehensive income attributable to STAG Industrial, Inc. $ 33,815 $ 89,261 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents STAG Industrial, Inc. Consolidated Statements of Equity (unaudited, in thousands, except share data) Preferred Stock Common Stock Additional Paid-in Capital Cumulative Dividends in Excess of Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Noncontrolling Interest - Unit Holders in Operating Partnership Total Equity Shares Amount Three months ended March 31, 2023 Balance, December 31, 2022 $ — $ 179,248,980 $ 1,792 $ 4,188,677 $ ( 876,145 ) $ 70,500 3,384,824 $ 73,357 $ 3,458,181 Proceeds from sales of common stock, net — — — ( 152 ) — — ( 152 ) — ( 152 ) Dividends and distributions, net ($ 0.37 per share/unit) — — — — ( 65,914 ) — ( 65,914 ) 1,816 ( 64,098 ) Non-cash compensation activity, net — 80,057 1 ( 3,831 ) ( 83 ) — ( 3,913 ) 6,206 2,293 Redemption of common units to common stock — 43,834 1 828 — — 829 ( 829 ) — Rebalancing of noncontrolling interest — — — 3,438 — — 3,438 ( 3,438 ) — Other comprehensive loss — — — — — ( 15,651 ) ( 15,651 ) ( 361 ) ( 16,012 ) Net income — — — — 49,466 — 49,466 1,142 50,608 Balance, March 31, 2023 $ — 179,372,871 $ 1,794 $ 4,188,960 $ ( 892,676 ) $ 54,849 $ 3,352,927 $ 77,893 $ 3,430,820 Three months ended March 31, 2022 Balance, December 31, 2021 $ — 177,769,342 $ 1,777 $ 4,130,038 $ ( 792,332 ) $ ( 11,783 ) $ 3,327,700 $ 65,887 $ 3,393,587 Proceeds from sales of common stock, net — 1,328,335 13 54,963 — — 54,976 — 54,976 Dividends and distributions, net ($ 0.37 per share/unit) — — — — ( 65,114 ) — ( 65,114 ) ( 1,474 ) ( 66,588 ) Non-cash compensation activity, net — 48,628 1 ( 3,279 ) ( 780 ) — ( 4,058 ) 5,737 1,679 Redemption of common units to common stock — 65,000 1 1,216 — — 1,217 ( 1,217 ) — Rebalancing of noncontrolling interest — — — ( 3,577 ) — — ( 3,577 ) 3,577 — Other comprehensive income — — — — — 36,435 36,435 802 37,237 Net income — — — — 52,826 — 52,826 1,162 53,988 Balance, March 31, 2022 $ — 179,211,305 $ 1,792 $ 4,179,361 $ ( 805,400 ) $ 24,652 $ 3,400,405 $ 74,474 $ 3,474,879 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents STAG Industrial, Inc . Consolidated Statements of Cash Flows (unaudited, in thousands) Three months ended March 31, 2023 2022 Cash flows from operating activities: Net income $ 50,608 $ 53,988 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 68,944 67,366 Non-cash portion of interest expense 976 864 Amortization of above and below market leases, net ( 129 ) ( 84 ) Straight-line rent adjustments, net ( 5,044 ) ( 4,450 ) Gain on the sales of rental property, net ( 20,128 ) ( 23,955 ) Non-cash compensation expense 3,092 3,260 Change in assets and liabilities: Tenant accounts receivable 2,694 ( 262 ) Prepaid expenses and other assets ( 11,288 ) ( 3,371 ) Accounts payable, accrued expenses and other liabilities ( 6,599 ) ( 3,401 ) Tenant prepaid rent and security deposits 3,295 ( 1,076 ) Total adjustments 35,813 34,891 Net cash provided by operating activities 86,421 88,879 Cash flows from investing activities: Acquisitions of land and buildings and improvements — ( 144,600 ) Additions of land and buildings and improvements ( 27,685 ) ( 17,061 ) Acquisitions of other assets — ( 2,134 ) Proceeds from sales of rental property, net 36,333 35,326 Acquisition deposits, net 1,185 ( 711 ) Acquisitions of deferred leasing intangibles — ( 19,617 ) Net cash provided by (used in) investing activities 9,833 ( 148,797 ) Cash flows from financing activities: Proceeds from unsecured credit facility 209,000 675,000 Repayment of unsecured credit facility ( 149,000 ) ( 587,000 ) Repayment of unsecured notes ( 100,000 ) — Repayment of mortgage notes ( 86 ) ( 586 ) Payment of loan fees and costs — ( 4 ) Proceeds from sales of common stock, net ( 76 ) 55,126 Dividends and distributions ( 63,896 ) ( 66,213 ) Repurchase and retirement of share-based compensation ( 812 ) ( 1,596 ) Net cash provided by (used in) financing activities ( 104,870 ) 74,727 Increase (decrease) in cash and cash equivalents and restricted cash ( 8,616 ) 14,809 Cash and cash equivalents and restricted cash—beginning of period 26,789 23,196 Cash and cash equivalents and restricted cash—end of period $ 18,173 $ 38,005 Supplemental disclosure: Cash paid for interest, net of capitalized interest $ 18,597 $ 17,172 Supplemental schedule of non-cash investing and financing activities Additions of land and buildings and improvements $ — $ ( 539 ) Transfer of other assets to building and other capital improvements $ — $ 539 Change in additions of land, building, and improvements included in accounts payable, accrued expenses and other liabilities $ ( 4,596 ) $ 590 Additions to building and other capital improvements from non-cash compensation $ ( 13 ) $ ( 26 ) Change in loan fees, costs, and offering costs included in accounts payable, accrued expenses and other liabilities $ ( 76 ) $ ( 167 ) Dividends and distributions accrued $ 22,484 $ 22,282 The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents STAG Industrial, Inc. Notes to Consolidated Financial Statements (unaudited) 1. Organization and Description of Business STAG Industrial, Inc. (the “Company”) is an industrial real estate operating company focused on the acquisition and operation of single-tenant, industrial properties throughout the United States. The Company was formed as a Maryland corporation and has elected to be treated and intends to continue to qualify as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. The Company is structured as an umbrella partnership REIT, commonly called an UPREIT, and owns all of its properties and conducts substantially all of its business through its operating partnership, STAG Industrial Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”). As of March 31, 2023 and December 31, 2022, the Company owned a 97.7 % and 97.9 %, respectively, of the common units of the limited partnership interests in the Operating Partnership. The Company, through its wholly owned subsidiary, is the sole general partner of the Operating Partnership. As used herein, the “Company” refers to STAG Industrial, Inc. and its consolidated subsidiaries, including the Operating Partnership, except where context otherwise requires. As of March 31, 2023, the Company owned 561 industrial buildings in 41 states with approximately 111.6 million rentable square feet. 2. Summary of Significant Accounting Policies Interim Financial Information The accompanying interim financial statements have been presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements include all adjustments, consisting of normal recurring items, necessary for their fair statement in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Basis of Presentation The Company’s consolidated financial statements include the accounts of the Company, the Operating Partnership, and their consolidated subsidiaries. Interests in the Operating Partnership not owned by the Company are referred to as “Noncontrolling Common Units.” These Noncontrolling Common Units are held by other limited partners in the form of common units (“Other Common Units”) and long term incentive plan units (“LTIP units”) issued pursuant to the STAG Industrial, Inc. 2011 Equity Incentive Plan, as amended and restated (the “2011 Plan”). All significant intercompany balances and transactions have been eliminated in the consolidation of entities. The financial statements of the Company are presented on a consolidated basis for all periods presented. Restricted Cash The following table presents a reconciliation of cash and cash equivalents and restricted cash reported on the accompanying Consolidated Balance Sheets to amounts reported on the accompanying Consolidated Statements of Cash Flows. Reconciliation of cash and cash equivalents and restricted cash (in thousands) March 31, 2023 December 31, 2022 Cash and cash equivalents $ 17,210 $ 25,884 Restricted cash 963 905 Total cash and cash equivalents and restricted cash $ 18,173 $ 26,789 Uncertain Tax Positions As of March 31, 2023 and December 31, 2022, there were no liabilities for uncertain tax positions. 8 Table of Contents Concentrations of Credit Risk Management believes the current credit risk of the Company’s portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk. 3. Rental Property The following table summarizes the components of rental property, net as of March 31, 2023 and December 31, 2022. Rental Property (in thousands) March 31, 2023 December 31, 2022 Land $ 645,477 $ 647,098 Buildings, net of accumulated depreciation of $ 540,811 and $ 513,053 , respectively 4,216,760 4,232,964 Tenant improvements, net of accumulated depreciation of $ 32,556 and $ 31,578 , respectively 42,647 44,526 Building and land improvements, net of accumulated depreciation of $ 229,217 and $ 218,497 , respectively 347,172 339,274 Construction in progress 76,462 89,981 Deferred leasing intangibles, net of accumulated amortization of $ 333,672 and $ 328,848 , respectively 483,583 508,935 Total rental property, net $ 5,812,101 $ 5,862,778 Acquisitions There were no assets acquired by the Company during the three months ended March 31, 2023, compared to eight acquisitions for a purchase price of approximately $ 166.4 million during the three months ended March 31, 2022. Dispositions The following table summarizes the Company’s dispositions for the three months ended March 31, 2023. All of the dispositions were sold to third parties and were accounted for under the full accrual method. Sales of rental property, net (dollars in thousands) Three months ended March 31, 2023 Number of buildings 2 Building square feet (in millions) 0.4 2023 contribution to net income (1) $ 180 2022 contribution to net income $ 246 Proceeds from sales of rental property, net $ 36,333 Net book value $ 16,205 Gain on the sales of rental property, net $ 20,128 (1) Exclusive of gain on the sales of rental property, net. Assets Held for Sale As of March 31, 2023, the related land and buildings and improvements, net of approximately $ 0.5 million and $ 2.7 million, respectively, for one building was classified as assets held for sale, net on the accompanying Consolidated Balance Sheets. This building contributed approximately $( 0.2 ) million and $ 0.1 million to net income (loss) during the months ended March 31, 2023 and 2022, respectively. Subsequent to March 31, 2023, in April 2023, this building was sold to a third party. 9 Table of Contents Deferred Leasing Intangibles The following table summarizes the deferred leasing intangibles, net on the accompanying Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022. March 31, 2023 December 31, 2022 Deferred Leasing Intangibles (in thousands) Gross Accumulated Amortization Net Gross Accumulated Amortization Net Above market leases $ 83,040 $ ( 33,752 ) $ 49,288 $ 86,172 $ ( 34,954 ) $ 51,218 Other intangible lease assets 734,215 ( 299,920 ) 434,295 751,611 ( 293,894 ) 457,717 Total deferred leasing intangible assets $ 817,255 $ ( 333,672 ) $ 483,583 $ 837,783 $ ( 328,848 ) $ 508,935 Below market leases $ 55,879 $ ( 25,506 ) $ 30,373 $ 57,020 $ ( 24,593 ) $ 32,427 Total deferred leasing intangible liabilities $ 55,879 $ ( 25,506 ) $ 30,373 $ 57,020 $ ( 24,593 ) $ 32,427 The following table summarizes the net increase to rental income and amortization expense for the amortization of deferred leasing intangibles during the three months ended March 31, 2023 and 2022. Three months ended March 31, Deferred Leasing Intangibles Amortization (in thousands) 2023 2022 Net increase to rental income related to above and below market lease amortization $ 124 $ 79 Amortization expense related to other intangible lease assets $ 22,445 $ 24,077 10 Table of Contents 4. Debt The following table summarizes the Company’s outstanding indebtedness, including borrowings under the Company’s unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes as of March 31, 2023 and December 31, 2022. Indebtedness (dollars in thousands) March 31, 2023 December 31, 2022 Interest Rate (1)(2) Maturity Date Prepayment Terms (3) Unsecured credit facility: Unsecured Credit Facility (4) $ 235,000 $ 175,000 Term SOFR + 0.855 % October 23, 2026 i Total unsecured credit facility 235,000 175,000 Unsecured term loans: Unsecured Term Loan F 200,000 200,000 2.94 % January 12, 2025 i Unsecured Term Loan G 300,000 300,000 1.09 % February 5, 2026 i Unsecured Term Loan A 150,000 150,000 2.14 % March 15, 2027 i Unsecured Term Loan H 187,500 187,500 3.73 % January 25, 2028 i Unsecured Term Loan I 187,500 187,500 3.49 % January 25, 2028 i Total unsecured term loans 1,025,000 1,025,000 Total unamortized deferred financing fees and debt issuance costs ( 4,228 ) ( 4,560 ) Total carrying value unsecured term loans, net 1,020,772 1,020,440 Unsecured notes: Series F Unsecured Notes — 100,000 3.98 % January 5, 2023 ii Series A Unsecured Notes 50,000 50,000 4.98 % October 1, 2024 ii Series D Unsecured Notes 100,000 100,000 4.32 % February 20, 2025 ii Series G Unsecured Notes 75,000 75,000 4.10 % June 13, 2025 ii Series B Unsecured Notes 50,000 50,000 4.98 % July 1, 2026 ii Series C Unsecured Notes 80,000 80,000 4.42 % December 30, 2026 ii Series E Unsecured Notes 20,000 20,000 4.42 % February 20, 2027 ii Series H Unsecured Notes 100,000 100,000 4.27 % June 13, 2028 ii Series I Unsecured Notes 275,000 275,000 2.80 % September 29, 2031 ii Series K Unsecured Notes 400,000 400,000 4.12 % June 28, 2032 ii Series J Unsecured Notes 50,000 50,000 2.95 % September 28, 2033 ii Total unsecured notes 1,200,000 1,300,000 Total unamortized deferred financing fees and debt issuance costs ( 4,381 ) ( 4,558 ) Total carrying value unsecured notes, net 1,195,619 1,295,442 Mortgage notes (secured debt): Thrivent Financial for Lutherans 3,262 3,296 4.78 % December 15, 2023 iii United of Omaha Life Insurance Company 4,692 4,744 3.71 % October 1, 2039 ii Total mortgage notes 7,954 8,040 Net unamortized fair market value discount ( 138 ) ( 137 ) Total unamortized deferred financing fees and debt issuance costs ( 3 ) ( 5 ) Total carrying value mortgage notes, net 7,813 7,898 Total / weighted average interest rate (5) $ 2,459,204 $ 2,498,780 3.49 % (1) Interest rate as of March 31, 2023. At March 31, 2023, the one-month Term Secured Overnight Financing Rate (“Term SOFR”) was 4.80247 %. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums or discounts. The spread over the applicable rate for the Company’s unsecured credit facility and unsecured term loans is based on the Company’s debt rating and leverage ratio, as defined in the respective loan agreements. (2) The unsecured credit facility has a stated rate of one-month Term SOFR plus a 0.10 % adjustment and a spread of 0.775 %, less a sustainability-related interest rate adjustment of 0.02 %. The unsecured term loans have a stated interest rate of one-month Term SOFR plus a 0.10 % adjustment and a spread of 0.85 %, less a sustainability-related interest rate adjustment of 0.02 %. As of March 31, 2023, one-month Term SOFR for the Unsecured Term Loans A, F, G, H, and I was swapped to a fixed rate of 1.31 %, 2.11 %, 0.26 %, 2.90 %, and 2.66 %, respectively (which includes the 0.10% adjustment). One-month Term SOFR for the Unsecured Term Loan G will be swapped to a fixed rate of 0.95 % effective April 18, 2023. One-month Term SOFR for the Unsecured Term Loan H will be swapped to a fixed rate of 2.50 % effective January 12, 2024. (3) Prepayment terms consist of (i) pre-payable with no penalty; (ii) pre-payable with penalty; (iii) pre-payable without penalty three months prior to the maturity date. (4) The capacity of the unsecured credit facility is $ 1.0 billion. Deferred financing fees and debt issuance costs, net of accumulated amortization related to the unsecured credit facility of approximately $ 4.7 million and $ 5.2 million are included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively. The initial maturity date is October 24, 2025, or such later date which may be extended pursuant to two six-month extension options exercisable by the Company in its discretion upon advance written notice. Exercise 11 Table of Contents of each six-month option is subject to the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension; (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date; and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions. The Company is required to pay a facility fee on the aggregate commitment amount (currently $1.0 billion) at a rate per annum of 0.1 % to 0.3 %, depending on our debt rating, as defined in the credit agreement. The facility fee is due and payable quarterly. (5) The weighted average interest rate was calculated using the fixed interest rate swapped on the notional amount of $ 1,025.0 million of debt, and is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums or discounts. The aggregate undrawn nominal commitment on the unsecured credit facility as of March 31, 2023 was approximately $ 761.7 million, including issued letters of credit. The Company’s actual borrowing capacity at any given point in time may be less or restricted to a maximum amount based on the Company’s debt covenant compliance. Total accrued interest for the Company’s indebtedness was approximately $ 16.5 million and $ 13.1 million as of March 31, 2023 and December 31, 2022, respectively, and is included in accounts payable, accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets. The following table summarizes the costs included in interest expense related to the Company’s debt arrangements on the accompanying Consolidated Statement of Operations for the three months ended March 31, 2023 and 2022. Three months ended March 31, Costs Included in Interest Expense (in thousands) 2023 2022 Amortization of deferred financing fees and debt issuance costs and fair market value premiums/discounts $ 976 $ 864 Facility, unused, and other fees $ 435 $ 341 Debt Activity On January 5, 2023, the Company redeemed in full at maturity the $ 100.0 million in aggregate principal amount of the Series F Unsecured Notes with a fixed interest rate of 3.98 %. On January 19, 2023, the sustainability-related interest rate adjustment for the Unsecured Term Loan H and Unsecured Term Loan I went into effect in connection with the Company's 2022 public disclosure assessment score of “A” from the Global Real Estate Sustainability Benchmark (GRESB). The interest rate adjustment, a 0.02 % interest rate reduction for each instrument, will end on June 29, 2024, in accordance with the respective loan agreements. Financial Covenant Considerations The Company was in compliance with all such applicable restrictions and financial and other covenants as of March 31, 2023 and December 31, 2022 related to its unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes. The real estate net book value of the properties that are collateral for the Company’s debt arrangements was approximately $ 14.8 million and $ 14.8 million at March 31, 2023 and December 31, 2022, respectively, and is limited to senior, property-level secured debt financing arrangements. Fair Value of Debt The following table summarizes the aggregate principal amount outstanding under the Company’s debt arrangements and the corresponding estimate of fair value as of March 31, 2023 and December 31, 2022. March 31, 2023 December 31, 2022 Indebtedness (in thousands) Principal Outstanding Fair Value Principal Outstanding Fair Value Unsecured credit facility $ 235,000 $ 235,000 $ 175,000 $ 175,000 Unsecured term loans 1,025,000 1,025,000 1,025,000 1,025,000 Unsecured notes 1,200,000 1,072,943 1,300,000 1,150,283 Mortgage notes 7,954 6,996 8,040 6,855 Total principal amount 2,467,954 $ 2,339,939 2,508,040 $ 2,357,138 Net unamortized fair market value discount ( 138 ) ( 137 ) Total unamortized deferred financing fees and debt issuance costs ( 8,612 ) ( 9,123 ) Total carrying value $ 2,459,204 $ 2,498,780 The applicable fair value guidance establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as 12 Table of Contents inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of the Company’s debt is based on Level 3 inputs. 5. Derivative Financial Instruments Risk Management Objective of Using Derivatives The Company’s use of derivative instruments is limited to the utilization of interest rate swaps to manage interest rate risk exposure on existing and future liabilities and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and related costs associated with the Company’s operating and financial structure. As of March 31, 2023, the Company had 25 interest rate swaps outstanding, all of which are used to hedge the variable cash flows associated with unsecured loans. All of the Company’s interest rate swaps convert the related loans’ Term SOFR components to effectively fixed interest rates, and the Company has concluded that each of the hedging relationships are highly effective. The following table summarizes the fair value of the interest rate swaps outstanding as of March 31, 2023 and December 31, 2022. Balance Sheet Line Item (in thousands) Notional Amount March 31, 2023 Fair Value March 31, 2023 Notional Amount December 31, 2022 Fair Value December 31, 2022 Interest rate swaps-Asset $ 1,500,000 $ 56,203 $ 1,650,000 $ 72,223 Interest rate swaps-Liability $ — $ — $ — $ — Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified to interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. The Company estimates that approximately $ 28.6 million will be reclassified from accumulated other comprehensive income as a decrease to interest expense over the next 12 months. The following table summarizes the effect of cash flow hedge accounting and the location of amounts related to Company’s derivatives in the consolidated financial statements for the three months ended March 31, 2023 and 2022. Three months ended March 31, Effect of Cash Flow Hedge Accounting (in thousands) 2023 2022 Income (loss) recognized in accumulated other comprehensive income on interest rate swaps $ ( 8,542 ) $ 33,506 Income (loss) reclassified from accumulated other comprehensive income into income as interest expense $ 7,470 $ ( 3,731 ) Total interest expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded $ 22,612 $ 17,259 Credit-risk-related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of March 31, 2023, the Company had not breached the provisions of these agreements and had not posted any collateral related to these agreements. 13 Table of Contents Fair Value of Interest Rate Swaps The Company’s valuation of the interest rate swaps is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs including interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company or its counterparties. However, as of March 31, 2023 and December 31, 2022, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The following table summarizes the Company’s financial instruments that were recorded at fair value on a recurring basis as of March 31, 2023 and December 31, 2022. There were no financial instruments in a liability position at March 31, 2023 and December 31, 2022. Fair Value Measurements as of March 31, 2023 Using Balance Sheet Line Item (in thousands) Fair Value March 31, 2023 Level 1 Level 2 Level 3 Interest rate swaps-Asset $ 56,203 $ — $ 56,203 $ — Fair Value Measurements as of December 31, 2022 Using Balance Sheet Line Item (in thousands) Fair Value December 31, 2022 Level 1 Level 2 Level 3 Interest rate swaps-Asset $ 72,223 $ — $ 72,223 $ — 6. Equity Preferred Stock The Company is authorized to issue up to 20,000,000 shares of preferred stock, par value $ 0.01 per share. As of March 31, 2023 and December 31, 2022, there were no shares of preferred stock issued or outstanding. Common Stock The Company is authorized to issue up to 300,000,000 shares of common stock, par value $ 0.01 per share. The following table summarizes the terms of the Company’s at-the market (“ATM”) common stock offering program as of March 31, 2023. ATM Common Stock Offering Program Date Maximum Aggregate Offering Price (in thousands) Aggregate Available as of March 31, 2023 (in thousands) 2022 $750 million ATM February 17, 2022 $ 750,000 $ 750,000 14 Table of Contents The following table summarizes the activity under the ATM common stock offering program during the year ended December 31, 2022. There was no activity under the ATM common stock offering program during the three months ended March 31, 2023. Year ended December 31, 2022 ATM Common Stock Offering Program Shares Sold Weighted Average Price Per Share Net Proceeds (in thousands) 2019 $600 million ATM (1) 128,335 $ 45.03 $ 5,721 Total/weighted average 128,335 $ 45.03 $ 5,721 (1) This program ended before March 31, 2022. Restricted Shares of Common Stock The Company granted restricted shares of common stock under the 2011 Plan on January 11, 2023 to certain employees of the Company, which will vest over four years in equal installments on January 1 of each year beginning on January 1, 2024, subject to the recipient’s continued employment. The following table summarizes activity related to the Company’s unvested restricted shares of common stock during the three months ended March 31, 2023 and the year ended December 31, 2022. Unvested Restricted Shares of Common Stock Shares Weighted Average Grant Date Fair Value per Share Balance at December 31, 2021 185,715 $ 28.86 Granted 58,580 $ 44.19 Vested (1) ( 73,556 ) $ 28.03 Forfeited ( 14,036 ) $ 36.16 Balance at December 31, 2022 156,703 $ 34.32 Granted 55,954 $ 34.73 Vested (1) ( 68,625 ) $ 31.71 Forfeited — $ — Balance at March 31, 2023 144,032 $ 35.73 (1) The Company repurchased and retired 24,210 and 25,836 restricted shares of common stock that vested during the three months ended March 31, 2023 and the year ended December 31, 2022, respectively. The unrecognized compensation expense associated with the Company’s restricted shares of common stock at March 31, 2023 was approximately $ 4.4 million and is expected to be recognized over a weighted average period of approximately 2.7 years. The following table summarizes the fair value at vesting for the restricted shares of common stock that vested during the three months ended March 31, 2023 and 2022. Three months ended March 31, Vested Restricted Shares of Common Stock 2023 2022 Vested restricted shares of common stock 68,625 73,556 Fair value of vested restricted shares of common stock (in thousands) $ 2,217 $ 3,528 15 Table of Contents 7. Noncontrolling Interest The following table summarizes the activity for noncontrolling interest in the Company during the three months ended March 31, 2023 and the year ended December 31, 2022. Noncontrolling Interest LTIP Units Other Common Units Total Noncontrolling Common Units Noncontrolling Interest Balance at December 31, 2021 1,949,124 1,570,640 3,519,764 1.9 % Granted/Issued 470,237 — 470,237 N/A Forfeited ( 6,791 ) — ( 6,791 ) N/A Conversions from LTIP units to Other Common Units ( 98,494 ) 98,494 — N/A Redemptions from Other Common Units to common stock — ( 98,494 ) ( 98,494 ) N/A Balance at December 31, 2022 2,314,076 1,570,640 3,884,716 2.1 % Granted/Issued 326,215 — 326,215 N/A Forfeited — — — N/A Conversions from LTIP units to Other Common Units ( 43,834 ) 43,834 — N/A Redemptions from Other Common Units to common stock — ( 43,834 ) ( 43,834 ) N/A Balance at March 31, 2023 2,596,457 1,570,640 4,167,097 2.3 % LTIP Units The Company granted LTIP units under the 2011 Plan on January 11, 2023 to non-employee, independent directors, which will vest on January 1, 2024, subject to the recipient’s continued service. The Company granted LTIP units under the 2011 Plan on January 11, 2023 to certain executive officers and senior employees of the Company, which will vest in equal installments on a quarterly basis over four years , with the first vesting date having been March 31, 2023, subject to the recipient’s continued employment. Refer to Note 8 for a discussion of the LTIP units granted on January 11, 2023 pursuant to the 2020 performance units. On March 13, 2023, the Company executed an employment agreement with Steven T. Kimball to serve as the Company's Executive Vice President of Real Estate Operations, effective March 31, 2023. On March 31, 2023, pursuant to the 2011 Plan, the Company awarded Mr. Kimball an initial LTIP unit grant equal in value to approximately $ 0.6 million, which equated to 19,345 LTIP units, which will vest in equal installments on a quarterly basis over four years , with the first vesting date having been March 31, 2023, subject to Mr. Kimball’s continued employment. The fair value of the LTIP units as of the grant date was determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The fair value of the LTIP units are based on Level 3 inputs and non-recurring fair value measurements. The following table summarizes the assumptions used in valuing such LTIP units granted during the three months ended March 31, 2023 (excluding the LTIP units granted pursuant to the 2020 performance units discussed in Note 8). LTIP Units Assumptions Grant date March 31, 2023 January 11, 2023 Expected term (years) 10 10 Expected stock price volatility 37.0 % 37.0 % Expected dividend yield 4.0 % 4.0 % Risk-free interest rate 3.81 % 3.90 % Fair value of LTIP units at issuance (in thousands) $ 628 $ 4,635 LTIP units at issuance 19,345 139,026 Fair value unit price per LTIP unit at issuance $ 32.47 $ 33.34 The expected stock price volatility is based on a mix of the historical and implied volatilities of the Company and certain peer group companies. The expected dividend yield is based on the Company’s average historical dividend yield and the dividend yield as of the valuation date for each award. The risk-free interest rate is based on U.S. Treasury note yields matching a three-year time period. 16 Table of Contents The following table summarizes activity related to the Company’s unvested LTIP units during the three months ended March 31, 2023 and the year ended December 31, 2022. Unvested LTIP Units LTIP Units Weighted Average Grant Date Fair Value per Unit Balance at December 31, 2021 190,108 $ 27.84 Granted 470,237 $ 42.07 Vested ( 513,438 ) $ 38.67 Forfeited ( 6,791 ) $ 34.02 Balance at December 31, 2022 140,116 $ 35.60 Granted 326,215 $ 33.29 Vested ( 212,230 ) $ 34.14 Forfeited — $ — Balance at March 31, 2023 254,101 $ 33.85 The unrecognized compensation expense associated with the Company’s LTIP units at March 31, 2023 was approximately $ 6.5 million and is expected to be recognized over a weighted average period of approximately 2.4 years. The following table summarizes the fair value at vesting for the LTIP units that vested during the three months ended March 31, 2023 and 2022. Three months ended March 31, Vested LTIP units 2023 2022 Vested LTIP units 212,230 414,348 Fair value of vested LTIP units (in thousands) $ 7,023 $ 18,593 8. Equity Incentive Plan On January 11, 2023, the compensation committee of the board of directors approved and the Company granted performance units under the 2011 Plan to the executive officers and certain key employees of the Company. The terms of the performance units granted on January 11, 2023 are substantially the same as the terms of the performance units granted in January 2022, 2021, and 2020, except that the measuring period commenced on January 1, 2023 and ends on December 31, 2025, and the size-based peer group was eliminated. The target amount of the performance units granted on January 11, 2023 is nominally allocated as follows: (i) 50 % to the Company’s total stockholder return (“TSR”) compared to the TSR of an industry peer group; and (ii) 50 % to the Company’s TSR compared to the TSR of the companies in the MSCI US REIT Index. On March 31, 2023, in connection with the execution of the employment agreement discussed in Note 7, the Company granted Mr. Kimball performance units under the 2011 Plan with a target grant date fair value equal to approximately $ 0.6 million. The terms and measuring period of the performance units granted to Mr. Kimball are the same as the performance units granted on January 11, 2023. The fair value of the performance units as of the grant date was determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The fair value of the performance units is based on Level 3 inputs and non-recurring fair value measurements. The performance unit equity compensation expense is recognized ratably from the grant date into earnings over the vesting period. The following table summarizes the assumptions used in valuing the performance units granted during the three months ended March 31, 2023. Performance Units Assumptions Grant date March 31, 2023 January 11, 2023 Expected stock price volatility 25.4 % 37.4 % Expected dividend yield 4.0 % 4.0 % Risk-free interest rate 3.8725 % 3.9060 % Fair value of performance units grant (in thousands) $ 609 $ 4,517 The expected stock price volatility is based on a mix of the historical and implied volatilities of the Company and certain peer group companies. The expected dividend yield is based on the Company’s average historical dividend yield and the dividend yield as of the valuation date for each award. The risk-free interest rate is based on U.S. Treasury note yields matching the time period of the grant date to the end of the measuring period. 17 Table of Contents On December 31, 2022, the measuring period for the 2020 performance units concluded, and it was determined that the Company’s TSR exceeded the threshold percentage and return hurdle. The following table summarizes the issuances of LTIP units and shares of common stock approved by the compensation committee of the board of directors and issued upon the settlement of the 2020 performance units at the conclusion of the applicable measuring period during the three months ended March 31, 2023. Settlement of Performance Units in LTIP Units or Shares of Common Stock 2020 Performance Units Measuring period conclusion date December 31, 2022 Issuance date January 11, 2023 Vested LTIP units 167,844 Vested shares of common stock 40,660 Shares of common stock repurchased and retired 875 The unrecognized compensation expense associated with the Company’s performance units at March 31, 2023 was approximately $ 9.0 million and is expected to be recognized over a weighted average period of approximately 2.2 years. Non-cash Compensation Expense The following table summarizes the amount recorded in general and administrative expenses in the accompanying Consolidated Statements of Operations for the amortization of restricted shares of common stock, LTIP units, performance units, and the Company’s director compensation for the three months ended March 31, 2023 and 2022. Three months ended March 31, Non-Cash Compensation Expense (in thousands) 2023 2022 Restricted shares of common stock $ 509 $ 548 LTIP units 1,328 1,284 Performance units 1,119 1,296 Director compensation (1) 136 121 Total non-cash compensation expense $ 3,092 $ 3,249 (1) All of the Company’s independent directors elected to receive shares of common stock in lieu of cash for their service during the three months ended March 31, 2023 and 2022. The number of shares of common stock granted was calculated based on the trailing 10 day average common stock price on the third business day preceding the grant date. 9. Leases Lessor Leases The Company has operating leases in which it is the lessor for its rental property. Certain leases contain variable lease payments based upon changes in the Consumer Price Index (“CPI”). Billings for real estate taxes and other expenses are also considered to be variable lease payments. Certain leases contain options to renew or terminate the lease, and options for the lessee to purchase the rental property, all of which are predominately at the sole discretion of the lessee. The following table summarizes the components of rental income included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022. Three months ended March 31, Rental Income (in thousands) 2023 2022 Fixed lease payments $ 131,086 $ 120,240 Variable lease payments 36,946 33,778 Straight-line rental income 5,112 4,504 Net increase to rental income related to above and below market lease amortization 124 79 Total rental income $ 173,268 $ 158,601 As of March 31, 2023 and December 31, 2022, the Company had accrued rental income of approximately $ 95.2 million and $ 91.2 million, respectively, included in tenant accounts receivable on the accompanying Consolidated Balance Sheets. 18 Table of Contents As of March 31, 2023 and December 31, 2022, the Company’s total liability associated with lease security deposits was approximately $ 19.2 million and $ 19.1 million, respectively, which is included in tenant prepaid rent and security deposits on the accompanying Consolidated Balance Sheets. The following table summarizes the maturity of fixed lease payments under the Company’s leases as of March 31, 2023. Year Maturity of Fixed Lease Payments (in thousands) Remainder of 2023 $ 398,889 2024 $ 501,045 2025 $ 441,586 2026 $ 362,398 2027 $ 283,565 Thereafter $ 860,686 Lessee Leases The Company has operating leases in which it is the lessee for its ground leases and corporate office leases. These leases have remaining lease terms of approximately 0.2 years to 47.5 years. Certain ground leases contain options to extend the leases for ten years to 20 years, all of which are reasonably certain to be exercised, and are included in the computation of the Company’s right-of-use assets and operating lease liabilities. The following table summarizes supplemental information related to operating lease right-of-use assets and operating lease liabilities recognized in the Company’s Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022. Operating Lease Term and Discount Rate March 31, 2023 December 31, 2022 Weighted average remaining lease term (years) 31.3 31.2 Weighted average discount rate 6.7 % 6.7 % The following table summarizes the operating lease cost included in the Company’s Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022. Three months ended March 31, Operating Lease Cost (in thousands) 2023 2022 Operating lease cost included in property expense attributable to ground leases $ 618 $ 533 Operating lease cost included in general and administrative expense attributable to corporate office leases 437 437 Total operating lease cost $ 1,055 $ 970 The following table summarizes supplemental cash flow information related to operating leases in the Company’s Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022. Three months ended March 31, Operating Leases (in thousands) 2023 2022 Cash paid for amounts included in the measurement of lease liabilities (operating cash flows) $ 970 $ 900 19 Table of Contents The following table summarizes the maturity of operating lease liabilities under the Company’s ground leases and corporate office leases as of March 31, 2023. Year Maturity of Operating Lease Liabilities (1) (in thousands) Remainder of 2023 $ 2,905 2024 3,914 2025 3,959 2026 2,993 2027 2,023 Thereafter 81,962 Total lease payments 97,756 Less: Imputed interest ( 63,064 ) Present value of operating lease liabilities $ 34,692 (1) Operating lease liabilities do not include estimates of CPI rent changes required by certain ground lease agreements. Therefore, actual payments may differ from those presented. 10. Earnings Per Share During the three months ended March 31, 2023 and 2022, there were 139,340 and 165,259 of unvested restricted shares of common stock (on a weighted average basis), respectively, that were considered participating securities for the purposes of computing earnings per share. The following table reconciles the numerators and denominators in the computation of basic and diluted earnings per share of common stock for the three months ended March 31, 2023 and 2022. Three months ended March 31, Earnings Per Share (in thousands, except per share data) 2023 2022 Numerator Net income attributable to common stockholders $ 49,413 $ 52,764 Denominator Weighted average common shares outstanding — basic 179,196 177,827 Effect of dilutive securities (1) Share-based compensation 101 238 Weighted average common shares outstanding — diluted 179,297 178,065 Net income per share — basic and diluted Net income per share attributable to common stockholders — basic $ 0.28 $ 0.30 Net income per share attributable to common stockholders — diluted $ 0.28 $ 0.30 (1) During the three months ended March 31, 2023 and 2022, there were approximately 139 and 165 unvested restricted shares of common stock (on a weighted average basis), respectively, that were not included in the computation of diluted earnings per share because the allocation of income under the two-class method was more dilutive. 11. Commitments and Contingencies The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance subject to deductible requirements. Management believes that the ultimate settlement of these actions will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. The Company has letters of credit of approximately $ 3.3 million as of March 31, 2023 related to construction projects and certain other agreements. 12. Subsequent Events There were no recognized or non-recognized subsequent events. 20