SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, ~~D.C.~~DC 20549

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GOOD

Nasdaq Global Select Market

7.00% Series D Cumulative Redeemable Preferred Stock, par value $0.001 per share

GOODM

Nasdaq Global Select Market

6.625% Series E Cumulative Redeemable Preferred Stock, par value $0.001 per share

GOODN

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

The number of shares of the registrant’s Common Stock, $0.001 par value, outstanding as of ~~October 31, 2017~~November 5, 2020 was ~~27,705,664.~~34,268,297.

GLADSTONE COMMERCIAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

September 30, ~~2017~~2020

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Gladstone Commercial Corporation

Condensed Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Per Share Data)

September 30, 2017 December 31, 2016
ASSETS
Real estate, at cost $ 880,614
$ 821,749
Less: accumulated depreciation 146,229
131,661
Total real estate, net 734,385
690,088
Lease intangibles, net 115,210
105,553
Real estate and related assets held for sale, net —
9,562
Cash and cash equivalents 4,287
4,658
Restricted cash 3,533
3,030
Funds held in escrow 12,312
6,806
Deferred rent receivable, net 31,030
29,725
Other assets 4,094
2,320
TOTAL ASSETS $ 904,851
$ 851,742
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
LIABILITIES
Mortgage notes payable, net (1) $ 450,032
$ 445,278
Borrowings under Revolver, net 43,933
39,225
Borrowings under Term Loan, net 24,912
24,892
Deferred rent liability, net 15,554
12,647
Asset retirement obligation 3,136
3,406
Accounts payable and accrued expenses 8,221
5,891
Liabilities related to assets held for sale, net —
1,041
Due to Adviser and Administrator (1) 2,250
2,075
Other liabilities 7,803
6,667
TOTAL LIABILITIES $ 555,841
$ 541,122
Commitments and contingencies (2)

MEZZANINE EQUITY
Series D redeemable preferred stock, net, par value $0.001 per share; $25 per share liquidation preference; 6,000,000 shares authorized; and 3,364,900 and 2,917,458 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively (3) $ 81,978
$ 70,743
TOTAL MEZZANINE EQUITY $ 81,978
$ 70,743
STOCKHOLDERS’ EQUITY
Series A and B redeemable preferred stock, par value $0.001 per share; $25 per share liquidation preference; 5,350,000 shares authorized and 2,264,000 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively $ 2
$ 2
Senior common stock, par value $0.001 per share; 4,450,000 shares authorized; and 928,192 and 959,552 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 1
1
Common stock, par value $0.001 per share, 34,200,000 and 34,040,000 shares authorized and 27,694,624 and 24,882,758 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 28
25
Additional paid in capital 520,143
463,436
Accumulated other comprehensive income 172
—
Distributions in excess of accumulated earnings (253,314 ) (223,587 )
TOTAL STOCKHOLDERS' EQUITY 267,032
239,877
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY $ 904,851
$ 851,742

~~Refer to Note 9 “Commitments and Contingencies~~”

~~Refer to Note 10 “Stockholders' and Mezzanine Equity~~”

(1)Refer to Note 2 “Related-Party Transactions”

(2)Refer to Note 7 “Commitments and Contingencies”

(3)Refer to Note 8 “Equity and Mezzanine Equity”

The accompanying notes are an integral part of these condensed consolidated financial statements.

Gladstone Commercial Corporation

Condensed Consolidated Statements of Operations and ~~Other~~ Comprehensive Income ~~(Loss)~~

(Dollars in Thousands, Except Share and Per Share Data)

(1)Refer to Note 2 “Related-Party Transactions”

The accompanying notes are an integral part of these condensed consolidated financial statements.

Gladstone Commercial Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in Thousands)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (dollars in thousands):

Restricted cash consists of security deposits and receipts from tenants for reserves.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Gladstone Commercial Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization, Basis of Presentation and Significant Accounting Policies

Gladstone Commercial Corporation is a real estate investment trust (“REIT”) that was incorporated under the General Corporation Law of the State of Maryland on February 14, 2003. We focus on acquiring, owning and managing primarily office and industrial properties. On a selective basis, we may make long term industrial and ~~commercial~~office mortgage loans; however, we do not have any mortgage loans currently outstanding. Subject to certain restrictions and limitations, our business is managed by Gladstone Management Corporation, a Delaware corporation ~~("Adviser"~~(the “Adviser”), and administrative services are provided by Gladstone Administration, LLC, a Delaware limited liability company ~~("Administrator"~~(the “Administrator”), each pursuant to a contractual arrangement with us. Our Adviser and Administrator collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Gladstone Commercial Corporation conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership ~~or the Operating Partnership.~~(the “Operating Partnership”).

All ~~further~~ references herein to “we,” “our,” “us” and ~~“us”~~the “Company” mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where it is made clear that the term means only Gladstone Commercial Corporation.

Interim Financial Information

Our interim financial statements are prepared in accordance with generally accepted accounting principles ~~("GAAP"~~(“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data presented herein was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period, have been included. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, as filed with the U.S. Securities and Exchange Commission on February ~~15, 2017.~~12, 2020. The results of operations for the three and nine months ended September 30, ~~2017~~2020 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events such as the novel coronavirus (“COVID-19”) pandemic, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results ~~could materially~~may differ from ~~those estimates.~~these estimates under different assumptions or conditions.

~~Critical~~Significant Accounting Policies

InThe preparation of our financial statements in accordance with GAAP, ~~we apply certain critical accounting policies which require~~requires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of ~~our~~these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates. A summary of all of our significant accounting policies is provided in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. On January 1, 2020, we completed the integration of the accounting records of certain of our triple net leased third-party asset managed properties into our accounting system and paid out of our operating bank accounts. For periods prior to January 1, 2020, we recorded property operating expenses and offsetting lease revenues for these certain triple net leased properties on a net basis. Beginning January 1, 2020, we are recording the property operating expenses and offsetting lease revenues for these triple net leased properties on a gross basis, as we have amended our process whereby we are paying operating expenses on behalf of our tenants and receiving reimbursement, whereas, previously these tenants were paying these expenses directly with limited insight provided to us. There were no other material changes to our critical accounting policies during the three and nine months ended September 30, ~~2017.~~2020.

~~Reclassifications~~

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We expect the new revenue standard will apply to executory costs and other components of revenue due under leases that are deemed to be non-lease components (examples include common area maintenance and provision of utilities), even when the revenue for such activities is not separately stipulated in the lease. Revenue from these non-lease components, which were previously recognized on a straight-line basis under current lease guidance, would be recognized under the new revenue guidance as the related services are delivered. As a result, while the total revenue recognized over the lease term would not differ under the new guidance, the revenue recognition pattern could be different. We are in the process of evaluating the significance of the difference in the revenue recognition pattern that would result from this change, and adjustments in revenue recognition attributable to non-lease components will take effect in tandem with the new leasing standard described below, which is effective January 1, 2019. We will adopt this guidance for our annual and interim periods beginning January 1, 2018 and expect to use the modified retrospective method, under which the cumulative effect of initially applying the guidance is recognized at the date of initial application.

~~In February~~June 2016, the ~~FASB issued ASU 2016-02, “Leases: Amendments to the FASB~~Financial Accounting Standards ~~Codification”~~Board (“FASB”) issued Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 326)” (“ASU ~~2016-02”~~2016-13”). The new standard requires ~~lessees~~more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair market value through net income. The standard also requires that financial assets measured at amortized cost be presented at the net amounts anticipated to ~~apply a dual approach, classifying leases as either finance or operating leases~~be collected, through an allowance for credit losses that is deducted from the amortized cost basis. We are required to measure all expected credit losses based onupon historical experience, current conditions, and reasonable and supportable forecasts that affect the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the termcollectability of the ~~lease, respectively. A lessee is also required~~financial assets. We adopted ASU 2016-13 beginning with the three months ended March 31, 2020. Adopting ASU 2016-13 has not resulted in a material impact to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 is expected to minimally impact our consolidated financial statements, as we ~~currently~~do not have four operating ground lease arrangements with terms greater than one year for which we are the lessee, and we don't expect the purchase of properties with ground leases to be crucial to our acquisition strategy. We also expect our general and administrative expense to increase as the new standard requires us to expense indirect leasing costs that were previously capitalized to leasing commissions. ASC 2016-02 supersedes the previous leases standard, ASC 840 "Leases." The standard is effective on January 1, 2019, with early adoption permitted and we expect to use the modified retrospective method, under which the cumulative effect of initially applying the guidance is recognized at the date of initial application.any loans receivable outstanding.

In ~~August 2016,~~March 2020, the FASB issued Accounting Standards Update 2020-04, “Reference Rate Reform (Topic 848)” (“ASU ~~2016-15, "Statement~~2020-04”). The main provisions of ~~Cash Flows (Topic 230): Classification~~this update provide optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of Certain Cash Receipts and Cash Payments (a consensus of the Emerging issues Task Force)," which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The areas addressed in the new guidance relate to debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned and bank-owned life insurance policies, distributions received from equity method investments, beneficial interest in securitization transactions and separately identifiable cash flows and application of the predominance principle. The guidancereference rate reform. ASU 2020-04 is effective for usall entities as of March 12, 2020. We adopted ASU 2020-04 beginning ~~January 1, 2018~~ with ~~early adoption permitted. We do~~the three months ended March 31, 2020. Adopting ASU 2020-04 has not ~~expect the adoption of this guidance to have~~resulted in a material impact onto our consolidated ~~financial statements.~~statements, as ASU 2020-04 allows for prospective application of any changes in the effective interest rate for our LIBOR based debt, and allows for practical expedients that will allow us to treat our derivative instruments designated as cash flow hedges consistent with how they are currently accounted for.

In ~~November 2016,~~April 2020, the FASB issued ~~ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus~~a staff question-and-answer document, Topic 842 and Topic 840: Accounting for Lease Concessions related to the Effects of the ~~FASB Emerging Issues Task Force)~~COVID-19 Pandemic (“COVID-19 Q&A”)," to address frequently asked questions pertaining to lease concessions arising from the effects of the COVID-19 pandemic. Existing lease guidance requires entities to determine if a lease concession was a result of a new arrangement reached with the tenant, which ~~requires~~would be addressed under the ~~statement~~lease modification accounting framework, or if a lease concession was under the enforceable rights and obligations within the existing lease agreement, which would not fall under the lease modification accounting framework. The COVID-19 Q&A clarifies that entities may elect to not evaluate whether lease-related relief granted in light of ~~cash flows to explain~~ the ~~change during~~effects of COVID-19 is a lease modification, as long as the ~~period~~concession does not result in a substantial increase in rights of the lessor or obligations of the lessee. This election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than the total payments required by the original contract. At this time, we have granted rent deferrals to 3 tenants representing approximately 2% of ~~cash, cash equivalents~~total portfolio rents. The agreements with these tenants include current partial payments in exchange for rent deferrals of varying terms with deferred amounts to be paid by the respective tenant back to us, for the period starting in July 2020 and ~~amounts described as restricted cash or restricted cash equivalents. Under~~ending in March 2021. We have elected to not evaluate these leases under the new guidance, amounts described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of periods total amounts shown on the statement of cash flows. The guidance is effective for us beginning January 1, 2018, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.lease modification accounting framework.

In August 2017, the FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"). The new standard simplifies the application of hedge accounting and better aligns financial reporting for hedging activities with companies' economic objectives in undertaking those activities. Under the new guidance, all changes in the fair value of highly effective cash flow hedges will be recorded in other comprehensive income instead of income. The new guidance also eases the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The guidance is effective beginning January 1, 2019, with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements.

2. Related-Party Transactions

Gladstone Management and Gladstone Administration

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. ~~Two~~NaN of our executive officers, Mr. Gladstone and Mr. Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Our president, Mr. Robert Cutlip, ~~is an~~also serves as the executive ~~managing director~~vice president of commercial & industrial real estate of our Adviser. Mr. Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president, general counsel and ~~secretary.~~secretary, as well as executive vice president of administration of our Adviser. We have entered into an advisory agreement with our Adviser, as amended from time to time or(including the Sixth Amended and Restated Investment Advisory Agreement dated July 14, 2020, the “Advisory Agreement”), and an administration agreement with our Administrator ~~or the Administration Agreement.~~(the “Administration Agreement”). The services and fees under the Advisory Agreement and Administration Agreement are described below. As of September 30, ~~2017~~2020 and December 31, ~~2016, $2.3~~2019, $3.0 million and ~~$2.1~~$2.9 million, respectively, were collectively due to our Adviser and Administrator.

~~Base Management Fee~~

On July 24, 2015, we entered into a Second Amended and Restated Advisory Agreement with the Adviser, effective July 1, 2015. We subsequently entered into a Third Amended and Restated Advisory Agreement with the Adviser on July 12, 2016, effective July 1, 2016, and, as described below, a Fourth Amended and Restated Investment Advisory Agreement with the Adviser on January 10, 2017, effective October 1, 2016. Our entrance into the Advisory Agreement and each ~~of the amended Advisory Agreements was~~amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the ~~agreement~~agreements with our Adviser and Administrator each July. ~~As such, during the~~During their July ~~2017~~2020 meeting, ~~the~~our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for ~~another~~an additional year, through August 31, ~~2018.~~2021.

Under the Advisory Agreement, prior to the July ~~2015~~14, 2020 amendment and restatement, the calculation of the annual base management fee ~~equals~~equaled 1.5% of our ~~adjusted total stockholders’ equity,~~Total Equity, which is our total stockholders’ equity plus total mezzanine equity (before giving effect to the base management fee and incentive fee), adjusted to exclude the effect of any unrealized gains or losses that do not affect realized net income (including impairment charges) ~~and~~, adjusted for any one-time events and certain non-cash items (the later to occur for a given quarter only upon the approval of our Compensation Committee), and adjusted to include operating partnership units in the Operating Partnership (“OP Units”) held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”). The fee iswas calculated and accrued quarterly as 0.375% per quarter of such adjusted total stockholders’ equity figure. As a result of the July 2016 amendment, the definition of adjusted total stockholders' equity in the calculation of the base management fee and the incentive fee (described below) includes total mezzanine equity.Total Equity amount. Our Adviser does not charge acquisition or disposition fees when we acquire or dispose of properties, as is common in other externally managed REITs; however, our Adviser may earn fee income from our borrowers, tenants or other sources. Prior to the 2015 amendment, the Advisory Agreement provided for an annual base management fee equal to 2.0% of our common stockholders’ equity, which was our total stockholders’ equity, less the recorded value of any preferred stock and adjusted to exclude the effect of any unrealized gains, losses, or other items that did not affect realized net income (including impairment charges).

For the three and nine months ended September 30, ~~2017,~~2020, we recorded a base management fee of ~~$1.3~~$1.4 million and ~~$3.7~~$4.2 million, respectively. For the three and nine months ended September 30, ~~2016,~~2019, we recorded a base management fee of ~~$1.1~~$1.3 million and ~~$2.8~~$3.9 million, respectively.

On July 14, 2020, the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Amended Agreement”). The Company’s entrance into the Amended Agreement was approved by its Board of Directors, including, specifically, unanimously by its independent directors. The Amended Agreement revised and replaced the previous calculation of the Base Management Fee (as defined therein), which was based on Total Equity (as defined therein), with a calculation based on Gross Tangible Real Estate. The revised Base Management Fee will be payable quarterly in arrears and shall be calculated at an annual rate of 0.425% (0.10625% per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Amended Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Amended Agreement remain unchanged. The revised Base Management Fee calculation began with the fee calculations for the quarter ended September 30, 2020.

~~As a result of~~Pursuant to the ~~July 2015 amendment,~~Advisory Agreement, the calculation of the incentive fee ~~was revised to reward~~rewards the Adviser in circumstances where our quarterly Core FFO (defined at the end of this paragraph), before giving effect to any incentive fee, or pre-incentive fee Core FFO, exceeds 2.0% quarterly, or 8.0% annualized, of adjusted total stockholders’ equity (after giving effect to the base management fee but before giving effect to the incentive ~~fee, and which, as a result of the July 2016 amendment to the Advisory Agreement, now includes total mezzanine equity)~~fee). We refer to this as the ~~new~~ hurdle rate. The Adviser will receive 15.0% of the amount of our pre-incentive fee Core FFO that exceeds the ~~new~~ hurdle rate. However, in no event shall the incentive fee for a particular quarter exceed by 15.0% (the cap) the average quarterly incentive fee paid by us for the previous ~~four~~4 quarters (excluding quarters for which no incentive fee was paid). Core FFO (as defined in the Advisory Agreement) is GAAP net income (loss) available to common stockholders, excluding the incentive fee, depreciation and amortization, any realized and unrealized gains, losses or other non-cash items recorded in net income (loss) available to common stockholders for the period, and one-time events pursuant to changes in GAAP.

The incentive fee prior to the July 2015 amendment rewarded the Adviser in circumstances where our quarterly funds from operations, or FFO, before giving effect to any incentive fee, or pre-incentive fee FFO, exceeded 1.75%, or 7.0% annualized, or the hurdle rate, of common stockholders’ equity. FFO, included any realized capital gains and capital losses, less any distributions paid on preferred stock and Senior Common Stock, but FFO did not include any unrealized capital gains or losses (including impairment charges). The Adviser received 100.0% of the amount of the pre-incentive fee FFO that exceeded the hurdle rate, but was less than 2.1875% of our common stockholders’ equity. The Adviser also received an incentive fee of 20.0% of the amount of our pre-incentive fee FFO that exceeded 2.1875% of common stockholders’ equity.

For the three and nine months ended September 30, ~~2017,~~2020, we recorded an incentive fee of ~~$0.6~~$1.1 million and ~~$1.8~~$3.3 million, respectively. For the three and nine months ended September 30, ~~2016,~~2019, we recorded an incentive fee of ~~$0.6~~$1.0 million and ~~$1.8~~$2.7 million, respectively. The Adviser did ~~not~~0t waive any portion of the incentive fee for the three and nine months ended September 30, ~~2017~~2020 or ~~2016. Waivers are unconditional and cannot be recouped by the Adviser in the future.~~2019, respectively.

Under the Advisory Agreement, ~~as amended in July 2015,~~ we will pay to the Adviser a capital ~~gains-based~~gain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property ~~(which is calculated as~~(equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements). of the disposed property. At the end of the fiscal year, if this number is positive, then the capital gain fee payable for such time period shall equal 15.0% of such amount. NoNaN capital gain fee was recognized during the three and nine months ended September 30, ~~2017~~2020 or ~~2016.~~2019.

~~On January~~

10 ~~2017, we amended and restated the Advisory Agreement by entering into the Fourth Amended and Restated Investment Advisory Agreement between us and the Adviser to revise the calculation~~

Table of the capital gains fee. Based upon the amendment, the calculation of the capital gains fee is based on the all-in acquisition cost of disposed of properties. The impact of this amendment would not have resulted in a capital gains fee for previously reported periods.Contents

Termination Fee

The Advisory Agreement includes a termination fee whereby, in the event of our termination ~~thereof~~of the agreement without cause (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24-month period prior to such termination. A termination fee is also payable if the Adviser terminates the Advisory Agreement after we have defaulted and applicable cure periods have expired. The Advisory Agreement may also be terminated for cause by us (with 30 days’ prior written notice and the vote of at least two-thirds of our independent directors), with no termination fee payable. Cause is defined in the agreement to include if the Adviser breaches any material provisions thereof, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds.

Administration Agreement

Under the terms of the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary, Michael LiCalsi (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the ~~Administrator's~~Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under contractual agreements. We believe this approach helps approximate fees paid by us to actual services performed by the Administrator for us. For the three and nine months ended September 30, ~~2017,~~2020, we recorded an administration fee of ~~$0.3~~$0.4 million and ~~$1.0~~$1.2 million, ~~respectively, and for~~respectively. For the three and nine months ended September 30, ~~2016,~~2019, we recorded an administration fee of ~~$0.3~~$0.4 million and ~~$1.1~~$1.2 million, respectively.

Gladstone Securities

Gladstone Securities, LLC or (“Gladstone ~~Securities,~~Securities”), is a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by ~~Mr.~~ David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities.

Mortgage Financing Arrangement Agreement

We entered into an agreement with Gladstone Securities, effective June 18, 2013, for it to act as our non-exclusive agent to assist us with arranging mortgage financing for properties we own. In connection with this engagement, Gladstone Securities will, from time to time, continue to solicit the interest of various commercial real estate lenders or recommend to us third party lenders offering credit products or packages that are responsive to our needs. We pay Gladstone Securities a financing fee in connection with the services it provides to us for securing mortgage financing on any of our properties. The amount of these financing fees, which are payable upon closing of the financing, are based on a percentage of the amount of the mortgage, generally ranging from 0.15% to a maximum of 1.0% of the mortgage obtained. The amount of the financing fees may be reduced or eliminated, as determined by us and Gladstone Securities, after taking into consideration various factors, including, but not limited to, the involvement of any ~~third party~~third-party brokers and market conditions. We did not pay financing fees to Gladstone Securities during the three months ended September 30, 2020, but we paid financing fees to Gladstone Securities of ~~$0.1 million~~$89,637 during the nine months ended September 30, 2020, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.25%, of the mortgage principal secured and/or extended. We paid financing fess to Gladstone Securities of $3,000 and ~~$0.2~~$0.10 million during the three and nine months ended September 30, 2017, respectively, which are included in mortgage notes payable, net, in the consolidated balance sheets, or 0.25% and 0.27%, respectively, of mortgage principal secured. We paid financing fees to Gladstone Securities of $0.1 million and $0.2 million during the three and nine months ended September 30, 2016,2019, respectively, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or ~~0.28%~~0.08% and ~~0.36%~~0.19%, respectively, of the mortgage principal ~~secured.~~secured and/or extended. Our Board of Directors renewed the agreement for an additional year, through August 31, ~~2018,~~2021, at its July ~~2017~~2020 meeting.

Table of Contents

Dealer Manager Agreement

On February 20, 2020 we entered into a dealer manager agreement (the “Dealer Manager Agreement”), with Gladstone Securities (the “Dealer Manager”), whereby the Dealer Manager will serve as our exclusive dealer manager in connection with our offering (the “Offering”) of up to (i) 20,000,000 shares of 6.00% Series F Cumulative Redeemable Preferred Stock of the Company, par value $0.001 per share (the “Series F Preferred Stock”), on a “reasonable best efforts” basis (the “Primary Offering”), and (ii) 6,000,000 shares of Series F Preferred Stock pursuant to our distribution reinvestment plan (the “DRIP”) to those holders of the Series F Preferred Stock who participate in such DRIP. The Series F Preferred Stock is registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-236143), as the same may be amended and/or supplemented (the “Registration Statement”), under the Securities Act of 1933, as amended, and will be offered and sold pursuant to a prospectus supplement, dated February 20, 2020, and a base prospectus dated February 11, 2020 relating to the Registration Statement (the “Prospectus”).

Under the Dealer Manager Agreement, the Dealer Manager will provide certain sales, promotional and marketing services to the Company in connection with the Offering, and the Company will pay the Dealer Manager (i) selling commissions of 6.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Selling Commissions”), and (ii) a dealer manager fee of 3.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Dealer Manager Fee”). No Selling Commissions or Dealer Manager Fee shall be paid with respect to Shares sold pursuant to the DRIP. The Dealer Manager may, in its sole discretion, reallow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $0.1 million to the Dealer Manager during the three and nine months ended September 30, 2020.

3. ~~Loss per~~(Loss) Earnings Per Share of Common Stock

The following tables set forth the computation of basic and diluted ~~loss~~(loss) earnings per share of common stock for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~ 2019. The OP Units held by Non-controlling OP Unitholders (which may be redeemed for shares of common stock) have been excluded from the diluted (loss) earnings per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of (loss) income would also be added back to net (loss) income. Net (loss) income figures are presented net of such non-controlling interests in the (loss) earnings per share calculation.

We computed basic ~~loss~~(loss) earnings per share for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 using the weighted average number of shares outstanding during the respective periods. Diluted ~~loss~~(loss) earnings per share for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019 reflects additional shares of common stock related to our convertible ~~Senior~~senior common stock (the “Senior Common ~~Stock (if~~Stock”), if the effect would be ~~dilutive),~~dilutive, that would have been outstanding if dilutive potential shares of common stock had been issued, as well as an adjustment to net (loss) income (attributable) available to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts).

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For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
Calculation of basic loss per share of common stock:
Net loss attributable to common stockholders $ (384 ) $ (2,329 ) $ (671 ) $ (3,385 )
Denominator for basic weighted average shares of common stock 27,234,569
23,509,054
25,833,423
22,915,086
Basic loss per share of common stock $ (0.01 ) $ (0.10 ) $ (0.03 ) $ (0.15 )
Calculation of diluted loss per share of common stock:
Net loss attributable to common stockholders $ (384 ) $ (2,329 ) $ (671 ) $ (3,385 )
Add: income impact of assumed conversion of senior common stock (1) —
—
—
—
Net loss attributable to common stockholders plus assumed conversions (1) $ (384 ) $ (2,329 ) $ (671 ) $ (3,385 )
Denominator for basic weighted average shares of common stock 27,234,569
23,509,054
25,833,423
22,915,086
Effect of convertible Senior Common Stock (1) —
—
—
—
Denominator for diluted weighted average shares of common stock (1) 27,234,569
23,509,054
25,833,423
22,915,086
Diluted loss per share of common stock $ (0.01 ) $ (0.10 ) $ (0.03 ) $ (0.15 )


	For the three months ended September 30,				For the nine months ended September 30,
	2020		2019		2020		2019
Calculation of basic (loss) earnings per share of common stock:
Net (loss) income (attributable) available to common stockholders	$	(128)	$	(631)	$	(2,643)	$	543
Denominator for basic weighted average shares of common stock (1)	34,075,147		31,032,802		33,884,007		30,338,690
Basic (loss) earnings per share of common stock	$	(0.004)	$	(0.02)	$	(0.08)	$	0.02
Calculation of diluted (loss) earnings per share of common stock:
Net (loss) income (attributable) available to common stockholders	$	(128)	$	(631)	$	(2,643)	$	543

Net (loss) income (attributable) available to common stockholders plus assumed conversions (2)	$	(128)	$	(631)	$	(2,643)	$	543
Denominator for basic weighted average shares of common stock (1)	34,075,147		31,032,802		33,884,007		30,338,690
Effect of convertible Senior Common Stock (2)	0		0		0		0
Denominator for diluted weighted average shares of common stock (2)	34,075,147		31,032,802		33,884,007		30,338,690
Diluted (loss) earnings per share of common stock	$	(0.004)	$	(0.02)	$	(0.08)	$	0.02


~~(1)~~	We excluded shares of Senior Common Stock that are convertible into shares of our common stock in the amount of 773,553 and 800,116 from the calculation of diluted earnings per share for the three and nine months ended September 30, 2017 and 2016, respectively, because it was anti-dilutive.

(1)The weighted average number of OP Units held by Non-controlling OP Unitholders was 503,033 and 502,435 for the three and nine months ended September 30, 2020, respectively, and 742,937 for both the three and nine months ended September 30, 2019.

(2)We excluded convertible shares of Senior Common Stock of 641,430 and 709,906 from the calculation of diluted (loss) earnings per share for the three and nine months ended September 30, 2020 and 2019, respectively, because they were anti-dilutive.

4. Real Estate and Intangible Assets

Real Estate

The following table sets forth the components of our investments in real estate as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019, excluding real estate held for sale as of September 30, 2020 and December 31, ~~2016~~2019, respectively (dollars in thousands):


	September 30, 2020		December 31, 2019
Real estate:
Land (1)	$	140,465	$	137,532
Building and improvements	886,138		851,245
Tenant improvements	68,251		68,201
Accumulated depreciation	(221,849)		(207,523)
Real estate, net	$	873,005	$	849,455

September 30, 2017
December 31, 2016
Real estate:
Land $ 117,441
$ 104,719
Building and improvements 703,644
662,661
Tenant improvements 59,529
54,369
Accumulated depreciation (146,229 ) (131,661 )
Real estate, net $ 734,385
$ 690,088

(1)This amount includes $4,436 of land value subject to land lease agreements which we may purchase at our option for a nominal fee.

Real estate depreciation expense on building and tenant improvements was ~~$6.9~~$9.0 million and ~~$19.8~~$27.2 million for the three and nine months ended September 30, ~~2017, respectively,~~2020, respectively. Real estate depreciation expense on building and ~~$6.1~~tenant improvements was $8.3 million and ~~$17.9~~$24.4 million for the three and nine months ended September 30, ~~2016,~~2019, respectively.

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Acquisitions

Acquisitions during the nine months ended September 30, 2016 were accounted for as business combinations in accordance with Accounting Standards Codification (“ASC”) 805 “Business Combinations” (“ASC 805”), as there was a prior leasing history on the property. The fair value of all assets acquired and liabilities assumed were determined in accordance with ASC 805, and all acquisition-related costs were expensed as incurred. Commencing in the fourth quarter of 2016, we early adopted Accounting Standards Update (“ASU”) 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”), which narrows the scope of transactions that would be accounted under ASC 805. Under ASU 2017-01, if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the grouping is not a business, and rather an asset acquisition. Beginning in the fourth quarter 2016, acquisitions have been deemed an asset acquisition when evaluated under the new guidance, and all acquisition-related costs have been capitalized.

We acquired ~~five~~6 properties during the nine months ended September 30, ~~2017,~~2020, and ~~two~~9 properties during the nine months ended September 30, ~~2016, which~~2019. The acquisitions are summarized below (dollars in thousands):


Nine Months Ended		Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Capitalized Acquisition Expenses			Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Debt Issued or Assumed
September 30, 2020	(1)	1,043,638	14.2 years	$	82,599	$	339	(3)	$	6,146	$	35,855
September 30, 2019	(2)	1,463,763	14.8 years	67,272		621		(3)	5,437		8,900

Nine Months Ended Square Footage Lease Term Purchase Price Acquisition Expenses Annualized GAAP Rent Debt Issued or Assumed
September 30, 2017 (1) 666,451
10.7 Years $ 94,421
$ 1,171
(3) $ 10,776
$ 54,887
(4)
September 30, 2016 (2) 226,286

7.8 Years $ 40,900
$ 179
$ 3,367
$ 24,000

(1)On January 8, 2020, we acquired a 64,800 square foot property in Indianapolis, Indiana for $5.3 million. The property is leased to 3 tenants with a weighted average lease term of 7.2 years with annualized GAAP rent of $0.5 million. On January 27, 2020, we acquired a 320,838 square foot, 3-property portfolio in Houston, Texas, Charlotte, North Carolina, and St. Charles, Missouri for $34.7 million. The portfolio has a weighted average lease term of 20.0 years, and an annualized GAAP rent of $2.6 million. We issued $18.3 million of mortgage debt with a fixed interest rate of 3.625% in connection with the acquisition. On March 9, 2020, we acquired a 504,400 square foot property in Chatsworth, Georgia for $32.0 million. We entered into an interest rate swap in connection with our $17.5 million of issued debt, resulting in a fixed interest rate of 2.8%. The annualized GAAP rent on the 10.5 year lease is $2.2 million. On September 1, 2020, we acquired a 153,600 square foot property in Indianapolis, Indiana for $10.6 million. The annualized GAAP rent on the 9.7 year lease is $0.8 million.

(2)On February 8, 2019, we acquired a 26,050 square foot property in a suburb of Philadelphia, Pennsylvania, for $2.7 million. The annualized GAAP rent on the 15.1 year lease is $0.2 million. On February 28, 2019, we acquired a 34,800 square foot property in Indianapolis, Indiana for $3.6 million. The annualized GAAP rent on the 10.0 year lease is $0.3 million. On April 5, 2019, we acquired a 207,000 square foot property in Ocala, Florida, for $11.9 million. The annualized GAAP rent on the 20.1 year lease is $0.8 million. On April 5, 2019, we acquired a 176,000 square foot property in Ocala, Florida, for $7.3 million. The annualized GAAP rent on the 20.1 year lease is $0.7 million. On April 30, 2019, we acquired a 54,430 square foot property in Columbus, Ohio, for $3.2 million. The annualized GAAP rent on the 7.0 year lease is $0.2 million. On June 18, 2019, we acquired a 676,031 square foot property in Tifton, Georgia, for $17.9 million. The annualized GAAP rent on the 8.5 year lease is $1.6 million. We issued $8.9 million of mortgage debt with a fixed interest rate of 4.35% in connection with this acquisition. On July 30, 2019, we acquired a 78,452 square foot property in Denton, Texas, for $6.6 million. The annualized GAAP rent on the 11.9 year lease is $0.5 million. On September 26, 2019, we acquired a 211,000 square foot 2 property portfolio in Temple, Texas, for $14.1 million. The annualized GAAP rent on the 20.0 year lease is $1.2 million.

~~(1)~~

On June 22, 2017, we acquired a 60,016 square foot property in Conshohocken, Pennsylvania for $15.7 million. We assumed $11.2 million of mortgage debt in connection with this acquisition. The annualized GAAP rent on the 8.5 year lease is $1.7 million. On July 7, 2017, we acquired a 300,000 square foot property in Philadelphia, Pennsylvania for $27.1 million. We issued $14.9 million of mortgage debt with a fixed interest rate of 3.75% in connection with this acquisition. The annualized GAAP rent on the 15.4 year lease is $2.3 million. On July 31, 2017, we acquired a 306,435 square foot three property portfolio located in Maitland, Florida for $51.6 million. We issued $28.8 million of mortgage debt with a fixed interest rate of 3.89% in connection with this acquisition. This portfolio has a weighted average lease term of 8.6 years, and annualized GAAP rent of $6.8 million.

~~(2)~~

On May 26, 2016, we acquired a 107,062 square foot property in Salt Lake City, Utah for $17.0 million. We borrowed $9.9 million to fund the acquisition. The annualized GAAP rent on the 6.0 year lease is $1.4 million. On September 12, 2016, we acquired a 119,224 square foot property in Fort Lauderdale, Florida for $23.9 million. We borrowed $14.1 million to fund the acquisition. The annualized GAAP rent on the 9.0 year lease is $2.0 million.


~~(3)~~	We early adopted ASU 2017-01. As a result, we treated our acquisitions during the nine months ended September 30, 2017 as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $1.2 million of acquisition costs that would otherwise have been expensed under business combination treatment.

(3)We treated our acquisitions during the nine months ended September 30, 2020 and 2019 as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $0.3 million and $0.6 million, respectively, of acquisition costs that would otherwise have been expensed under business combination treatment.

~~(4)~~

We assumed an interest rate swap in connection with $11.2 million of assumed debt on our Conshohocken, Pennsylvania acquisition, in which we will pay our counterparty a fixed interest rate of 1.80%, and receive a variable interest rate of one month LIBOR from our counterparty. Our interest expense exposure is fixed at 3.55%. The interest rate swap had a fair value of $0.04 million upon the date of assumption, and subsequently increased in value to $0.2 million at September 30, 2017. We have elected to treat this interest rate swap as a cash flow hedge, and all changes in fair market value will be recorded to accumulated other comprehensive income on the condensed consolidated balance sheets.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 as follows (dollars in thousands):


	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Acquired assets and liabilities	Purchase price		Purchase price
Land (1)	$	7,798	$	5,046
Building and improvements	61,930		48,898
Tenant Improvements	1,431		1,541
In-place Leases	5,411		4,868
Leasing Costs	4,664		4,481
Customer Relationships	2,808		2,200
Above Market Leases (2)	309		1,865
Below Market Leases (3)	(1,752)		(1,627)


Total Purchase Price	$	82,599	$	67,272

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Business Combinations
Nine months ended September 30, 2017 Nine months ended September 30, 2016
Acquired assets and liabilities Purchase price Purchase price
Land $ —
$ 7,125
Building and improvements —
22,934
Tenant Improvements —
3,240
In-place Leases —
3,355
Leasing Costs —
1,437
Customer Relationships —
3,090
Above Market Leases —
—
Below Market Leases —
(281 )
Total Purchase Price $ —
$ 40,900

Asset Acquisitions
Nine months ended September 30, 2017 Nine months ended September 30, 2016
Acquired assets and liabilities Purchase price Purchase price
Land $ 15,137
$ —
Building 51,186
—
Tenant Improvements 6,060
—
In-place Leases 9,516
—
Leasing Costs 5,083
—
Customer Relationships 6,851
—
Above Market Leases 1,916
—
Below Market Leases (1,769 ) —
Discount on Assumed Debt 399
—
Fair Value of Interest Rate Swap Assumed 42
—
Total Purchase Price $ 94,421
$ —

Total Purchase Price on all Acquisitions $ 94,421
$ 40,900

(1)This amount includes $2,711 of land value subject to a land lease agreement, which we may purchase for a nominal fee.

~~Below is a summary~~(2)This amount includes $53 of ~~the total revenue and loss recognized~~loans receivable included in Other assets on the ~~two acquisitions treated as business combinations completed during~~condensed consolidated balance sheets.

(3)This amount includes $62 of prepaid rent included in Other liabilities on the ~~nine months ended September 30, 2016 (dollars in thousands):~~condensed consolidated balance sheets.

For the three months ended September 30, For the nine months ended September 30,
2016 2016
Rental Revenue $ 464
$ 603
(Loss) (82 ) (203 )

~~Pro Forma~~

The following table reflects pro-forma consolidated statements of operations as if the business combinations completed in 2016, were completed as of January 1, 2015. The pro-forma earnings for the three and nine months ended September 30, 2016 were adjusted to assume that the acquisition-related costs were incurred as of the beginning of the comparative period (dollars in thousands, except per share amounts):

For the three months ended September 30, For the nine months ended September 30,
2016 (1)
(unaudited)
Operating Data:
Total operating revenue $ 22,012
$ 66,406
Total operating expenses (15,205 ) (42,968 )
Other expenses, net (6,612 ) (21,453 )
Net income 195
1,985
Dividends attributable to preferred and senior common stock (2,256 ) (5,050 )
Net loss attributable to common stockholders $ (2,061 ) $ (3,065 )
Share and Per Share Data:
Basic and diluted loss per share of common stock - pro forma $ (0.09 ) $ (0.13 )
Basic and diluted loss per share of common stock - actual $ (0.10 ) $ (0.15 )
Weighted average shares outstanding-basic and diluted 23,509,054
22,915,086


~~(1)~~	Pro-forma results for the three and nine months ended September 30, 2017 are identical to actual results on the condensed consolidated statement of operations and other comprehensive income (loss) because we did not complete an acquisition that was accounted for as a business combination during the three and nine months ended September 30, 2017, pursuant to our early adoption of ASU 2017-01.

Significant Real Estate Activity on Existing Assets

During the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, we executed ~~six~~13 and ~~seven lease extensions and/or modifications, or new~~5 leases, respectively, which are ~~aggregated~~summarized below (dollars in thousands):


Nine Months Ended	Aggregate Square Footage	Weighted Average Remaining Lease Term	Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Tenant Improvement		Aggregate Leasing Commissions
September 30, 2020	987,902	7.9 years	$	8,340	$	2,903	$	1,285
September 30, 2019	230,264	8.8 years	3,366		785		910

During the nine months ended September 30, 2020 and 2019, we had 1 lease termination each, which are summarized below (dollars in thousands):


Nine Months Ended	Aggregate Square Footage Reduced	Aggregate Termination Fee		Aggregate Deferred Rent Write Off
September 30, 2020	61,358	$	1,119	$	225
September 30, 2019	16,566	61		0

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the three months ending December 31, 2020 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Tenant Lease Payments
Three Months Ending 2020	$	27,401
2021	109,326
2022	103,896
2023	96,136
2024	87,999
2025	79,061
Thereafter	305,402
	$	809,221

We account for all of our real estate leasing arrangements as operating leases. A majority of our leases are subject to fixed rental increases, but a small subset of our lease portfolio has variable lease payments that are driven by the consumer price index. Many of our tenants have renewal options in their respective leases, but we seldom include option periods in the determination of lease term, as we generally will not enter into leasing arrangements with bargain renewal options. A small number of tenants have termination options.

Lease Revenue Reconciliation

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the nine months ended September 30, 2020 and 2019, respectively (dollars in thousands):

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Nine Months Ended Aggregate Square Footage Weighted Average Lease Term Aggregate Annualized GAAP Rent Aggregate Tenant Improvement Aggregate Leasing Commissions
September 30, 2017 577,471
8.9 years (1) 4,062
1,181
475
September 30, 2016 460,017
2.8 years (2) 1,475
333
221


	For the three months ended September 30,				For the nine months ended September 30,
Lease revenue reconciliation	2020		2019		2020		2019
Fixed lease payments	$	29,116	$	27,660	$	88,286	$	82,076
Variable lease payments	4,026		1,007		12,001		2,925
	$	33,142	$	28,667	$	100,287	$	85,001


~~(1)~~	~~Weighted average lease term is weighted according to the annualized GAAP rent earned by each lease. These leases have terms ranging from 1.0 year to 11.3 years.~~


~~(2)~~	~~Weighted average lease term is weighted according to the annualized GAAP rent earned by each lease. These leases have terms ranging from 1.0 year to 7.3 years.~~

Intangible Assets

The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, excluding real estate held for sale as of September 30, 2020 and December 31, ~~2016~~2019, respectively (dollars in thousands):


	September 30, 2020				December 31, 2019
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	96,058	$	(52,589)	$	92,906	$	(48,468)
Leasing costs	72,604		(36,920)		68,256		(33,705)
Customer relationships	66,276		(31,187)		65,363		(28,887)
	$	234,938	$	(120,696)	$	226,525	$	(111,060)

	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	14,857	$	(10,462)	$	16,502	$	(10,005)
Below market leases and deferred revenue	(36,793)		17,020		(34,322)		15,000
	$	(21,936)	$	6,558	$	(17,820)	$	4,995

September 30, 2017
December 31, 2016
Lease Intangibles Accumulated Amortization Lease Intangibles Accumulated Amortization
In-place leases $ 78,975
$ (32,140 ) $ 71,482
$ (28,182 )
Leasing costs 53,706
(21,889 ) 48,000
(18,599 )
Customer relationships 55,847
(19,289 ) 50,252
(17,400 )
$ 188,528
$ (73,318 ) $ 169,734
$ (64,181 )

Deferred Rent Receivable/(Liability) Accumulated (Amortization)/Accretion Deferred Rent Receivable/(Liability) Accumulated (Amortization)/Accretion
Above market leases $ 12,517
$ (7,726 ) $ 10,479
$ (7,296 )
Below market leases and deferred revenue (25,576 ) 10,022
(21,606 ) 8,959
$ (13,059 ) $ 2,296
$ (11,127 ) $ 1,663

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was ~~$3.9~~$4.8 million and ~~$10.9~~$14.9 million for the three and nine months ended September 30, ~~2017,~~2020, respectively, and ~~$3.4~~$4.7 million and ~~$9.9~~$14.2 million for the three and nine months ended September 30, ~~2016,~~2019, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and ~~other~~ comprehensive ~~income (loss).~~income.

Total amortization related to above-market lease values was $0.2 million and ~~$0.4~~$0.6 million for the three and nine months ended September 30, ~~2017,~~2020, respectively, and ~~$0.1~~$0.3 million and ~~$0.4~~$0.8 million for the three and nine months ended September 30, ~~2016,~~2019, respectively, and is included in ~~rental~~lease revenue in the condensed consolidated statements of operations and ~~other~~ comprehensive ~~income (loss).~~income. Total amortization related to below-market lease values was ~~$0.4~~$0.7 million and ~~$1.1~~$2.1 million for the three and nine months ended September 30, ~~2017,~~2020, respectively, and ~~$0.3~~$0.7 million and ~~$0.7~~$1.8 million for the three and nine months ended September 30, ~~2016,~~2019, respectively, and is included in ~~rental~~lease revenue in the condensed consolidated statements of operations and ~~other~~ comprehensive ~~income (loss).~~income.

The weighted average amortization periods in years for the intangible assets acquired ~~and liabilities assumed~~ during the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 were as follows:


Intangible Assets & Liabilities	2020	2019
In-place leases	15.7	15.9
Leasing costs	15.7	15.9
Customer relationships	18.9	20.6
Above market leases	16.6	9.3
Below market leases	14.2	9.6
All intangible assets & liabilities	16.3	17.3

Intangible Assets & Liabilities 2017 2016
In-place leases 9.7 7.9
Leasing costs 9.7 7.9
Customer relationships 12.7 12.2
Above market leases 10.2 0.0
Below market leases 9.4 7.9
All intangible assets & liabilities 10.4 9.0

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5. Real Estate Dispositions, Held for Sale and Impairment Charges

Real Estate Dispositions

During the nine months ended September 30, ~~2017,~~2020, we continued to execute our capital recycling program, whereby we ~~sold~~sell properties outside of our core markets and ~~redeployed~~redeploy proceeds to either fund property acquisitions in our target secondary growth markets, ~~as well as~~or repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available. During the nine months ended September 30, ~~2017,~~2020, we sold ~~four~~2 non-core properties, located in ~~Franklin, New Jersey, Hazelwood, Missouri, Concord Township,~~Charlotte, North Carolina and Maple Heights, Ohio, ~~and Newburyport, Massachusetts,~~ which are ~~summarized~~detailed in the table below (dollars in thousands):


Aggregate Square Footage Sold	Sales Price		Sales Costs		Gain on Sale of Real Estate, net
411,948	$	15,501	$	1,138	$	1,184

Our dispositions during the nine months ended September 30, ~~2017~~2020 were not classified as discontinued operations because they did not represent a strategic shift in operations, nor will ~~they~~such dispositions have a major effect on our operations and financial results. Accordingly, the operating results of these properties are included within continuing operations for all periods reported.

The table below summarizes the components of operating income from the real estate and related assets disposed of during the three and nine months ended September 30, ~~2017,~~2020, and ~~2016~~2019 (dollars in thousands):


	For the three months ended September 30,					For the nine months ended September 30,
	2020			2019		2020			2019
Operating revenue	$	0		$	167	$	400		$	1,136
Operating expense	83			296		438			838
Other income (expense), net	1,368		(1)	(50)		1,272		(2)	(191)
Income (expense) from real estate and related assets sold	$	1,285		$	(179)	$	1,234		$	107

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
Operating revenue $ —

$ 642
$ 1,280
(1) $ 1,932

Operating expense 31
962
(4) 4,446
(2) 1,626
(4)
Other (expense) income, net 1

(183 ) 3,831
(3) (253 )
Income (loss) from real estate and related assets sold $ (30 ) $ (503 ) $ 665
$ 53

(1)Includes $1.2 million gain on sale of real estate, net on 1 property sale.

(2)Includes $1.2 million gain on sale of real estate, net on 2 property sales.


~~(1)~~	Includes a $0.6 million lease termination revenue from canceling a lease obligation with a tenant that acquired one property from us during the nine months ended September 30, 2017. This fee is recorded as rental revenue on the condensed consolidated statement of operations and other comprehensive income (loss).


~~(2)~~	~~Includes a $4.0 million impairment charge.~~


~~(3)~~	~~Includes a $4.0 million net gain on sale on four properties.~~


~~(4)~~	~~Includes a $0.7 million impairment charge.~~

Real Estate Held for Sale

AtAs of September 30, ~~2017,~~2020, we ~~did not have any~~had 5 properties classified as held for ~~sale.~~ sale, 1 located in Boston Heights, Ohio, 3 located in Champaign, Illinois, and 1 located in Austin, Texas. We consider these assets to be non-core to our long term strategy. As of September 30, 2020, all 5 properties were under contract to sell.At December 31, ~~2016,~~2019, we had ~~two properties~~1 property classified as held for sale, located in ~~Hazelwood, Missouri and Franklin, New Jersey. Both of these properties were~~Charlotte, North Carolina. This property was sold during the nine months ended September 30, ~~2017.~~2020.

The table below summarizes the components of the assets and liabilities held for sale reflected on the accompanying condensed consolidated balance ~~sheet~~sheets (dollars in thousands):


	September 30, 2020		December 31, 2019
Assets Held for Sale
Real estate, at cost	$	24,688	$	7,411
Less: accumulated depreciation	7,433		3,421
Total real estate held for sale, net	17,255		3,990
Lease intangibles, net	462		0
Deferred rent receivable, net	456		0

Total Assets Held for Sale	$	18,173	$	3,990
Liabilities Held for Sale
Deferred rent liability, net	$	1,108	$	0
Asset retirement obligation	0		21


Total Liabilities Held for Sale	$	1,108	$	21

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September 30, 2017 December 31, 2016
Assets Held for Sale
Real estate, at cost $ —
$ 11,454
Less: accumulated depreciation —
2,668
Total real estate held for sale, net —
8,786
Lease intangibles, net —
200
Deferred rent receivable, net —
575
Other assets —
1
Total Assets Held for Sale $ —
$ 9,562
Liabilities Held for Sale
Deferred rent liability, net $ —
$ 755
Asset retirement obligation —
286
Total Liabilities Held for Sale $ —
$ 1,041

Impairment Charges

We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the nine months ended September 30, ~~2017~~2020 and identified ~~two~~3 held and used assets, located in Blaine, Minnesota, Champaign, Illinois, and Rancho Cordova, California, which were impaired ~~during first quarter 2017. We did not identify any~~by an aggregate of $2.9 million. In performing our impairment on held and used assets during the second or third quarter of 2017. For these properties, during first quarter 2017, we received unsolicited interest from potential buyers, and as a result, we included a sale scenario and shortened our hold period when comparing the undiscounted cash flows against the respective carrying values. Based upon our analysis, we concluded thattesting, the undiscounted cash flows for these ~~properties~~assets were below ~~their respective~~the carrying ~~values indicating that~~value. As the undiscounted cash flows for these assets were ~~impaired as of March 31, 2017, and accordingly,~~below the carrying value, we ~~recorded an impairment charge of $3.7 million during~~evaluated the three months ended March 31, 2017. During the three months ended June 30, 2017, we sold one of these impaired properties to the tenant for a further loss on sale of $1.8 million. During the second quarter of 2017, we became aware of a decline in the tenant's financial results. The tenant expressed interest in acquiring our property as part of their corporate reorganization. Due to the re-tenanting risk of the property if it were to go vacant and as the location was in a non-core market, we executed a sale with this tenant. We sold the other impaired property during the three months ended September 30, 2017, recognizing a gain on sale of $1,000.

We did not classify any properties as held for sale at September 30, 2017. During our previous two quarters where we had held for sale activity, we performed an analysis of all properties classified as held for sale, and compared the fair ~~market~~ value of the ~~asset less selling costs against the carrying~~assets using third-party broker opinions of value ~~of assets available for sale.~~and internal discount cash flow analyses, which resulted in us recognizing an impairment charge. We recorded an impairment charge ~~of $0.3~~to our Blaine, Minnesota property by $1.7 million during the three months ended June 30, ~~2017~~2020, and we recorded an impairment charge to ~~reduce~~our Champaign, Illinois property by $1.0 million and an impairment charge to our Rancho Cordova, California property by $0.2 million during the ~~carrying value equal to~~three months ended September 30, 2020. We did not recognize an impairment charge during the ~~sales price per the executed purchase and sale agreement, less estimated selling costs.~~nine months ended September 30, 2019.

Fair market value for these assets was calculated using Level 3 inputs, which were determined using comparable asset sale data from the respective asset locations, as well as sales prices from an executed purchase and sale agreement. We continue to evaluate our properties on a quarterly basis for changes that could create the need to record impairment. Future impairment losses may result, and could be significant, should market conditions deteriorate in the markets in which we hold our assets or should we ~~are~~be unable to secure leases at terms that are favorable to us, which could impact the estimated cash flow of our properties over the period in which we plan to hold our properties. Additionally, changes in management’s decisions to either own and lease long-term or sell a particular asset will have an impact on this analysis.

We recognized $2.0 million of impairment charges on five properties during the nine months ended September 30, 2016. These properties were impaired through our held for sale carrying value analysis, during the three and nine months ended September 30, 2016, and we concluded that the fair market value less selling costs was below the carrying value of this property. We have sold four of these properties, and one of these properties is classified as a held and used asset during the three and nine months ended September 30, 2017.

The fair values for the above held for sale property was calculated using Level 3 inputs which were calculated using an estimated sales price, less estimated costs to sell. The estimated sales price was determined using an executed purchase and sale agreement.

6. ~~Mortgage Note Receivable~~

On July 25, 2014, we closed a $5.6 million second mortgage development loan for the construction of an 81,371 square foot, build-to-suit transitional care facility located on a major hospital campus in Phoenix, Arizona. Subsequently, on April 14, 2015, we closed an additional $0.3 million interim financing loan for the development of the Phoenix, Arizona property. Construction was completed in July 2015 and we earned 9.0% interest, paid currently in cash, on the loan during construction and through maturity. Prior to completion of the facility, we were granted a right of first offer to purchase the property at fair value. We elected not to purchase the property, and received an exit fee upon maturity of the loan in an amount sufficient for us to earn an internal rate of return of 22.0% on the second mortgage development loan, inclusive of interest earned. The principal balance of the loans and all associated interest income and exit fee revenue was received in January 2016. We did not recognize any interest income or exit fee revenue during the three and nine months ended September 30, 2017. We recognized $0.0 million and $0.4 million in both cash interest income and exit fee revenue during the three and nine months ended September 30, 2016, respectively. We currently have no mortgage notes receivable outstanding.

7. Mortgage Notes Payable and Credit Facility

Our mortgage notes payable and Credit Facility as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized below (dollars in thousands):


	Encumbered properties at		Carrying Value at						Stated Interest Rates at	Scheduled Maturity Dates at		Encumbered properties at		Carrying Value at				Stated Interest Rates at	Scheduled Maturity Dates at
	September 30, 2017		September 30, 2017			December 31, 2016			September 30, 2017	September 30, 2017		September 30, 2020		September 30, 2020		December 31, 2019		September 30, 2020	September 30, 2020
Mortgage and other secured loans:											Mortgage and other secured loans:
Fixed rate mortgage loans	48		$	385,555		$	378,477		(1)	(2)	Fixed rate mortgage loans	61		$	433,840	$	412,771	(1)	(2)
Variable rate mortgage loans	19		69,835			71,707			(3)	(2)	Variable rate mortgage loans	8		28,270		45,151		(3)	(2)
Premiums and discounts, net	-		(262		)	217			N/A	N/A	Premiums and discounts, net	-		(196)		(239)		N/A	N/A
Deferred financing costs, mortgage loans, net	-		(5,096		)	(5,123		)	N/A	N/A	Deferred financing costs, mortgage loans, net	-		(3,550)		(3,944)		N/A	N/A
Total mortgage notes payable, net	67		$	450,032		$	445,278		(4)		Total mortgage notes payable, net	69		$	458,364	$	453,739	(4)
Variable rate revolving credit facility	24	(6)	$	44,200		$	39,700		LIBOR + 2.00%	8/7/2018	Variable rate revolving credit facility	51	(6)	$	43,800	$	52,400	LIBOR + 1.65%	7/2/2023
Deferred financing costs, revolving credit facility	-		(267		)	(475		)	N/A	N/A	Deferred financing costs, revolving credit facility	-		(651)		(821)		N/A	N/A
Total revolver, net	24		$	43,933		$	39,225				Total revolver, net	51		$	43,149	$	51,579
Variable rate term loan facility	-	(6)	$	25,000		$	25,000		LIBOR + 1.95%	10/5/2020	Variable rate term loan facility	-	(6)	$	160,000	$	122,300	LIBOR + 1.60%	7/2/2024
Deferred financing costs, term loan facility	-		(88		)	(108		)	N/A	N/A	Deferred financing costs, term loan facility	-		(854)		(1,024)		N/A	N/A
Total term loan, net	N/A		$	24,912		$	24,892				Total term loan, net	N/A		$	159,146	$	121,276
Total mortgage notes payable and credit facility	91		$	518,877		$	509,395		(5)		Total mortgage notes payable and credit facility	120		$	660,659	$	626,594	(5)


~~(1)~~	~~Interest rates on our fixed rate mortgage notes payable vary from 3.55% to 6.63%.~~


~~(2)~~	~~We have 45 mortgage notes payable with maturity dates ranging from 12/1/2017 through 7/1/2045.~~


~~(3)~~	~~Interest rates on our variable rate mortgage notes payable vary from one month LIBOR + 2.15% to one month LIBOR + 2.75%. At September 30, 2017, one month LIBOR was approximately 1.24%.~~


~~(4)~~	~~The weighted average interest rate on the mortgage notes outstanding at September 30, 2017 was approximately 4.52%.~~


~~(5)~~	~~The weighted average interest rate on all debt outstanding at September 30, 2017 was approximately 4.34%.~~


~~(6)~~	~~The amount we may draw under our Revolver and Term Loan is based on a percentage of the fair value of a combined pool of 24 unencumbered properties as of September 30, 2017.~~

(1)Interest rates on our fixed rate mortgage notes payable vary from 2.80% to 6.63%.

(2)We have 54 mortgage notes payable with maturity dates ranging from 12/1/2020 through 8/1/2037.

(3)Interest rates on our variable rate mortgage notes payable vary from one month LIBOR + 2.25% to one month LIBOR + 2.75%. As of September 30, 2020, one month LIBOR was approximately 0.15%.

(4)The weighted average interest rate on the mortgage notes outstanding as of September 30, 2020 was approximately 4.28%.

(5)The weighted average interest rate on all debt outstanding as of September 30, 2020 was approximately 3.51%.

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(6)The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 51 unencumbered properties as of September 30, 2020.

N/A - Not Applicable

Mortgage Notes Payable

As of September 30, ~~2017,~~2020, we had 4554 mortgage notes payable, collateralized by a total of 6769 properties with a net book value of ~~$674.9 million.~~$680.9 million. We have limited recourse liabilities that could result from any one or more of the following circumstances: a borrower voluntarily filing for bankruptcy, improper conveyance of a property, fraud or material misrepresentation, misapplication or misappropriation of rents, security deposits, insurance proceeds or condemnation proceeds, or physical waste or damage to the property resulting from a borrower’s gross negligence or willful misconduct. We have full recourse for ~~$11.7~~$0.8 million of the mortgages notes payable, ~~outstanding,~~net, or ~~2.6%~~0.2% of the outstanding balance. We will also indemnify lenders against claims resulting from the presence of hazardous substances or activity involving hazardous substances in violation of environmental laws on a property.

During the nine months ended September 30, ~~2017,~~2020, we repaid ~~four~~4 mortgages, collateralized by ~~ten~~5 properties, which are ~~aggregated~~summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Repaid		Interest Rate on Fixed Rate Debt Repaid
$	5,918	6.00%


Aggregate Variable Rate Debt Repaid		Weighted Average Interest Rate on Variable Rate Debt Repaid
$	16,107	LIBOR +	2.19%

Aggregate Fixed Rate Debt Repaid Weighted Average Interest Rate on Fixed Rate Debt Repaid
$ 41,077
6.25%

Aggregate Variable Rate Debt Repaid Weighted Average Interest Rate on Variable Rate Debt Repaid
$ 8,163
LIBOR + 2.50%

During the nine months ended September 30, ~~2017,~~2020, we issued ~~or assumed four~~4 mortgages, collateralized by ~~seven~~4 properties, ~~and drew an additional advance on an existing mortgage note, collateralized by one property,~~ which are ~~aggregated~~summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Issued			Weighted Average Interest Rate on Fixed Rate Debt
$	35,855	(1)	3.22%

Aggregate Fixed Rate Debt Issued or Assumed Weighted Average Interest Rate on Fixed Rate Debt Aggregate Variable Rate Debt Issued or Assumed
$ 54,887
(1) 3.78% (2) $ 7,500
(3)
(1)We issued $18.3 million of fixed rate debt in connection with the 3-property portfolio acquired on January 27, 2020 with a maturity date of February 1, 2030. The interest rate is fixed at 3.625%. On March 9, 2020, we issued $17.5 million of floating rate debt swapped to fixed rate debt of 2.8% in connection with the 1 property acquisition.


~~(1)~~	~~We issued or assumed $54.9 million of fixed rate or swapped to fixed rate debt in connection with our five property acquisitions with maturity dates ranging from April 1, 2026 to August 10, 2027.~~


~~(2)~~	We assumed an interest rate swap in connection with one property acquisition and will be paying an all in fixed rate of 3.55%. The newly issued fixed rate mortgages have rates ranging from 3.75% to 3.89%.

~~(3)~~

The interest rate for our issued variable rate mortgage debt is equal to one month LIBOR plus a spread of 2.75%. The maturity date on this new variable rate debt is May 15, 2020. We have entered into a rate cap agreement on our new variable rate debt and will record all fair value changes into interest expense on the condensed consolidated statement of operations and other comprehensive income (loss). The interest rate for our additional advance on the existing mortgage note is equal to one month LIBOR plus a spread of 2.50% and the maturity date is December 1, 2021.

We made payments of ~~$0.6~~$0.03 million and ~~$1.0~~$0.4 million for deferred financing costs during the three and nine months ended September 30, 2020, respectively, and $1.4 million and $2.1 million for deferred financing costs during the three and nine months ended September 30, ~~2017,~~2019, respectively. ~~We made payments of $0.4 million and $1.0 million for deferred financing costs during the three and nine months ended September 30, 2016, respectively.~~

Scheduled principal payments of mortgage notes payable for the ~~remainder of 2017,~~three months ending December 31, 2020, and each of the five succeeding ~~fiscal~~ years and thereafter are as follows (dollars in thousands):


Year	Scheduled Principal Payments
Three Months Ending December 31, 2020	$	6,013
2021	33,555
2022	107,719
2023	72,063
2024	49,178
2025	37,118
Thereafter	156,464
Total	$	462,110	(1)

(1)This figure does not include $0.2 million of premiums and discounts, net, and $3.5 million of deferred financing costs, which are reflected in mortgage notes payable, net on the condensed consolidated balance sheets.

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Year Scheduled Principal Payments
Three Months Ending December 31, 2017 $ 10,405

2018 47,806

2019 47,474

2020 19,387

2021 33,367

2022 97,187

Thereafter 199,764

Total $ 455,390
(1)
We believe we will be able to address all mortgage notes payable maturing over the next 12 months through a combination of refinancing our existing indebtedness, cash from operations, proceeds from one or more equity offerings and availability on our Credit Facility.


~~(1)~~	This figure does not include $0.3 million of premiums and (discounts), net, and $5.1 million of deferred financing costs, which are reflected in mortgage notes payable on the condensed consolidated balance sheet.

Interest Rate Cap and Interest Rate Swap Agreements

We have entered into interest rate cap agreements that cap the interest rate on certain of our variable-rate debt and we have assumed anor entered into interest rate swap ~~agreement~~agreements in which we hedged our exposure to variable interest rates by agreeing to pay fixed interest rates to our respective counterparty. We have adopted the fair value measurement provisions for our financial instruments recorded at fair value. The fair value guidance establishes a three-tier 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 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. Generally, we will estimate the fair value of our interest rate caps and interest rate ~~swap,~~swaps, in the absence of observable market data, using estimates of value including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, our interest rate cap agreements and interest rate ~~swap~~swaps were valued using Level 2 inputs.

The fair value of the interest rate cap agreements is recorded in other assets on our accompanying condensed consolidated balance sheets. We record changes in the fair value of the interest rate cap agreements quarterly based on the current market valuations at quarter ~~end as~~end. If the interest rate cap qualifies for hedge accounting, the change in the estimated fair value is recorded to accumulated other comprehensive income to the extent that it is effective, with any ineffective portion recorded to interest expense onin our ~~accompanying~~ condensed consolidated statements of operations and ~~other~~ comprehensive ~~income (loss).~~income. If the interest rate cap does not qualify for hedge accounting, or if it is determined the hedge is ineffective, any change in the fair value is recognized in interest expense in our consolidated statements of operations and comprehensive income. The following table summarizes the interest rate caps at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):


			September 30, 2020				December 31, 2019
Aggregate Cost			Aggregate Notional Amount		Aggregate Fair Value		Aggregate Notional Amount		Aggregate Fair Value
$	1,537	(1)	$	187,490	$	17	$	166,728	$	250

September 30, 2017 December 31, 2016
Aggregate Cost Aggregate Notional Amount Aggregate Fair Value Aggregate Notional Amount Aggregate Fair Value
$ 482
(1) $ 93,920
$ 49
$ 71,721
$ 101


~~(1)~~	(1)We have entered into various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 1.50% to 3.00%. We have assumed or entered into ~~various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 2.50% to 3.00%.~~

~~We assumed an~~ interest rate swap ~~agreement~~agreements in connection with certain of our ~~June 22, 2017 acquisition,~~acquisitions or mortgage financings, whereby we will pay our counterparty ana fixed rate interest rate ~~equivalent to 1.80%~~ on a monthly basis, and receive payments from our counterparty equivalent to ~~one month LIBOR.~~the stipulated floating rate. The fair ~~value~~values of our interest rate swap ~~agreement is~~agreements are recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate ~~swap~~swaps as a cash flow ~~hedge,~~hedges, and we record changes in the fair value of the interest rate swap agreement to accumulated other comprehensive income on the condensed consolidated balance ~~sheet.~~sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. ~~We assumed~~The following table summarizes our interest rate ~~swap with a value of $0.04 million on the date of assumption, and the fair market value increased to $0.2 million~~swaps at September 30, ~~2017.~~ 2020 and December 31, 2019 (dollars in thousands):


September 30, 2020						December 31, 2019
Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability		Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability
$	62,696	$	0	$	(3,575)	$	45,777	$	0	$	(1,173)

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The ~~swap has a notional value equal to~~following tables present the ~~debt we assumed~~impact of ~~$11.2 million, and has a termination date of April 1, 2026, which is also~~our derivative instruments in the ~~maturity date of the assumed debt.~~condensed consolidated financial statements (dollars in thousands):


	Amount of loss recognized in Comprehensive Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Derivatives in cash flow hedging relationships
Interest rate caps	$	(25)	$	(187)	$	(332)	$	(671)
Interest rate swaps	301		(437)		(2,401)		(1,664)

Total	$	276	$	(624)	$	(2,733)	$	(2,335)

The following table sets forth certain information regarding our derivative instruments (dollars in thousands):


		Asset (Liability) Derivatives Fair Value at
Derivatives Designated as Hedging Instruments	Balance Sheet Location	September 30, 2020		December 31, 2019
Interest rate caps	Other assets	$	17	$	250

Interest rate swaps	Other liabilities	(3,575)		(1,173)




Total derivative liabilities, net		$	(3,558)	$	(923)

The fair value of all mortgage notes payable outstanding as of September 30, ~~2017~~2020 was ~~$461.8~~$473.4 million, as compared to the carrying value stated above of ~~$455.4~~$458.4 million. The fair value is calculated based on a discounted cash flow analysis, using management’s estimate of market interest rates on long-term debt with comparable terms and loan to value ratios. The fair value was calculated using Level 3 inputs of the hierarchy established by ASC 820, “Fair Value Measurements and Disclosures.”

Credit Facility

~~In August 2013,~~On July 2, 2019, we ~~procured a senior unsecured revolving credit facility, or the Revolver, with KeyBank National Association (“KeyBank”) (serving as a lender, a letter of credit issuer~~amended, extended and ~~an administrative agent). On October 5, 2015, we expanded~~upsized our ~~Revolver to $85.0 million, extended the maturity date one year through August 2018, with a one-year extension option through August 2019. We also added a $25.0 million term loan facility, or~~Credit Facility, expanding the Term Loan ~~which matures in October 2020.~~from $75.0 million to $160.0 million, and increasing the Revolver from $85.0 million to $100.0 million. The ~~Revolver~~Term Loan has a new five-year term, with a maturity date of July 2, 2024, and the ~~Term Loan are referred to collectively herein as the Credit Facility.~~Revolver has a new four-year term, with a maturity date of July 2, 2023. The interest rate onfor the ~~Revolver~~Credit Facility was ~~also~~ reduced by 2510 basis points at each of the leverage ~~tiers and~~tiers. We entered into multiple interest rate cap agreements on the ~~total maximum commitment~~amended Term Loan, which cap LIBOR ranging from 2.50% to 2.75%, to hedge our exposure to variable interest rates. We used the net proceeds derived from the amended Credit Facility to repay all previously existing borrowings under the Revolver. We incurred fees of approximately $1.3 million in connection with the Credit Facility ~~was increased from $100.0 million to $150.0 million. We also added three new lenders to the~~amendment. The bank syndicate ~~which~~ is now comprised of KeyBank, ~~Comerica Bank,~~ Fifth Third Bank, USU.S. Bank National Association, The Huntington National Bank, Goldman Sachs Bank USA, and ~~Huntington Bank.~~Wells Fargo Bank, National Association.

The Term Loan is subject to the same leverage tiers as the Revolver; however the interest rate at each leverage tier is five basis points lower. We have the option to repay the Term Loan in full, or in part, at any time without penalty or premium prior to the maturity date.

As of September 30, ~~2017,~~2020, there was ~~$69.2~~$203.8 million outstanding under our Credit Facility, at a weighted average interest rate of approximately ~~3.22%~~1.76%, and ~~$1.0~~$13.7 million outstanding under letters of credit, at a weighted average interest rate of ~~2.00%~~1.65%. As of September 30, ~~2017,~~2020, the maximum additional amount we could draw under the ~~Revolver~~Credit Facility was ~~$34.0~~$27.8 million. We were in compliance with all covenants under the Credit Facility as of September 30, ~~2017.~~2020.

The amount outstanding under the Credit Facility approximates fair value as of September 30, ~~2017.~~2020.

~~8. Mandatorily Redeemable Term Preferred Stock~~

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In February 2012, we completed a public offering of 1,540,000 shares of 7.125% Series C Cumulative Term Preferred Stock (“Term Preferred Stock”), par value $0.001 per share, at a public offering price of $25.00 per share. Gross proceeds of the offering totaled $38.5 million and net proceeds, after deducting offering expenses borne by us, were $36.7 million. The shares of the Term Preferred Stock had a mandatory redemption date of January 31, 2017. During the year ended December 31, 2016, we redeemed all outstanding shares of the Term Preferred Stock. Accordingly, we wrote-off unamortized offering costs of $0.2 million during the year ended December 31, 2016, which were recorded to interest expense in our condensed consolidated statements of operations and other comprehensive income (loss).

The Term Preferred Stock was recorded as a liability in accordance with ASC 480, “Distinguishing Liabilities from Equity,” which states that mandatorily redeemable financial instruments should be classified as liabilities and therefore the related dividend payments are treated as a component of interest expense in the condensed consolidated statements of operations and other comprehensive income (loss).

9.7. Commitments and Contingencies

Ground Leases

We are obligated as lessee under ~~four~~4 ground leases. Future ~~minimum rental~~lease payments due under the terms of these leases as of September 30, ~~2017~~2020 are as follows (dollars in thousands):


Year	Future Lease Payments Due Under Operating Leases
Three Months Ending December 31, 2020	$	116
2021	477
2022	489
2023	492
2024	493
2025	494
Thereafter	7,305
Total anticipated lease payments	$	9,866
Less: amount representing interest	(4,138)
Present value of lease payments	$	5,728

Year Minimum Rental Payments Due
Three Months Ending December 31, 2017 �� $ 117
2018 465
2019 465
2020 466
2021 392
2022 319
Thereafter 4,236
Total $ 6,460

~~Expenses recorded in connection to rental~~Rental expense incurred for ~~the~~ properties ~~listed above~~with ground lease obligations during the three and nine months ended September 30, ~~2017 were~~2020 was $0.1 million and $0.4 million, respectively, and during the three and nine months ended September 30, ~~2016 were~~2019 was $0.1 million and $0.4 million, respectively. ~~Rental~~Our ground leases are treated as operating leases and rental expenses are reflected in property operating expenses on the condensed consolidated statements of operations and ~~other~~ comprehensive ~~income (loss).~~income.

Letters of Credit

As of September 30, ~~2017,~~2020, there was ~~$1.0~~$13.7 million outstanding under letters of credit. These letters of credit are not reflected on our condensed consolidated balance ~~sheet.~~sheets.

~~10. Stockholders’~~8. Equity and Mezzanine Equity

Stockholders’ Equity

The following table summarizes the changes in our ~~stockholders’~~ equity for the three and nine months ended September 30, ~~2017 (dollars in~~2020 and 2019 (in thousands):

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Shares Issued and Retired
Series A and B Preferred Stock Common Stock Senior Common Stock Series A and B Preferred Stock Senior Common Stock Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income (1) Distributions in Excess of Accumulated Earnings Total Stockholders' Equity
Balance at December 31, 2016 2,264,000
24,882,758
959,552
$ 2
$ 1
$ 25
$ 463,436
$ —
$ (223,587 ) $ 239,877
Issuance of Series A and B preferred stock and common stock, net —
2,785,303
—
—
—
3
56,731
—
—
56,734
Conversion of senior common stock to common stock —
26,563
(29,762 ) —
—
—
—
—
—
—
Retirement of senior common stock, net —
—
(1,598 ) —
—
—
(24 ) —
—
(24 )
Distributions declared to common, senior common and preferred stockholders —
—
—
—
—
—
—
—
(37,130 ) (37,130 )
Comprehensive income —
—
—
—
—
—
—
172
—
172
Net income —
—
—
—
—
—
—
—
7,403
7,403
Balance at September 30, 2017 2,264,000
27,694,624
928,192
$ 2
$ 1
$ 28
$ 520,143
$ 172
$ (253,314 ) $ 267,032


	Three Months Ended September 30,				Nine Months Ended September 30,
Series A and B Preferred Stock	2020		2019		2020		2019
Balance, beginning of period	$	0	$	2	$	0	$	2
Issuance of Series A and B preferred stock, net	0		0		0		0
Balance, end of period	$	0	$	2	$	0	$	2
Senior Common Stock
Balance, beginning of period	$	1	$	1	$	1	$	1
Issuance of senior common stock, net	0		0		0		0
Balance, end of period	$	1	$	1	$	1	$	1
Common Stock
Balance, beginning of period	$	34	$	31	$	32	$	29
Issuance of common stock, net	0		0		2		2
Balance, end of period	$	34	$	31	$	34	$	31
Series F Preferred Stock (1)
Balance, beginning of period	$	0	$	0	$	0	$	0
Issuance of Series F preferred stock, net	0		0		0		0
Balance, end of period	$	0	$	0	$	0	$	0
Additional Paid in Capital
Balance, beginning of period	$	599,741	$	592,706	$	571,205	$	559,977
Issuance of common stock and Series F preferred stock, net (1)	5,027		7,362		33,465		40,608

Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	(61)		(112)		37		(629)
Balance, end of period	$	604,707	$	599,956	$	604,707	$	599,956
Accumulated Other Comprehensive Income
Balance, beginning of period	$	(5,135)	$	(1,859)	$	(2,126)	$	(148)
Comprehensive income	276		(624)		(2,733)		(2,335)
Balance, end of period	$	(4,859)	$	(2,483)	$	(4,859)	$	(2,483)
Distributions in Excess of Accumulated Earnings
Balance, beginning of period	$	(388,900)	$	(331,461)	$	(360,978)	$	(310,117)
Distributions declared to common, senior common, and preferred stockholders	(15,780)		(14,482)		(46,965)		(42,674)
Net income attributable to the Company	2,846		2,207		6,109		9,055
Balance, end of period	$	(401,834)	$	(343,736)	$	(401,834)	$	(343,736)
Total Stockholders' Equity
Balance, beginning of period	$	205,741	$	259,420	$	208,134	$	249,744
Issuance of common stock and Series F preferred stock, net (1)	5,027		7,362		33,467		40,610

Distributions declared to common, senior common, and preferred stockholders	(15,780)		(14,482)		(46,965)		(42,674)
Comprehensive income	276		(624)		(2,733)		(2,335)
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	(61)		(112)		37		(629)
Net income attributable to the Company	2,846		2,207		6,109		9,055
Balance, end of period	$	198,049	$	253,771	$	198,049	$	253,771
Non-Controlling Interest
Balance, beginning of period	$	2,892	$	4,665	$	2,903	$	4,675
Distributions declared to Non-controlling OP Unit holders	(189)		(279)		(567)		(835)
Issuance of Non-controlling OP Units as consideration in real estate acquisitions, net	0		0		502		0
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	61		112		(37)		629
Net (loss) income (attributable) available to OP units held by Non-controlling OP Unitholders	(2)		(16)		(39)		13
Balance, end of period	$	2,762	$	4,482	$	2,762	$	4,482
Total Equity	$	200,811	$	258,253	$	200,811	$	258,253


~~(1)~~	~~The only element of comprehensive income recorded in the~~ ~~nine months ended~~ September 30, 2017 relates to the fair value adjustment of $0.17 million related to our assumed interest rate swap described in Footnote 7 "Mortgage Notes Payable and Credit Facility," to these condensed consolidated financial statements.

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(1)No shares of Series F Preferred Stock were outstanding prior to July 1, 2020

Distributions

We paid the following distributions per share for the three and nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


	For the three months ended September 30,					For the nine months ended September 30,
	2020			2019		2020			2019
Common Stock and Non-controlling OP Units	$	0.37545		$	0.37500	$	1.12635		$	1.12500
Senior Common Stock	0.2625			0.2625		0.7875			0.7875
Series A Preferred Stock	0		(1)	0.4843749		0		(1)	1.4531247
Series B Preferred Stock	0		(1)	0.46875		0		(1)	1.4063

Series D Preferred Stock	0.4374999			0.4374999		1.3124997			1.3124997
Series E Preferred Stock	0.414063			0		1.2421890			0
Series F Preferred Stock	0.375			0		0.375		(2)	0

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
Common Stock $ 0.375
$ 0.375
$ 1.125
$ 1.125

Senior Common Stock 0.2625
0.2625
0.7875
0.7875

Series A Preferred Stock 0.4843749
0.4843749
1.4531247
1.4531247

Series B Preferred Stock 0.4688
0.4688
1.4063
1.4063

Series C Preferred Stock —

0.2424
(1) —

1.1330
(1)
Series D Preferred Stock 0.4375
0.4375
1.3125
0.6163

(1)We fully redeemed all outstanding shares of both Series A Preferred Stock and Series B Preferred Stock on October 28, 2019.


~~(1)~~	~~We fully redeemed our Series C Preferred Stock on August 19, 2016.~~

(2)Prior to July 1, 2020, Series F Preferred Stock distributions were declared, but not paid, as there were no Series F Preferred Stock shares outstanding on the applicable dividend record dates.

Recent Activity

~~Common Stock Offering~~

In July 2017, we completed an overnight offering of 1.2 million shares of our common stock, at a public offering price of $20.52 per share. Net proceeds, after deducting underwriter discounts, were $22.7 million. The proceeds from this offering were used to acquire real estate, repay existing indebtedness, and for other general corporate purposes. The offering's underwriters exercised their overallotment option, purchasing an additional 0.2 million shares of our common stock at the public offering price of $20.52 per share. Net proceeds from exercise of the option to purchase additional shares, after deducting underwriter discounts, were $3.4 million. The proceeds from this overallotment were also used to acquire real estate, repay existing indebtedness, and for other general corporate purposes.

Common Stock ATM Program

In February 2016, we amended our common ATM program with Cantor Fitzgerald (the “Common Stock ATM Program”). The amendment increased the amount of shares of common stock that we may offer and sell through Cantor Fitzgerald, to $160.0 million. All other material terms of the Common Stock ATM program remained unchanged. During the nine months ended September 30, ~~2017,~~2020, we sold ~~1.5~~1.6 million shares of common stock, raising ~~$30.8~~$32.4 million in net proceeds under ~~the Common~~our At-the-Market Equity Offering Sales Agreements with sales agents Robert W. Baird & Co. Incorporated (“Baird”), Goldman Sachs & Co. LLC (“Goldman Sachs”), Stifel, Nicolaus & Company, Incorporated (“Stifel”), BTIG, LLC, and Fifth Third Securities, Inc. (“Fifth Third”), pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $250.0 million (the “Common Stock ATM ~~Program.~~Program”). As of September 30, ~~2017,~~2020, we had a remaining capacity to sell up to ~~$101.1~~$204.6 million of common stock under the Common Stock ATM Program.

~~Series A and B Preferred Stock ATM Programs~~

In February 2016, we entered into an open market sales agreement with Cantor Fitzgerald (the “Series A and B Preferred ATM Program”), pursuant to which we may, from time to time, offer to sell (i) shares of our 7.75% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred”), and (ii) shares of our 7.50% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred”), having an aggregate offering price of up to $40.0 million, through Cantor Fitzgerald, acting as sales agent and/or principal. We did not sell any shares of our Series A Preferred or Series B Preferred during the nine months ended September 30, 2017. As of September 30, 2017, we had a remaining capacity to sell up to $37.2 million of preferred stock under the Series A and B Preferred ATM Program.

Mezzanine Equity

~~The~~Our 7.00% Series D Cumulative Redeemable Preferred Stock (“Series D ~~Preferred”~~Preferred Stock”)~~, is~~ and 6.625% Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”) are classified as mezzanine equity inon our condensed consolidated balance ~~sheet~~sheets because ~~it is~~both are redeemable at the option of the shareholder upon a change of control of greater than 50% in accordance with ASC 480-10-S99 “Distinguishing Liabilities from Equity,”which requires mezzanine equity classification for preferred stock issuances with redemption features which are outside of the control of the issuer. A change in control of our company, outside of our control, is only possible if a tender offer is accepted by over 90% of our shareholders. All other change in control situations would require input from our Board of Directors. In addition, our Series E Preferred Stock is redeemable at the option of the shareholder in the event a delisting event occurs. We will periodically evaluate the likelihood that a delisting event or change of control of greater than 50% will take place, and if we deem this probable, we would adjust the Series D Preferred Stock and Series E Preferred Stock presented in mezzanine equity to their redemption value, with the offset to gain (loss) on extinguishment. We currently believe the likelihood of a change of control greater than 50%, or a delisting event, is remote.

~~In June 2016, we entered into~~We have an ~~open market~~At-the-Market Equity Offering Sales Agreement with sales ~~agreement with Cantor Fitzgerald (the “Series D Preferred ATM Program”)~~agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S. Bancorp Investments, Inc., pursuant to which we may, from time to time, offer to sell shares of our Series DE Preferred ~~having~~Stock in an aggregate offering price of up to ~~$50.0~~$100.0 million. We sold 239,399 shares of our Series E Preferred Stock, raising $5.6 million ~~through Cantor Fitzgerald, acting as sales agent and/or principal. During~~in net proceeds under the Series E Preferred Stock Sales Agreement during the nine months ended September 30, ~~2017, we sold approximately 0.4 million shares of our Series D Preferred for net proceeds of $11.2 million.~~2020. As of September 30, ~~2017,~~2020, we had a remaining capacity to sell up to ~~$22.3~~$94.4 million of Series DE Preferred Stock under the Series DE Preferred ~~ATM Program.~~Stock Sales Agreement.

~~Amendment to Articles~~

Table of ~~Incorporation~~Contents

Universal Shelf Registration Statements

On January 11, ~~2017,~~2019, we filed a universal registration statement on Form S-3, File No. 333-229209, and an amendment thereto on Form S-3/A on January 24, 2019 (collectively referred to as the “2019 Universal Shelf”). The 2019 Universal Shelf became effective on February 13, 2019 and replaced our prior universal shelf registration statement. The 2019 Universal Shelf allows us to issue up to $500.0 million of securities. As of September 30, 2020, we had the ability to issue up to $399.5 million under the 2019 Universal Shelf.

On January 29, 2020, we filed an additional universal registration statement on Form S-3, File No. 333-236143 (the “2020 Universal Shelf”). The 2020 Universal Shelf was declared effective on February 11, 2020 and is in addition to the 2019 Universal Shelf. The 2020 Universal Shelf allows us to issue up to an additional $800.0 million of securities. Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our Series F Preferred Stock. As of September 30, 2020, we had the ability to issue up to $798.9 million of securities under the 2020 universal shelf.

Series F Preferred Stock

On February 20, 2020, the Company filed with the Maryland ~~State~~ Department of Assessments and Taxation an Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of the ~~remaining 160,000~~Company’s authorized ~~but~~and unissued shares of common stock as shares of Series F Preferred Stock. The reclassification decreased the number of shares classified as common stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification. We sold 45,102 shares of our Series CF Preferred Stock, raising $1.0 million in net proceeds during the nine months ended September 30, 2020. As of September 30, 2020, we had remaining capacity to sell up to $635.4 million of Series F Preferred Stock.

Amendment to Operating Partnership Agreement

In connection with the authorization of the Series F Preferred Stock in February of 2020, the Operating Partnership controlled by the Company through its ownership of GCLP Business Trust II, the general partner of the Operating Partnership, adopted the Second Amendment to its Second Amended and Restated Agreement of Limited Partnership, including Exhibit SFP thereto (collectively, the “Amendment”), as ~~authorized but unissued~~amended from time to time, establishing the rights, privileges and preferences of 6.00% Series F Cumulative Redeemable Preferred Units, a newly-designated class of limited partnership interests (the “Series F Preferred Units”). The Amendment provides for the Operating Partnership’s establishment and issuance of an equal number of Series F Preferred Units as are issued shares of ~~our common stock, and made a corresponding amendment~~Series F Preferred Stock by the Company in connection with the Offering upon the Company’s contribution to the Operating ~~Partnership’s~~ Partnership ~~Agreement with regard to corresponding units of partnership interest. As a result~~ of the ~~reclassification, there are zero authorized shares~~net proceeds of the Offering. Generally, the Series CF Preferred ~~Stock~~Units provided for under the Amendment have preferences, distribution rights and ~~zero authorized corresponding units~~other provisions substantially equivalent to those of ~~partnership interest remaining. On~~ the same date, we filed with the Maryland State Department of Assessments and Taxation an Articles of Restatement, restating and integrating into a single instrument all prior Articles Supplementary and amendments thereto.Series F Preferred Stock.

~~11.~~9. Subsequent Events

Distributions

On October ~~10, 2017,~~13, 2020, our Board of Directors declared the following monthly distributions for the months of October, November and December of ~~2017:~~2020:


Record Date	Payment Date	Common Stock and Non-controlling OP Unit Distributions per Share		Series D Preferred Distributions per Share		Series E Preferred Distributions per Share
October 23, 2020	October 30, 2020	$	0.12515	$	0.1458333	$	0.138021
November 20, 2020	November 30, 2020	0.12515		0.1458333		0.138021
December 23, 2020	December 31, 2020	0.12515		0.1458333		0.138021
		$	0.37545	$	0.4374999	$	0.414063

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Record Date Payment Date Common Stock Distributions per Share Series A Preferred Distributions per Share Series B Preferred Distributions per Share Series D Preferred Distributions per Share
October 20, 2017 October 31, 2017 $ 0.125
$ 0.1614583
$ 0.15625
$ 0.1458333
November 20, 2017 November 30, 2017 0.125
0.1614583
0.15625
0.1458333
December 19, 2017 December 29, 2017 0.125
0.1614583
0.15625
0.1458333

$ 0.375
$ 0.4843749
$ 0.46875
$ 0.4374999

Senior Common Stock Distributions

Payable to the Holders of Record During the Month of:

Payment Date

Distribution per Share

October

November 5, 2020

0.0875

November

December 4, 2020

0.0875

December

January 5, 2021

0.0875

0.2625

Series F Preferred Stock Distributions

Record Date

Payment Date

Distribution per Share

October 27, 2020

November 5, 2020

0.125

November 25, 2020

December 4, 2020

0.125

December 24, 2020

January 5, 2021

0.125

0.375

Senior Common Stock Distributions
Payable to the Holders of Record During the Month of: Payment Date Distribution per Share
October November 7, 2017 $ 0.0875
November December 7, 2017 0.0875
December January 8, 2018 0.0875

$ 0.2625

COVID-19

~~Held~~

~~On October 19, 2017, we executed a purchase and sale agreement~~rent deferrals of varying terms with ~~the tenant leasing our Arlington, Texas property to sell them the property for $5.6 million. We expect the sale~~deferred amounts to be ~~completed during first quarter 2018. Concurrently with~~paid by the ~~purchase and sale agreement, we executed a lease amendment with this~~respective tenant ~~whereby the tenant has agreed~~back to ~~a 10-year renewal if the sale of this property is not completed for any reason.~~

~~Credit Facility Activity~~

On October 27, 2017, we amended our existing Credit Facility. The Term Loan component of the Credit Facility was increased from $25.0 million, to $75.0 million, with the Revolver commitment remaining at $85.0 million. The Term Loan has a new five-year term, with a maturity date of October 27, 2022, and the Revolver has a new four-year term, with a maturity date of October 27, 2021. The interest rateus, for the ~~Credit Facility was reduced by 25 basis points~~period starting in July 2020 and ending through March 2021. We have received and may receive additional rent modification requests in future periods from our tenants, but we have not granted any additional rent deferrals at ~~each~~this time. We are unable to quantify the economic impact of ~~the leverage tiers. We entered into interest rate cap agreements on the amended Term Loan, which cap LIBOR~~these potential requests at 2.75%. We used the net proceeds of the amended Credit Facility to repay all previously existing borrowings under the Revolver. We incurred fees of approximately $0.9 million in connection with the Credit Facility amendment. The bank syndicate is now comprised of KeyBank, Fifth Third Bank, US Bank and Huntington Bank.this time.

~~ATM~~ Equity Activity

Subsequent to September 30, ~~2017~~2020 and through ~~October 31, 2017,~~November 5, 2020, we raised ~~$0.2~~$1.4 million in net proceeds from the sale of ~~0.01 million~~82,407 shares of ~~common stock in~~Common Stock under our Common Stock ATM ~~Program. We made no sales~~Program, $1.2 million in net proceeds from the sale of 50,033 shares of Series E Preferred Stock under our Series ~~A, B or D~~E Preferred ATM ~~Programs subsequent~~Program and $0.4 million in net proceeds from the sale of 18,459 shares of Series F Preferred Stock.

Sale activity

On October 21, 2020, we sold 3 of our Champaign, Illinois properties for $13.4 million, resulting in a gain on sale, net, of $4.1 million.

Acquisition Activity

On October 14, 2020, we purchased a 240,714 square foot industrial facility in Montgomery, Alabama, for $14.3 million. This property is fully leased to ~~September 30,2017~~1 tenant on a triple net basis with a remaining lease term of seven years.

Financing Activity

On October 14, 2020, we repaid $12.2 million of fixed rate debt, collateralized by 2 properties, at a weighted average interest rate of 4.79% and ~~through October 31, 2017.~~repaid $3.2 million of variable rate debt, collateralized by 1 property, at an interest rate of LIBOR + 2.25%.

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Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

All statements contained herein, other than historical facts, may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ~~or the Exchange Act.~~(the “Exchange Act”). These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our business, financial condition, liquidity, results of operations, funds from operations or prospects to be materially different from any future business, financial condition, liquidity, results of operations, funds from operations or prospects expressed or implied by such forward-looking statements. For further information about these and other factors that could affect our future results, please see the captions titled “Forward-Looking Statements” and “Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. We caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.

All references to “we,” “our,” “us” and ~~“us”~~the “Company” in this Report mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where otherwise noted or where the context indicates that the term means only Gladstone Commercial Corporation.

General

We are an externally-advised real estate investment trust (“REIT”) that was incorporated under the General Corporation Law of the State of Maryland on February 14, 2003. We focus on acquiring, owning, and managing primarily office and industrial properties. On a selective basis, we may make long term industrial and ~~commercial~~office mortgage loans; however, we do not have any mortgage loans currently outstanding. Our properties are geographically diversified and our tenants cover a broad cross section of business sectors and range in size from small to very large private and public companies. We actively communicate with buyout funds, real estate brokers and other third parties to locate properties for potential acquisition or to provide mortgage financing in an effort to build our portfolio. We target secondary growth markets that possess favorable economic growth trends, diversified industries, and growing population and employment.

We have historically entered into, and intend in the future to enter into, purchase agreements primarily for real estate having net leases with remaining terms of approximately 7 to 15 years and built in rental rate increases. Under a net lease, the tenant is required to pay most or all operating, maintenance, repair and insurance costs and real estate taxes with respect to the leased property.

All references to annualized generally accepted accounting principles (“GAAP”) rent are rents that each tenant pays in accordance with the terms of its respective lease reported evenly over the non-cancelable term of the lease.

As of ~~October 31, 2017:~~November 5, 2020:

•we owned 97120 properties totaling ~~11.2~~15.0 million square feet in 2428 states;

•our occupancy rate was ~~97.9%~~95.1%;

•the weighted average remaining term of our mortgage debt was ~~6.6~~4.6 years and the weighted average interest rate was ~~4.52%~~4.28%; and

•the average remaining lease term of the portfolio was ~~7.7~~7.3 years.

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Business Environment

In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and widespread infection continues in the United States ~~vacancy rates~~and many parts of the world. The rapid spread of the coronavirus identified as COVID-19 resulted in authorities throughout the United States and the world implementing widespread measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, the promotion of social distancing and limitations on business activity, including business closures. These measures and the pandemic have ~~decreased~~caused a significant national and global economic downturn, disrupted business operations, including those of certain of our tenants, significantly increased unemployment and underemployment levels, and are expected to have an adverse effect on office demand for ~~both office and~~space in the short term, at a minimum. The demand for industrial ~~properties in most markets,~~space has moderated as ~~increased user demand has led to improved conditions. Vacancy rates in many markets have been reduced to levels seen at~~well, but the ~~peak before~~continuing growth of e-commerce is counterbalancing the most recent recession and rental rates have increased in most primary and secondary markets. This condition has led to a rise in construction activity for both office and industrial properties in many markets.adverse effects from COVID-19. Interest rates have been volatile ~~since the beginning of 2016~~ and although interest rates are still ~~relatively~~ low by historical standards (and in some cases have been reduced to help curb the impact of COVID-19), lenders have varied on their required spreads over the last several ~~quarters~~quarters. Investment sales volume across all product types, but especially office and ~~overall financing costs for fixed rate mortgages appear~~retail, in recent months is lower year over year, as compared to ~~be on~~2019 as a direct result of COVID-19. After completing the ~~rise. At the beginning~~11th year of the ~~year, several research firm surveys reflected that the~~ current ~~real estate~~ cycle, ~~may be peaking from both a volume and price standpoint. 2016 year-end statistics from~~some national research firms ~~indicate~~had been estimating that ~~total~~both pricing and investment sales volume ~~was approximately 10% less than~~would be peaking and the ~~volume recorded~~national economy would be slowing in ~~2015. That reduction continued through~~ the ~~second quarter~~near term, prior to the rapid spread of ~~2017 as research firms reported that investment volume~~COVID-19. Global recessionary conditions are currently expected for the ~~quarter was nearly 10% less than~~remainder of 2020 as a direct result of the ~~level~~COVID-19 pandemic, although the actual impact and duration are unknown. See “Impact of COVID-19 on Our Business” below for the ~~first six months of 2016.~~impact on the COVID-19 pandemic on our business.

From a more macro-economic perspective, there continues to be significant uncertainties associated with the ~~strength~~COVID-19 pandemic, including with respect to the severity of the ~~global~~disease, the duration of the outbreak, actions that may be taken by governmental authorities and private businesses to attempt to contain the COVID-19 outbreak or to mitigate its impact, the extent and duration of social distancing and the adoption of shelter-in-place orders, or reversal of reopening orders, and the ongoing impact of COVID-19 on business and economic activity. Much of the United States economy is now in the process of re-opening, but at the same time the COVID-19 pandemic is intensifying in many areas of the country.

Impact of COVID-19 on Our Business

The extent to which the COVID-19 pandemic may impact our business, financial condition, liquidity, results of operations, funds from operations or prospects will depend on numerous evolving factors that we are not be able to predict at this time, including the nature, duration and ~~U.S. economy in particular~~scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be ~~uncertain with increased volatility due~~taken in response to the ~~vote last year~~pandemic; the impact on economic activity from the pandemic (such as the effect on market rental rates and commercial real estate values) and actions taken in response; the effect on our tenants and their businesses; the ability of our tenants to make their rental payments, any closures of our tenants’ properties, our ability to secure debt financing, service future debt obligations or pay distributions to our stockholders. Any of these events could materially adversely impact our business, financial condition, liquidity, results of operations, funds from operations or prospects.

As of November 5, 2020, we have collected 100% of all outstanding October cash base rent obligations and approximately 99% of third quarter 2020 cash base rent obligations. In April 2020, we granted rent deferrals to three tenants representing approximately 2% of total portfolio rents. The agreements with these tenants include current partial payment in exchange for rent deferrals of varying terms with deferred amounts to be paid by the respective tenant back to us, for the period starting in July 2020 and ending through March 2021. In connection with one of the rent deferrals, we were able to obtain short term mortgage payment relief from our lender on the loan associated with those properties. We collected all cash base rent obligations during the first nine months of 2020 that were not subject to rent deferral agreements. We may pursue additional loan relief agreements in the ~~United Kingdom~~future. We have received and may receive additional rent modification requests in future periods from our tenants. However, we are unable to ~~exit~~quantify the ~~European Union,~~outcomes of the ~~uncertainty~~negotiation of ~~health care~~relief packages, the success of any tenant’s financial prospects or the amount of relief requests that we will ultimately receive or grant. We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in the retail, hospitality, airlines, and oil and gas industries. These industries, among certain others, have generally been severely impacted by the COVID-19. Additionally, our properties are located in 28 states, which we believe mitigates our exposure to economic issues, including as a result of COVID-19, in any one geographic market or area.

We believe we currently have adequate liquidity in the near term, and we believe the availability on our Credit Facility is sufficient to cover all near term debt obligations and operating expenses. We are in compliance with all of our debt covenants, and we amended our Credit Facility in 2019 to increase our borrowing capacity and extend its maturity date. We have had numerous conversations with lenders and do not believe there will be a credit freeze in the near term. We continue to monitor our portfolio and intend to maintain a reasonably conservative liquidity position for the foreseeable future.

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We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our personnel, tenants and stockholders. While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, financial condition, liquidity, results of operations, funds from operations or prospects, we believe that it is important to share where we stand today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses.

Other Business Environment Considerations

The short-term and long-term economic implications of the presidential election result are unknown at this time, inclusive of the long-term impact of tax reform ~~initiatives~~ in the ~~United States, and an apparent~~U.S. Finally, the continuing ~~global economic slowdown. In addition, the~~ uncertainty surrounding the ability of the federal government to address its fiscal condition in both the near and long term, particularly with the ongoing discussions regarding additional fiscal stimulus as well as other ~~geo-political~~geopolitical issues relating to the global economic slowdown has increased domestic and global instability. These developments could cause interest rates and borrowing costs to ~~rise,~~be volatile, which may adversely affect our ability to access both the equity and debt markets and could have an adverse ~~effect~~impact on our tenants as well.

All of our variable rate debt is based upon the one month London Inter-bank Offered Rate (“LIBOR”), although LIBOR is currently anticipated to be phased out during late 2021. LIBOR is expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate repo data collected from multiple data sets. The intent is to adjust the SOFR to minimize differences between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR. We are currently monitoring the transition, as we cannot assess whether SOFR will become a standard rate for variable rate debt. Any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based debt, or the value of our portfolio of LIBOR-indexed, floating rate debt.

We continue to focus on re-leasing vacant space, renewing upcoming lease expirations, re-financing upcoming loan maturities, and acquiring additional properties with associated long-term leases. Currently, we ~~only~~ have ~~one~~three partially vacant buildings and four fully vacant ~~building, located in Tewksbury, Massachusetts, as well as a total of two partially vacant~~ buildings. ~~Our Newburyport, Massachusetts property, which was previously fully vacant, was classified as held for sale as of June 30, 2017, and subsequently sold in August 2017.~~

We have ~~one lease~~no leases expiring during the remainder of 2020, 10 leases expiring in ~~2017,~~2021, which ~~accounts~~account for ~~0.04%~~5.1% of ~~rental revenue we recognized during the nine months ended September 30, 2017 and one~~ lease ~~expiring in 2018, which accounts for 0.1% of rental~~ revenue recognized during the nine months ended September 30, ~~2017.~~2020, and eight leases expiring in 2022, which account for 6.3% of lease revenue recognized during the nine months ended September 30, 2020.

Our available vacant space at September 30, ~~2017~~2020 represents ~~2.1%~~5.0% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately ~~$0.6~~$4.2 million. We continue to actively seek new tenants for these properties.

Our ability to make new investments is highly dependent upon our ability to procure financing. Our principal sources of financing generally include the issuance of equity securities, long-term mortgage loans secured by properties, borrowings under our ~~$85.0~~$100.0 million senior unsecured revolving credit facility (“Revolver”), with KeyBank National Association (serving as a revolving lender, a letter of credit issuer and an administrative agent), which matures in ~~October 2021,~~July 2023, and our ~~$75.0~~$160.0 million term loan facility (“Term Loan”), which matures in ~~October 2022, which we~~July 2024. We refer to the Revolver and Term Loan collectively herein as the Credit Facility. While lenders’ credit standards have tightened, we continue to look to national and regional banks, insurance companies and non-bank lenders, in addition to the collateralized mortgage backed securities market, ~~or the CMBS market,~~(the “CMBS market”), to issue mortgages to finance our real estate activities.

~~In addition to obtaining funds through borrowing, we have been active in the equity markets during and subsequent to the nine months ended September 30, 2017. We completed an overnight offering~~

Table of our common stock, and we have also issued shares of both common stock and Series D Preferred Stock through our at-the-market programs, or ATM Programs, pursuant to our open market sale agreements with Cantor Fitzgerald, discussed in more detail below.Contents

Recent Developments

~~2017~~2020 Sale Activity

During the nine months ended September 30, ~~2017,~~2020, we continued to execute our capital recycling program, whereby we sell non-core properties ~~outside of our core markets~~ and redeploy proceeds to fund property acquisitions located in our target secondary growth markets, oras well as repay outstanding debt. We will continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities ~~are~~become available. During the nine months ended September 30, ~~2017,~~2020, we sold ~~four~~two non-core properties, located in Charlotte, North Carolina and ~~applied the proceeds towards outstanding debt,~~Maple Heights, Ohio, which ~~is summarized~~are detailed in the table below (dollars in thousands):


Aggregate Square Footage Sold	Sales Price		Sales Costs		Gain on Sale of Real Estate, net
411,948	$	15,501	$	1,138	$	1,184

Aggregate Square Footage Sold Aggregate Sales Price Aggregate Sales Costs Aggregate Impairment Charge for the Nine Months Ended September 30, 2017 Aggregate Gain on Sale of Real Estate, net
593,763
$ 30,302
$ 803
$ 3,999
$ 3,993
On October 21, 2020, we sold three of our Champaign, Illinois properties for $13.4 million, resulting in a gain on sale, net, of $4.1 million.

~~2017~~2020 Acquisition Activity

During the nine months ended September 30, ~~2017,~~2020, we acquired ~~five~~six industrial properties, one property located in ~~Conshohocken, Pennsylvania,~~Indianapolis, Indiana, a three-property portfolio in Houston, Texas; Charlotte, North Carolina; and St. Charles, Missouri, one ~~located~~property in ~~Philadelphia, Pennsylvania,~~Chatsworth, Georgia, and ~~three-properties located~~one property in ~~Maitland, Florida, all of~~Indianapolis, Indiana, which are summarized in the table below (dollars in thousands):


Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Capitalized Acquisition Expenses		Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Debt Issued or Assumed
1,043,638	14.2 years	$	82,599	$	339	$	6,146	$	35,855

Aggregate Square Footage Weighted Average Lease Term Aggregate Purchase Price Acquisition Costs Aggregate Annualized GAAP Rent Aggregate Debt Issued and Assumed
666,451
10.7 years $ 94,421

$ 1,171
(1) $ 10,776
$ 54,887


~~(1)~~	We early adopted ASU 2017-01, “Clarifying the Definition of a Business,” effective October 1, 2016. As a result, we treated our 2017 acquisitions as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $1.2 million of acquisition costs that would otherwise have been expensed under business combination treatment.

On October 14, 2020, we purchased a 240,714 square foot industrial facility in Montgomery, Alabama, for $14.3 million. This property is fully leased to one tenant on a triple net basis with a remaining lease term of seven years.

~~2017~~

2020 Leasing Activity

During the nine months ended September 30, ~~2017,~~2020, we executed ~~six lease extensions and/or modifications, or new~~13 leases, which are summarized below (dollars in thousands):


Aggregate Square Footage	Weighted Average Remaining Lease Term	Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Tenant Improvement		Aggregate Leasing Commissions
987,902	7.9 years	$	8,340	$	2,903	$	1,285

~~2017 Financing Activity~~

During the nine months ended September 30, ~~2017,~~2020, we had one lease termination, which is summarized below (dollars in thousands):


Aggregate Square Footage Reduced	Aggregate Termination Fee		Aggregate Deferred Rent Write Off
61,358	$	1,119	$	225

2020 Financing Activity

During the nine months ended September 30, 2020, we repaid four mortgages, collateralized by ~~ten~~five properties, which are ~~aggregated~~summarized in the table below (dollars in thousands):

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Aggregate Fixed Rate Debt Repaid	Aggregate Fixed Rate Debt Repaid	Weighted Average Interest Rate on Fixed Rate Debt Repaid	Aggregate Fixed Rate Debt Repaid	Interest Rate on Fixed Rate Debt Repaid
$	41,077	6.25%	5,918	6.00%

During the nine months ended September 30, ~~2017,~~2020, we issued ~~or assumed~~ four mortgages, collateralized by ~~seven~~four properties, which are summarized below (dollars in thousands):

Aggregate Fixed Rate Debt Issued or Assumed Weighted Average Interest Rate on Fixed Rate Debt Aggregate Variable Rate Debt Issued or Assumed
$ 54,887
(1) 3.78 % (2) $ 7,500
(3)

~~On October 27, 2017, we amended our existing Credit Facility. The Term Loan component of the Credit Facility was increased from $25.0 million, to $75.0 million,~~ with the ~~Revolver commitment remaining at $85.0 million. The Term Loan has a new five-year term,~~three-property portfolio acquired on January 27, 2020, with a maturity date of ~~October 27, 2022, and the Revolver has a new four-year term, with a maturity date of October 27, 2021.~~February 1, 2030. The interest rate ~~for the Credit Facility was reduced by 25 basis points~~is fixed at ~~each~~3.625%. On March 9, 2020, we issued $17.5 million of ~~the leverage tiers. We entered into interest~~floating rate ~~cap agreements on the amended Term Loan, which cap LIBOR~~ ~~at 2.75%. We used the net proceeds~~debt swapped to fixed rate debt of ~~the amended Credit Facility to repay all previously existing borrowings under the Revolver. We incurred fees of approximately $0.9 million~~2.8% in connection with the ~~Credit Facility amendment. The bank syndicate is now comprised~~one property acquisition.

On October 14, 2020, we repaid $12.2 million of ~~KeyBank, Fifth Third Bank, US Bank~~fixed rate debt, collateralized by two properties, at a weighted average interest rate of 4.79% and ~~Huntington Bank.~~repaid $3.2 million of variable rate debt, collateralized by one property, at an interest rate of LIBOR + 2.25%.

~~2017~~2020 Equity Activities

~~Common Stock Offering~~

In July 2017, we completed an overnight offering of 1.2 million shares of our common stock at a public offering price of $20.52 per share. Net proceeds, after deducting underwriter discounts, were $22.7 million. The proceeds from this offering were used to acquire real estate, repay existing indebtedness, and for other general corporate purposes. The offering's underwriters exercised their overallotment option, purchasing an additional 0.2 million shares of our common stock at the public offering price of $20.52 per share. Net proceeds from exercise of the option to purchase additional shares, after deducting underwriter discounts, were $3.4 million. The proceeds from this overallotment were used to acquire real estate, repay existing indebtedness, and for other general corporate purposes.

Common Stock ATM Program

In February 2016, we amended our common ATM program with Cantor Fitzgerald (the “Common Stock ATM Program”). The amendment increased the amount of shares of common stock that we may offer and sell through Cantor Fitzgerald, to $160.0 million. All other terms of the Common Stock ATM program remained unchanged. During the nine months ended September 30, ~~2017,~~2020, we sold ~~1.5~~1.6 million shares of common stock, raising ~~$30.8~~$32.4 million in net proceeds under ~~the Common~~our At-the-Market Equity Offering Sales Agreements with sales agents Robert W. Baird & Co. Incorporated (“Baird”), Goldman Sachs & Co. LLC (“Goldman Sachs”), Stifel, Nicolaus & Company, Incorporated (“Stifel”), BTIG, LLC, and Fifth Third Securities, Inc. (“Fifth Third”), pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $250.0 million (the “Common Stock ATM ~~Program.~~Program”). As of September 30, ~~2017,~~2020, we had a remaining capacity to sell up to ~~$101.1~~$204.6 million of common stock under the Common Stock ATM Program. ~~Subsequent to September 30, 2017 and through October 31, 2017, we raised $0.2 million in net proceeds from the sale of 0.01 million shares of common stock through our Common Stock ATM Program.~~

Preferred Series E ATM ~~Programs~~Program

~~Series A and B~~We have an At-the-Market Equity Offering Sales Agreement (the “Series E Preferred Stock~~: In February 2016, we entered into an open market sales agreement (the “Series A and B Preferred ATM Program”~~ Sales Agreement”), with ~~Cantor Fitzgerald, pursuant to which we may, from time to time, offer to sell (i) shares of our 7.75% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred”),~~sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and ~~(ii) shares of our 7.50% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred”)~~U.S. Bancorp Investments, Inc., having an aggregate offering price of up to $40.0 million, through Cantor Fitzgerald, acting as sales agent and/or principal. We did not sell any shares of our Series A Preferred or Series B Preferred during nine months ended September 30, 2017. As of September 30, 2017, we had a remaining capacity to sell up to $37.2 million of preferred stock under the Series A and B Preferred ATM Program. Subsequent to September 30, 2017 and through October 31, 2017, we made no sales under our Series A and Series B Preferred ATM Programs.

~~Series D Preferred Stock: In June 2016, we entered into an open market sales agreement (the “Series D Preferred ATM Program”) , with Cantor Fitzgerald,~~ pursuant to which we may, from time to time, offer to sell shares of our ~~7.00%~~ Series ~~D Cumulative Redeemable~~E Preferred ~~(“Series D Preferred”), having~~Stock in an aggregate offering price of up to ~~$50.0~~$100.0 million. We sold 239,399 shares of our Series E Preferred Stock, raising $5.6 million ~~through Cantor Fitzgerald, acting as sales agent and/or principal. During~~in net proceeds pursuant to the Series E Preferred Stock Sales Agreement during the nine months ended September 30, ~~2017, we sold approximately 0.4 million shares of our Series D Preferred for net proceeds of $11.2 million.~~2020. As of September 30, ~~2017,~~2020, we had a remaining capacity to sell up to ~~$22.3~~$94.4 million of Series DE Preferred Stock under the Series DE Preferred ~~ATM Program. Subsequent to September 30, 2017 and through October 31, 2017, we made no sales under our Series D Preferred ATM Program.~~Stock Sales Agreement.

~~Amendment to Articles of Incorporation~~Universal Shelf Registration Statements

On January 29, 2020, we filed an additional universal registration statement on Form S-3, File No. 333-236143 (the “2020 Universal Shelf”). The 2020 Universal Shelf was declared effective on February 11, 2020 and is in addition to the 2019 Universal Shelf. The 2020 Universal Shelf allows us to issue up to an additional $800.0 million of securities. Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our 6.00% Series F Cumulative Redeemable Preferred Stock of the Company, par value $0.001 per share (the “Series F Preferred Stock”). As of September 30, 2020, we had the ability to issue up to $798.9 million of securities under the 2020 Universal Shelf.

Series F Preferred Stock

On February 20, 2020, we filed with the Maryland ~~State~~ Department of Assessments and Taxation an Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of the ~~remaining 160,000~~Company’s authorized ~~but~~and unissued shares of Common Stock as shares of Series F Preferred Stock. The reclassification decreased the number of shares classified as Common Stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification. We sold 45,102 shares of our Series CF Preferred Stock, ~~as authorized but unissued shares~~raising $1.0 million in net proceeds during the three and nine months ended September 30, 2020. As of ~~our common stock, and made a corresponding amendment~~September 30, 2020, we had remaining capacity to sell up to $635.4 million of Series F Preferred Stock.

Amendment to Operating Partnership Agreement

In connection with the ~~partnership agreement~~authorization of ~~our operating partnership,~~the Series F Preferred Stock, Gladstone Commercial Limited Partnership ~~which is~~(the “Operating Partnership”), a ~~wholly owned subsidiary~~Delaware limited partnership controlled by the Company through its ownership of ~~ours, with regard to corresponding units of partnership interest. As a result~~GCLP Business Trust II, the general partner of the ~~reclassification, there~~Operating Partnership, adopted the Second Amendment to its Second Amended and Restated Agreement of Limited Partnership, including Exhibit SFP thereto (collectively, the “Amendment”), as amended from time to time, establishing the rights, privileges and preferences of 6.00% Series F Cumulative Redeemable Preferred Units, a newly-designated class of limited partnership interests (the “Series F Preferred Units”). The Amendment provides for the Operating Partnership’s establishment and issuance of an equal number of Series F Preferred Units as are ~~zero authorized~~issued shares of Series CF Preferred Stock ~~and zero authorized corresponding units of partnership interest remaining. On~~by the ~~same date, we filed~~Company in connection with the ~~Maryland State Department~~Offering upon the Company’s contribution to the Operating Partnership of ~~Assessments~~the net proceeds of the Offering. Generally, the Series F Preferred Units provided for under the Amendment have preferences, distribution rights and ~~Taxation~~other provisions substantially equivalent to those of the Series F Preferred Stock.

Amendment to the Advisory Agreement

On July 14, 2020, the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Amended Agreement”). The Company’s entrance into the Amended Agreement was approved by its Board of Directors, including, specifically, unanimously by its independent directors. The Amended Agreement revised and replaced the previous calculation of the Base Management Fee (as defined therein), which was based on Total Equity (as defined therein), with a calculation based on Gross Tangible Real Estate. The revised Base Management Fee will be payable quarterly in arrears and shall be calculated at an ~~Articles~~annual rate of ~~Restatement, restating and integrating into a single instrument all~~0.425% (0.10625% per quarter) of the prior ~~Articles Supplementary and amendments thereto.~~calendar quarter’s “Gross Tangible Real Estate,” defined in the Amended Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Amended Agreement remain unchanged. The revised Base Management Fee calculation began with the fee calculations for the quarter ended September 30, 2020.

Diversity of Our Portfolio

~~Our Adviser~~Gladstone Management Corporation, a Delaware corporation (our “Adviser”) seeks to diversify our portfolio to avoid dependence on any one particular tenant, industry or geographic market. By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic market. For the nine months ended September 30, ~~2017,~~2020, our largest tenant comprised only ~~5.3%~~2.7% of total ~~rental income.~~lease revenue. The table below reflects the breakdown of our total ~~rental income~~lease revenue by tenant industry classification for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
Industry Classification Rental Revenue Percentage of Rental Revenue Rental Revenue Percentage of Rental Revenue Rental Revenue Percentage of Rental Revenue Rental Revenue Percentage of Rental Revenue
Telecommunications $ 3,930
16.5 % $ 3,384
16.0 % $ 11,649
17.1 % $ 9,943
15.9 %
Healthcare 3,001
12.6
3,379
15.9
10,127
14.8
10,163
16.2
Automobile 2,875
12.1
2,639
12.4
8,303
12.2
7,910
12.6
Diversified/Conglomerate Services 2,993
12.6
1,987
9.4
7,009
10.3
5,929
9.4
Information Technology 1,498
6.3
946
4.5
4,496
6.6
2,261
3.6
Diversified/Conglomerate Manufacturing 1,210
5.1
1,205
5.7
3,621
5.3
3,504
5.6
Electronics 1,068
4.4
1,082
5.1
3,232
4.7
3,246
5.2
Personal, Food & Miscellaneous Services 1,423
6.0
892
4.2
3,208
4.7
2,677
4.3
Chemicals, Plastics & Rubber 722
3.0
775
3.7
2,215
3.3
2,335
3.7
Buildings and Real Estate 1,019
4.3
550
2.6
2,187
3.2
1,646
2.6
Personal & Non-Durable Consumer Products 663
2.8
658
3.1
1,991
2.9
1,970
3.1
Banking 760
3.2
614
2.9
1,986
2.9
1,839
2.9
Machinery 560
2.3
644
3.0
1,681
2.5
2,007
3.2
Childcare 556
2.3
556
2.6
1,667
2.4
1,667
2.7
Beverage, Food & Tobacco 525
2.2
525
2.5
1,577
2.3
1,577
2.5
Containers, Packaging & Glass 430
1.8
682
3.2
1,379
2.0
2,019
3.2
Printing & Publishing 286
1.2
391
1.8
1,036
1.5
1,170
1.9
Education 164
0.7
164
0.8
492
0.7
492
0.8
Home & Office Furnishings 132
0.6
132
0.6
397
0.6
397
0.6
Total $ 23,815
100.0 % $ 21,205
100.0 % $ 68,253
100.0 % $ 62,752
100.0 %

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The ~~table~~tables below ~~reflects~~reflect the breakdown of total ~~rental income~~lease revenue by state for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):


State	Lease Revenue for the three months ended September 30, 2020		Percentage of Lease Revenue		Number of Leases for the three months ended September 30, 2020	Lease Revenue for the three months ended September 30, 2019		Percentage of Lease Revenue		Number of Leases for the three months ended September 30, 2019
Texas	$	4,847	14.6	%	15	$	4,092	14.3	%	14
Florida	4,120		12.4		11	3,898		13.6		11
Pennsylvania	3,491		10.5		9	3,393		11.8		9
Ohio	3,429		10.3		14	2,836		9.9		17
Georgia	2,684		8.1		9	1,596		5.6		7
Utah	2,006		6.1		4	1,744		6.1		4
Michigan	1,573		4.7		6	1,507		5.3		6
North Carolina	1,546		4.7		8	1,265		4.4		7
South Carolina	1,230		3.7		2	1,160		4.0		2
Alabama	897		2.7		3	889		3.1		3
All Other States	7,319		22.2		47	6,287		21.9		35
Total	$	33,142	100.0	%	128	$	28,667	100.0	%	115


State	Lease Revenue for the nine months ended September 30, 2020		Percentage of Lease Revenue		Number of Leases for the nine months ended September 30, 2020	Lease Revenue for the nine months ended September 30, 2019		Percentage of Lease Revenue		Number of Leases for the nine months ended September 30, 2019
Texas	$	15,081	15.0	%	15	$	12,037	14.2	%	14
Florida	12,549		12.5		11	11,440		13.5		11
Ohio	10,569		10.5		14	8,280		9.7		17
Pennsylvania	10,272		10.2		9	10,154		11.9		9
Georgia	7,616		7.6		9	4,073		4.8		7
Utah	5,941		5.9		4	5,193		6.1		4
Michigan	4,718		4.7		6	4,517		5.3		6
North Carolina	4,547		4.5		8	4,385		5.2		7
South Carolina	3,628		3.6		2	3,478		4.1		2
Minnesota	3,507		3.5		6	2,814		3.3		6
All Other States	21,859		22.0		44	18,630		21.9		32
	$	100,287	100.0	%	128	$	85,001	100.0	%	115

State Rental Revenue for the three months ended September 30, 2017 % of Base Rent Number of Leases for the three months ended September 30, 2017 Rental Revenue for the three months ended September 30, 2016 % of Base Rent Number of Leases for the three months ended September 30, 2016
Texas $ 3,822
16.0 % 12
$ 3,722
17.6 % 12
Pennsylvania 3,214
13.5
9
1,678
7.9
6
Florida 2,264
9.5
10
723
3.4
3
Ohio 1,964
8.3
13
2,385
11.2
15
North Carolina 1,512
6.4
8
1,499
7.1
8
Georgia 1,192
5.0
6
1,194
5.6
6
South Carolina 1,153
4.8
2
1,153
5.4
2
Michigan 1,082
4.5
4
1,074
5.1
4
Utah 946
4.0
2
946
4.5
2
Minnesota 930
3.9
6
843
4.0
4
All Other States 5,736
24.1
33
5,988
28.2
36
Total $ 23,815
100.0 % 105
$ 21,205
100.0 % 98

State Rental Revenue for the nine months ended September 30, 2017 % of Base Rent Number of Leases for the nine months ended September 30, 2017 Rental Revenue for the nine months ended September 30, 2016 % of Base Rent Number of Leases for the nine months ended September 30, 2016
Texas $ 11,372
16.7 % 12
$ 11,157
17.8 % 12
Pennsylvania 7,721
11.3
9
5,035
8.0
6
Ohio 7,016
10.3
13
7,152
11.4
15
North Carolina 4,518
6.6
8
4,382
7.0
8
Florida 4,499
6.6
10
1,957
3.1
3
Georgia 3,577
5.2
6
3,578
5.7
6
South Carolina 3,459
5.1
2
3,459
5.5
2
Michigan 3,245
4.8
4
3,221
5.1
4
Utah 2,839
4.2
2
2,261
3.6
2
Minnesota 2,773
4.1
6
2,531
4.0
4
All Other States 17,234
25.1
33
18,019
28.8
36
Total $ 68,253
100.0 % 105
$ 62,752
100.0 % 98

Our Adviser and Administrator

Our Adviser is led by a management team with extensive experience purchasing real estate and originating mortgage loans. Our Adviser and ~~Administrator~~Gladstone Administration, LLC, a Delaware limited liability company (our “Administrator”) are controlled by Mr. David Gladstone, who is also our chairman and chief executive officer. Mr. Gladstone also serves as the chairman and chief executive officer of both our Adviser and ~~Administrator.~~Administrator, as well as president and chief investment officer of our Adviser. Mr. Terry Lee Brubaker, our vice chairman and chief operating officer, is also the vice chairman and chief operating officer of our Adviser and ~~Administrator.~~Administrator and assistant secretary of our Adviser. Mr. Robert Cutlip, our president, is also anserves as the executive ~~managing director~~vice president of commercial and industrial real estate of our Adviser. ~~Gladstone Administration, LLC, or our~~Our Administrator employs our chief financial officer, treasurer, chief compliance officer, general counsel and secretary, Michael LiCalsi (who also serves as our Administrator’s president, general counsel, and ~~secretary)~~secretary, as well as executive vice president of administration of our Adviser) and their respective staffs.

Table of Contents

Our Adviser and Administrator also provide investment advisory and administrative services, respectively, to certain of our affiliates, including, but not limited to, Gladstone Capital Corporation and Gladstone Investment Corporation, both publicly-traded business development companies, as well as Gladstone Land Corporation, a publicly-traded REIT that primarily invests in farmland. With the exception of Mr. Michael Sodo, our chief financial officer, Mr. Jay Beckhorn, our treasurer, and Mr. Robert Cutlip, our president, all of our executive officers and all of our directors serve as either directors or executive officers, or both, of Gladstone Capital Corporation and Gladstone Investment Corporation. In addition, with the exception of Mr. Cutlip and Mr. Sodo, all of our executive officers and all of our directors, serve as either directors or executive officers, or both, of Gladstone Land Corporation. Mr. Cutlip and Mr. Sodo ~~spend 100% of their time focused on Gladstone Commercial Corporation, and~~ do not put forth any material efforts in assisting affiliated companies. In the future, our Adviser may provide investment advisory services to other companies, both public and private.

Advisory and Administration Agreements

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits and other general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. Two of our executive officers, Mr. Gladstone and Mr. Terry Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Mr. Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president, general counsel and ~~secretary.~~secretary, as well as executive vice president of administration of our Adviser. We have entered into an advisory agreement with our Adviser, oras amended from time to time (including the Sixth Amended and Restated Investment Advisory Agreement dated July 14, 2020, the “Advisory Agreement”), and an administration agreement with our Administrator ~~or the Administration Agreement.~~(the “Administration Agreement”). The services and fees under the Advisory Agreement and Administration Agreement are described below.

Under the terms of the Advisory Agreement, ~~between us and our Adviser, as amended,~~ we are responsible for all expenses incurred for our direct benefit. Examples of these expenses include legal, accounting, interest, directors’ and officers’ insurance, stock transfer services, stockholder-related fees, consulting and related fees. In addition, we are also responsible for all fees charged by third parties that are directly related to our business, which include real estate brokerage fees, mortgage placement fees, lease-up fees and transaction structuring fees (although we may be able to pass all or some of such fees on to our tenants and borrowers).

~~Base Management Fee~~

On July 24, 2015, we entered into a Second Amended and Restated Advisory Agreement with the Adviser, effective July 1, 2015. We subsequently entered into a Third Amended and Restated Advisory Agreement with the Adviser on July 12, 2016, effective July 1, 2016, and, as described below, a Fourth Amended and Restated Investment Advisory Agreement with the Adviser on January 10, 2017, effective October 1, 2016. Our entrance into the Advisory Agreement and each ~~of the amended Advisory Agreements was~~amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreement with our Adviser each July. ~~As such, during~~During its July ~~2017~~2020 meeting, ~~the~~our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, ~~2018.~~2021.

~~As a result~~Base Management Fee

On July 14, 2020, the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Amended Agreement”). The Company’s entrance into the Amended Agreement was approved by its Board of Directors, including, specifically, unanimously by its independent directors. The Amended Agreement revised and replaced the previous calculation of the Base Management Fee, which was based on Total Equity, with a calculation based on Gross Tangible Real Estate. The revised Base Management Fee will be payable quarterly in arrears and shall be calculated at an annual rate of 0.425% (0.10625% per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Amended Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Amended Agreement remain unchanged. The revised Base Management Fee calculation began with the fee calculations for the quarter ended September 30, 2020.

Under the Advisory Agreement prior to the July ~~2015~~14, 2020 amendment and restatement, the calculation of the annual base management fee ~~equals~~equaled 1.5% of our ~~adjusted total stockholders’ equity,~~Total Equity, which is our total stockholders’ equity plus total mezzanine equity (before giving effect to the base management fee and incentive fee), adjusted to exclude the effect of any unrealized gains or losses that do not affect realized net income (including impairment charges) and adjusted for any one-time events and certain non-cash items (the later to occur for a given quarter only upon the approval of our Compensation Committee)., and adjusted to include OP Units held by Non-controlling OP Unitholders. The fee iswas calculated and accrued quarterly as 0.375% per quarter of such ~~adjusted total stockholders’ equity~~Total Equity figure. As a result of the July 2016 amendment, the definition of adjusted total stockholders’ equity in the calculation of the base management fee and the incentive fee (described below) includes total mezzanine equity. Our Adviser does not charge acquisition or disposition fees when we acquire or dispose of properties as is common in other externally managed REITs; however, our Adviser may earn fee income from our borrowers, tenants or other sources. ~~Prior to the 2015 amendment, our Advisory Agreement provided for an annual base management fee equal to 2.0%~~

Table of our common stockholders’ equity, which was our total stockholders’ equity, less the recorded value of any preferred stock and adjusted to exclude the effect of any unrealized gains, losses, or other items that did not affect realized net income (including impairment charges).Contents

Incentive Fee

~~As a result of~~Pursuant to the ~~2015 amendment,~~Advisory Agreement, the calculation of the incentive fee ~~was revised to reward~~rewards the Adviser in circumstances where our quarterly Core FFO (defined at the end of this paragraph), before giving effect to any incentive fee, or pre-incentive fee Core FFO, exceeds 2.0% quarterly, or 8.0% annualized, of adjusted total stockholders’ equity (after giving effect to the base management fee but before giving effect to the incentive fee). We refer to this as the ~~new~~ hurdle rate. The Adviser will receive 15.0% of the amount of our pre-incentive fee Core FFO that exceeds the ~~new~~ hurdle rate. However, in no event shall the incentive fee for a particular quarter exceed by 15.0% (the cap) the average quarterly incentive fee paid by us for the previous four quarters (excluding quarters for which no incentive fee was paid). Core FFO (as defined in the Advisory Agreement) is GAAP net income (loss) available to common stockholders, excluding the incentive fee, depreciation and amortization, any realized and unrealized gains, losses or other non-cash items recorded in net income (loss) available to common stockholders for the period, and one-time events pursuant to changes in GAAP.

The incentive fee prior to the July 2015 amendment rewarded the Adviser in circumstances where our quarterly funds from operations, or FFO, before giving effect to any incentive fee, or pre-incentive fee FFO, exceeded 1.75%, or 7.0% annualized, or the hurdle rate, of common stockholders’ equity. FFO included any realized capital gains and capital losses, less any distributions paid on preferred stock and Senior Common Stock (defined herein), but FFO did not include any unrealized capital gains or losses (including impairment charges). The Adviser received 100.0% of the amount of the pre-incentive fee FFO that exceeded the hurdle rate, but was less than 2.1875% of our common stockholders’ equity. The Adviser also received an incentive fee of 20.0% of the amount of our pre-incentive fee FFO that exceeded 2.1875% of common stockholders’ equity.

Capital Gain Fee

Under the Advisory Agreement, ~~as amended in July 2015,~~ we will pay to the Adviser a capital ~~gains-based~~gain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property ~~(which is calculated as~~(equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements). of the disposed property. At the end of the fiscal year, if this number is positive, then the capital gain fee payable for such time period shall equal 15.0% of such amount. No capital gain fee was recognized during the three and nine months ended September 30, ~~2017~~2020 or ~~2016.~~2019.

On January 10, 2017, we amended and restated the Advisory Agreement by entering into the Fourth Amended and Restated Investment Advisory Agreement between us and the Adviser to revise the calculation of the capital gains fee. Based upon the amendment, the calculation of the capital gains fee is based on the all-in acquisition cost of disposed of properties. The impact of this amendment would not have resulted in a capital gains fee for previously reported periods. Our entrance into the Fourth Amended and Restated Investment Advisory Agreement was approved unanimously by our Board of Directors.

Termination Fee

The Advisory Agreement includes a termination fee whereby, in the event of our termination of the agreement without cause (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24-month period prior to such termination. A termination fee is also payable if the Adviser terminates the agreement after the Company has defaulted and applicable cure periods have expired. The agreement may also be terminated for cause by us (with 30 days’ prior written notice and the vote of at least two-thirds of our independent directors), with no termination fee payable. Cause is defined in the agreement to include if the Adviser breaches any material provisions of the agreement, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds.

Administration Agreement

Under the terms of the Administration Agreement, we pay separately for our allocable portion of our Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary, Michael LiCalsi (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs. ~~As approved by our Board of Directors, effective July 1, 2014, our~~Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the ~~approximate~~appropriate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under contractual agreements. ~~We believe that the new methodology~~

Table of allocating the Administrator’s total expenses by approximate percentage of time services were performed among all companies serviced by our Administrator more closely approximates fees paid to actual services performed.Contents

~~Critical~~Significant Accounting Policies and Estimates

The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature ~~in order~~ to make certain estimates and assumptions. Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates. A summary of all of our significant accounting policies is provided in Note 1 to our consolidated financial statements in our ~~2016~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2019, filed by us with the U.S. Securities and Exchange Commission (the “SEC”) on February 12, 2020 (our “2019 Form 10-K”). On January 1, 2020, we completed the integration of the accounting records of certain of our triple net leased third-party asset managed properties into our accounting system and paid out of our operating bank accounts. For periods prior to January 1, 2020, we recorded property operating expenses and offsetting lease revenues for these certain triple net leased properties on a net basis. Beginning January 1, 2020, we are recording the property operating expenses and offsetting lease revenues for these triple net leased properties on a gross basis, as we have amended our process whereby we are paying operating expenses on behalf of our tenants and receiving reimbursement, whereas, previously these tenants were paying these expenses directly with limited insight provided to us. There were no other material changes to our critical accounting policies or estimates during the nine months ended September 30, ~~2017.~~2020.

Results of Operations

The weighted average yield on our total portfolio, which was 8.2% and 8.6% as of ~~both~~ September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as ~~rental income~~lease revenue on our condensed consolidated statements of operations and other comprehensive income, ~~(loss),~~less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements. The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties.

Table of Contents

A comparison of our operating results for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 is below (dollars in thousands, except per share amounts):


	For the three months ended September 30,
	2020		2019		$ Change		% Change
Operating revenues
Lease revenue	$	33,142	$	28,667	$	4,475	15.6	%
Total operating revenues	33,142		28,667		4,475		15.6	%
Operating expenses
Depreciation and amortization	13,798		12,979		819		6.3	%
Property operating expenses	6,590		3,202		3,388		105.8	%
Base management fee	1,418		1,292		126		9.8	%
Incentive fee	1,128		965		163		16.9	%
Administration fee	361		411		(50)		(12.2)	%
General and administrative	775		596		179		30.0	%
Impairment charge	1,184		—		1,184		100.0	%
Total operating expenses	25,254		19,445		5,809		29.9	%
Other (expense) income
Interest expense	(6,444)		(7,170)		726		(10.1)	%
Gain on sale of real estate, net	1,196		—		1,196		100.0
Other income, net	204		139		65		46.8	%
Total other expense, net	(5,044)		(7,031)		1,987		(28.3)	%
Net income	2,844		2,191		653		29.8	%
Distributions attributable to Series A, B, D, E, and F preferred stock	(2,771)		(2,612)		(159)		6.1	%

Distributions attributable to senior common stock	(203)		(226)		23		(10.2)	%
Net loss attributable to common stockholders and Non-controlling OP Unitholders	$	(130)	$	(647)	$	517	(79.9)	%
Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted	$	(0.004)	$	(0.02)	$	0.02	(100.0)	%
FFO available to common stockholders and Non-controlling OP Unitholders - basic (1)	$	13,656	$	12,332	$	1,324	10.7	%
FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1)	$	13,859	$	12,558	$	1,301	10.4	%
FFO per weighted average share of common stock and Non-controlling OP Units - basic (1)	$	0.39	$	0.39	$	—	—	%
FFO per weighted average share of common stock and Non-controlling OP Units - diluted (1)	$	0.39	$	0.39	$	—	—	%

(1)Refer to the “Funds from Operations” section below within the Management’s Discussion and Analysis section for the definition of FFO.

Table of Contents


	For the three months ended September 30,												For the nine months ended September 30,
	2017			2016			$ Change			% Change			2020		2019		$ Change		% Change
Operating revenues												Operating revenues
Rental revenue	$	23,815		$	21,205		$	2,610		12.3	%
Tenant recovery revenue	550			384			166			43.2	%
Lease revenue												Lease revenue	$	100,287	$	85,001	$	15,286	18.0	%
Total operating revenues	24,365			21,589			2,776			12.9	%	Total operating revenues	100,287		85,001		15,286		18.0	%
Operating expenses												Operating expenses
Depreciation and amortization	10,829			9,459			1,370			14.5	%	Depreciation and amortization	42,076		38,611		3,465		9.0	%
Property operating expenses	2,178			1,410			768			54.5	%	Property operating expenses	19,098		9,330		9,768		104.7	%
Base management fee	1,277			1,072			205			19.1	%	Base management fee	4,219		3,852		367		9.5	%
Incentive fee	640			564			76			13.5	%	Incentive fee	3,301		2,720		581		21.4	%
Administration fee	293			311			(18		)	(5.8	)%	Administration fee	1,194		1,222		(28)		(2.3)	%
General and administrative	650			570			80			14.0	%	General and administrative	2,406		2,035		371		18.2	%
Impairment charge	—			1,786			(1,786		)	(100.0	)%	Impairment charge	2,905		—		2,905		100.0	%
Total operating expenses	15,867			15,172			695			4.6	%	Total operating expenses	75,199		57,770		17,429		30.2	%
Other (expense) income												Other (expense) income
Interest expense	(6,119		)	(6,338		)	219			(3.5	)%	Interest expense	(20,411)		(21,406)		995		(4.6)	%
Distributions attributable to Series C mandatorily redeemable preferred stock	—			(131		)	131			(100.0	)%
Gain (loss) on sale of real estate, net	1			(24		)	25			(104.2	)%
Gain on sale of real estate, net												Gain on sale of real estate, net	1,184		2,952		(1,768)		(59.9)	%
Other income	3			3			—			—	%	Other income	209		291		(82)		(28.2)	%
Total other expense, net	(6,115		)	(6,490		)	375			(5.8	)%	Total other expense, net	(19,018)		(18,163)		(855)		4.7	%
Net income (loss)	2,383			(73		)	2,456			3,364.4	%
Distributions attributable to Series A, B and D preferred stock	(2,520		)	(2,002		)	(518		)	25.9	%
Net income												Net income	6,070		9,068		(2,998)		(33.1)	%
Distributions attributable to Series A, B, D, E, and F preferred stock												Distributions attributable to Series A, B, D, E, and F preferred stock	(8,137)		(7,837)		(300)		3.8	%

Distributions attributable to senior common stock	(247		)	(254		)	7			(2.8	)%	Distributions attributable to senior common stock	(615)		(675)		60		(8.9)	%
Net loss attributable to common stockholders	$	(384	)	$	(2,329	)	$	1,945		83.5	%
Net loss attributable to common stockholders per weighted average share of common stock - basic and diluted	$	(0.01	)	$	(0.10	)	$	0.09		90.0	%
FFO available to common stockholders - basic (1)	$	10,444		$	8,940		$	1,504		16.8	%
FFO per weighted average share of common stock - basic (1)	$	0.38		$	0.38		$	—		—	%
FFO per weighted average share of common stock - diluted (1)	$	0.38		$	0.38		$	—		—	%
Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders												Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders	$	(2,682)	$	556	$	(3,238)	(582.4)	%
Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders per weighted average share of total stock - basic & diluted												Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders per weighted average share of total stock - basic & diluted	$	(0.08)	$	0.02	$	(0.10)	(500.0)	%
FFO available to common stockholders and Non-controlling OP Unitholders - basic (1)												FFO available to common stockholders and Non-controlling OP Unitholders - basic (1)	$	41,115	$	36,215	$	4,900	13.5	%
FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1)												FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1)	$	41,730	$	36,890	$	4,840	13.1	%

FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1)												FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1)	$	1.20	$	1.17	$	0.03	2.6	%
FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1)												FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1)	$	1.19	$	1.16	$	0.03	2.6	%


~~(1)~~	~~Refer to the "Funds from Operations" below within the Management's Discussion and Analysis section for the definition of FFO.~~

(1)Refer to the “Funds from Operations” section below within the Management’s Discussion and Analysis section for the definition of FFO.

For the nine months ended September 30,
2017 2016 $ Change % Change
Operating revenues
Rental revenue $ 68,253
$ 62,752
$ 5,501
8.8 %
Tenant recovery revenue 1,294
1,226
68
5.5 %
Interest income from mortgage note receivable —
385
(385 ) (100.0 )%
Total operating revenues 69,547
64,363
5,184
8.1 %
Operating expenses
Depreciation and amortization 30,673
27,796
2,877
10.4 %
Property operating expenses 5,062
4,455
607
13.6 %
Base management fee 3,665
2,789
876
31.4 %
Incentive fee 1,760
1,837
(77 ) (4.2 )%
Administration fee 993
1,086
(93 ) (8.6 )%
General and administrative 1,776
1,882
(106 ) (5.6 )%
Impairment charge 3,999
2,016
1,983
98.4 %
Total operating expenses 47,928
41,861
6,067
14.5 %
Other (expense) income
Interest expense (18,223 ) (19,648 ) 1,425
(7.3 )%
Distributions attributable to Series C mandatorily redeemable preferred stock —
(1,502 ) 1,502
(100.0 )%
Gain (loss) on sale of real estate, net 3,993
(24 ) 4,017
(16,737.5 )%
Other income 14
337
(323 ) (95.8 )%
Total other expense, net (14,216 ) (20,837 ) 6,621
(31.8 )%
Net income 7,403
1,665
5,738
344.6 %
Distributions attributable to Series A, B and D preferred stock (7,330 ) (4,292 ) (3,038 ) 70.8 %
Distributions attributable to senior common stock (744 ) (758 ) 14
(1.8 )%
Net loss attributable to common stockholders $ (671 ) $ (3,385 ) $ 2,714
(80.2 )%
Net loss attributable to common stockholders per weighted average share of common stock - basic & diluted (0.03 ) (0.15 ) $ 0.12
(80.0 )%
FFO available to common stockholders - basic (1) $ 30,008
$ 26,451
$ 3,557
13.4 %
FFO per weighted average share of common stock - basic (1) $ 1.16
$ 1.15
$ 0.01
0.9 %
FFO per weighted average share of common stock - diluted (1) $ 1.16
$ 1.15

$ 0.01
0.9 %


~~(1)~~	~~Refer to the "Funds from Operations" below within the Management's Discussion and Analysis section for the definition of FFO.~~

Same Store Analysis

For the purposes of the following discussion, same store properties are properties we owned as of January 1, ~~2016,~~2019, which have not been subsequently vacated, or disposed of. Acquired and disposed of properties are properties which were ~~either~~ acquired, disposed of or classified as held for sale at any point subsequent to December 31, ~~2015.~~2018. Properties with vacancy are properties that were fully vacant or had greater than 5.0% vacancy, based on square footage, at any point subsequent to January 1, ~~2016. Expanded properties are properties in which an expansion was completed at any point subsequent to December 31, 2015.~~2019.

Operating Revenues


	For the three months ended September 30,
	(Dollars in Thousands)
Lease Revenues	2020		2019		$ Change		% Change
Same Store Properties	$	25,975	$	23,438	$	2,537	10.8	%
Acquired & Disposed Properties	4,690		1,586		3,104		195.7	%
Properties with Vacancy	2,477		3,643		(1,166)		(32.0)	%

	$	33,142	$	28,667	$	4,475	15.6	%

Table of Contents


										For the nine months ended September 30,
	For the three months ended September 30,									(Dollars in Thousands)
	(Dollars in Thousands)
Rental Revenues	2017		2016		$ Change		% Change
Lease Revenues									Lease Revenues	2020		2019		$ Change		% Change
Same Store Properties	$	18,791	$	18,766	$	25	0.1	%	Same Store Properties	$	77,314	$	70,125	$	7,189	10.3	%
Acquired & Disposed Properties	3,541		1,257		2,284		181.7	%	Acquired & Disposed Properties	13,457		4,174		9,283		222.4	%
Properties with Vacancy	954		889		65		7.3	%	Properties with Vacancy	9,516		10,702		(1,186)		(11.1)	%
Expanded Properties	529		293		236		80.5	%
	$	23,815	$	21,205	$	2,610	12.3	%
										$	100,287	$	85,001	$	15,286	18.0	%

~~Rental revenue~~Lease revenues consist of rental income and operating expense recoveries earned from our tenants. Lease revenues from same store properties increased ~~slightly~~ for the three months ended September 30, 2017 from the comparable 2016 period, primarily due to an increase in rental charges related to lease extensions executed during the three months ended September 30, 2017, coupled with additional rental income received from leases subject to consumer price indexes, partially offset by reductions in rental charges from a lease modification executed during the three months ended September 30, 2017. Rental revenue from same store properties decreased slightly for theand nine months ended September 30, ~~2017~~2020 from the comparable ~~2016~~2019 period, primarily due to ~~a decrease~~increases in rental charges ~~related to~~from lease ~~extensions executed during~~renewals and ~~subsequent to the nine months ended September 30, 2016, partially offset by additional rental income received~~increased operating expense recoveries from ~~leases subject to consumer price indexes. Rental revenue~~triple net leased properties. Lease revenues increased ~~significantly~~ for acquired and disposed of properties for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016,~~2019, because we acquired ~~seven~~18 properties during and subsequent to September 30, ~~2016,~~2019, partially offset by a loss of ~~rental~~lease revenues from ~~the seven~~two properties we sold ~~during and~~ subsequent to the three and nine months ended September 30, ~~2016. Rental revenue increased~~2019 pursuant to our capital recycling program. Lease revenues decreased for our properties with vacancy for the three and nine months ended September 30, ~~2017 because we leased approximately 120,000 square feet of vacant space~~2020 due to increased vacancy in ~~properties with partial vacancies during the three and nine months ended September 30, 2016. Rental revenue increased for~~ our ~~expanded properties because~~portfolio.

On January 1, 2020, we completed ~~an expansion project during~~ the ~~three and nine months ended September 30, 2017 and, therefore, we were able to charge additional rent for such property.~~

~~The decrease in same store tenant recovery revenues for~~integration of the ~~three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016, is a result~~accounting records of ~~decreased recoveries from leases with base year expense stops at~~ certain of our triple net leased third-party asset managed properties ~~as these properties had lower~~into our accounting system and paid out of our operating bank accounts. For periods prior to January 1, 2020, we recorded property operating expenses ~~during~~and offsetting lease revenues for these certain triple net leased properties on a net basis. Beginning January 1, 2020, we are recording the ~~three~~property operating expenses and ~~nine months ended September 30, 2017. The increase in tenant recovery~~offsetting lease revenues for these triple net leased properties on ~~acquired~~a gross basis, as we have amended our process whereby we are paying operating expenses on behalf of our tenants and ~~disposed~~receiving reimbursement, whereas, previously these tenants were paying these expenses directly with limited insight provided to us. See table below for a reconciliation of properties for the three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016, is due to an increase in recoveries from properties acquired subsequent to September 30, 2016 with base year leases.

~~Interest income from mortgage notes receivable decreased~~lease revenue for the nine months ended September 30, ~~2017, as compared~~2020, and the comparable 2019 period. Fixed rental payments consist of fixed rental charges that are contractually due us, and variable rental payments consist of operating expense recoveries that we collect to pay for property operating expenses incurred at certain properties. Lease revenues relating to the ~~nine months ended September 30, 2016, because the previously outstanding mortgage note was repaid in full in January 2016, and we~~2019 reporting period have not ~~issued any new mortgage notes receivable subsequent to September 30, 2016. No interest income from mortgage notes receivable was recognized during the three months ended September 30, 2017 or 2016.~~been amended.

Depreciation and amortization increased for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016,~~2019, due to depreciation on capital projects completed subsequent to the three and nine months ended September 30, ~~2016,~~2019, coupled with depreciation on the ~~three~~18 properties acquired during and subsequent to the three and nine months ended September 30, ~~2016,~~2019, partially offset by decreased depreciation on the two properties sold subsequent to the three and ~~amortization on leasing commissions for renewed leases with 2016 and 2017 expirations.~~nine months ended September 30, 2019.

Property operating expenses consist of franchise taxes, property management fees, insurance, ground lease payments, property maintenance and repair expenses paid on behalf of certain of our properties. The ~~decrease~~increase in property operating expenses for same store properties for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016,~~2019, is a result of an ~~overall decrease~~increase in our property operating expenses ~~incurred~~ at our properties with tenants on base year expense stop leases, offset by an increase in landlord obligated property expenses on our triple net leased properties. The decrease in property operating expenses for same store properties for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016 is a result of a decrease in property operating expenses on our properties with base year expense stop leases, offset by an increase in landlord obligated property expenses on our triple net leased properties. The increase in property operating expenses for acquired and disposed of properties for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016,~~2019, is primarily a result of increased property operating expenses from 18 properties acquired during and subsequent to September 30, ~~2016, as a majority of these properties are subject to base year leases,~~2019, partially offset by ~~an elimination~~a reduction of operating expenses from two properties sold subsequent to September 30, ~~2016.~~2019. The increase in property operating expenses for properties with vacancy ~~during~~for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016,~~2019, is ~~due to~~a result of increased property operating expenses from one property which went fully vacant during second quarter 2017, partially offset by executing triple net leases for vacant space for three properties which had partial vacancy ~~during the three and nine months ended September 30, 2017.~~in our portfolio.

The base management fee paid to the Adviser increased for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016, because of the~~2019, due to an increase in total ~~adjusted stockholders’~~ equity inand gross tangible real estate over the ~~past 12 months.~~three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019. The calculation of the base management fee is described in detail above in “Advisory and Administration Agreements.”

The incentive fee paid to the Adviser increased for the three and nine months ended September 30, ~~2017~~2020, as compared to the three and nine months ended September 30, ~~2016, because~~2019, due to pre-incentive fee Core FFO ~~increased~~increasing faster than the hurdle ~~rate, resulting in a higher incentive fee.~~rate. The increase in FFO is a result of an increase in total operating revenues, ~~coupled with a decrease in interest expense,~~partially offset by an increase in total operating expenses. The incentive fee paid to the Adviser decreased for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, because the hurdle rate increased faster than pre-incentive fee FFO, resulting in a lower incentive fee. The increase in the hurdle rate is a result of an increase in total adjusted stockholders’ equity, due to the commonexpenses and ~~preferred shares issued subsequent to September 30, 2016.~~interest expense. The calculation of the incentive fee is described in detail above in “Advisory and Administration Agreements.”

The administration fee paid to the Administrator decreased for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016,~~2019, due to ~~using~~our Administrator incurring fewer costs that are allocated to the Company. The calculation of the administration fee is described in detail above in “Advisory and Administration Agreements.”

General and administrative expenses increased for the three and nine months ended September 30, 2020, as compared to the three and nine months ended September 30, 2019, primarily as a ~~lower share~~result of an increase in legal and accounting fees.

We recorded an impairment charge for our ~~administrator’s resources~~Champaign, Illinois and Rancho Cordova, California properties during the three months ended September 30, 2020, when our held and used impairment testing determined that the carrying value of these properties was unrecoverable. We recorded an impairment charge for our Champaign, Illinois, Rancho Cordova, California and Blaine, Minnesota properties during the nine months ended September 30, 2020, when our held and used impairment testing determined that the carrying value of these properties was unrecoverable. We did not record an impairment charge during the three and nine months ended September 30, ~~2017.~~2019.

General and administrative expenses increased for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily as a result of an increase in professional fees and subscription and membership fees, offset by a decrease in shareholder related expenses. General and administrative expenses decreased for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to a decrease in due diligence expenses that resulted from two asset acquisitions treated as business combinations completed during the nine months ended September 30, 2016, coupled with a decrease in shareholder related expenses, partially offset by an increase in professional fees and subscription and membership fees.

We did not recognize an impairment charge for the three months ended September 30, 2017. The impairment charge for the nine months ended September 30, 2017 resulted from an impairment recorded on our Concord Township, Ohio and Newburyport, Massachusetts properties during the first two quarters of 2017, as we determined the carrying value of these properties was unrecoverable through our quarterly impairment testing. Both the Concord Township, Ohio property and the Newburyport, Massachusetts property were sold during the nine months ended September 30, 2017 for an additional aggregate net loss of $1.8 million. Since the Newburyport, Massachusetts property had been a vacant property with limited releasing prospects, we elected to sell the property to reduce our operating expenses attributable to maintaining a vacant property. The impairment loss for the three and nine months ended September 30, 2016 was from the impairment recorded in connection with two properties during the three months ended September 30, 2016 and impairment charges recorded on five properties during the nine months ended September 30, 2016. Four of the properties impaired during the nine months ended September 30, 2016 have been sold, and one property is currently classified as a held and used asset.

Other Income and Expenses

Interest expense decreased for the three and nine months ended September 30, ~~2017,~~2020, as compared to the three and nine months ended September 30, ~~2016.~~2019. This decrease was primarily a result of ~~our refinancing of mortgages at lower~~a decrease in interest rates ~~and de-leveraging activity, whereby we repaid mortgage notes payable upon maturity using equity and funds from~~on our ~~Revolver,~~LIBOR based variable rate debt, partially offset by ~~new~~increased interest expense due to higher mortgage debt on properties acquired subsequent to September 30, 2016. While our outstanding mortgage notes payable, net increased from $444.5 million at September 30, 2016 to $450.0 million at September 30, 2017, our weighted average interest rate on mortgage notes payable decreased from 4.71% at September 30, 2016, to 4.52% at September 30, 2017, resulting in interest savings over comparable periods.borrowings and higher Credit Facility balances outstanding.

Distributions attributable to our 7.125% Series C Cumulative Term Preferred Stock (“Term Preferred Stock”), par value $0.001 per share, decreased for the three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016, because we redeemed all outstanding shares of our Term Preferred Stock in August 2016.

Gain on sale of real estate, net, for the ~~three~~nine months ended September 30, ~~2017~~2020, is attributable to one non-core office asset located in Charlotte, North Carolina, and one non-core industrial asset located in Maple Heights, Ohio being sold during the period. Gain on sale of real estate, net, for the nine months ended September 30, ~~2017~~2019 is attributable to ~~our four~~one non-core office ~~and industrial assets~~asset located in Maitland, Florida being sold during the period.

Net Loss ~~on sale of real estate, net~~Attributable to Common Stockholders and Non-controlling OP Unitholders

Net loss attributable to common stockholders and Non-controlling OP Unitholders decreased for the three months ended September 30, 2016 is attributable to one non-core industrial asset sold during the period. Loss on sale of real estate, net for the nine months ended September 30, 2017 is attributable to two non-core industrial assets sold during the period.

~~Net Loss Attributable to Common Stockholders~~

~~Net loss attributable to common stockholders decreased for both the three and nine months ended September 30, 2017,~~2020, as compared to the three ~~and nine~~ months ended September 30, ~~2016,~~2019, primarily ~~because of~~due to the increase in ~~total operating~~lease revenues due to asset acquisition activity during and subsequent to September 30, 2019, coupled with ~~decreased~~a decrease in interest ~~expenses~~expense due to lower LIBOR rates on our ~~refinancing and de-levering activity, as well as capital gains recognized on four property sales,~~variable rate debt, partially offset by an increase in property operating expenses ~~depreciation~~on our triple net leased properties. Net loss attributable to common-stock holders and ~~amortization~~Non-controlling OP Unitholders increased for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, primarily due to impairment charges recognized during the nine months ended September 30, 2020, coupled with an increase in property operating expenses, partially offset by an increase in lease revenue due to asset acquisition activity during and ~~base management and incentive fees.~~subsequent to September 30, 2019.

Liquidity and Capital Resources

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our Revolver and issuing additional equity securities. Our available liquidity as of September 30, ~~2017,~~2020, was ~~$38.3~~$38.2 million, consisting of ~~$4.3~~approximately $10.4 million in cash and cash equivalents and an available borrowing capacity of ~~$34.0~~$27.8 million under our ~~Revolver.~~Credit Facility. Our available borrowing capacity under the ~~Revolver has decreased~~Credit Facility increased to ~~$29.4~~$30.0 million as of ~~October 31, 2017.~~November 5, 2020.

Future Capital Needs

We actively seek conservative investments that are likely to produce income to pay distributions to our stockholders. We intend to use the proceeds received from future equity raised and debt capital borrowed to continue to invest in industrial and office real property, make mortgage loans, or pay down outstanding borrowings under our Revolver. Accordingly, to ensure that we are able to effectively execute our business strategy, we routinely review our liquidity requirements and continually evaluate all potential sources of liquidity. Our short-term liquidity needs include proceeds necessary to fund our distributions to stockholders, pay the debt service costs on our existing long-term mortgages, refinancing maturing debt and fund our current operating costs. Our long-term liquidity needs include proceeds necessary to grow and maintain our portfolio of investments.

We believe that our available liquidity is sufficient to fund our distributions to stockholders, pay the debt service costs on our existing long-term mortgages and fund our current operating costs in the near term. We also believe we will be able to refinance our mortgage debt as it matures. Additionally, to satisfy our short-term obligations, we may request credits to our management fees that are issued from our Adviser, although our Adviser is under no obligation to provide any such credits, either in whole or in part. We further believe that our cash flow from operations coupled with the financing capital available to us in the future are sufficient to fund our long-term liquidity needs.

In July 2017, we completed an overnight offering of 1.2 million shares of our common stock at an offering price of $20.52 per share. Net proceeds, after deducting underwriter discounts, were $22.7 million. The proceeds from this offering were used to acquire real estate, repay existing indebtedness, and for other general corporate purposes. The offering's underwriters exercised their overallotment option, purchasing an additional 0.2 million shares of our common stock at the public offering price of $20.52 per share. Net proceeds from exercise of the option to purchase additional shares, after deducting underwriter discounts, were $3.4 million. The proceeds from this overallotment were used to acquire real estate, repay existing indebtedness, and for other general corporate purposes.

During the nine months ended September 30, ~~2017,~~2020, we raised net proceeds of ~~(i) $30.8~~$32.4 million of common equity under our Common Stock ATM Program ~~with Cantor Fitzgerald~~ at a ~~gross~~net weighted average per share price of ~~$21.42, and (ii) $11.2 million under our Series D Preferred ATM Program at a gross weighted average share price of $25.54.~~$20.84. We used these proceeds to pay down outstanding debt and for other general corporate purposes. We ~~did not sell any shares~~raised net proceeds of $5.6 million from our Series AE Preferred ~~or Series B Preferred~~Stock pursuant to our Series ~~A and B~~E Preferred ~~ATM Program~~Stock Sales Agreement during the nine months ended September 30, ~~2017.~~

~~Subsequent to September 30, 2017 through October 31, 2017, we~~2020. We raised net proceeds of ~~$0.2~~$1.0 million of common equity under our Common Stock ATM Program with Cantor Fitzgerald at a gross weighted average share price of $22.51. We used these proceeds for general corporate purposes. We did not sell any sharesfrom sales of our Series AF Preferred ~~Series B Preferred or Series D Preferred pursuant to our Series A, B and D Preferred ATM Program subsequent to~~Stock during the nine months ended September 30, ~~2017 through October 31, 2017.~~2020.

As of ~~October 31, 2017,~~November 5, 2020, we ~~have~~had the ability to raise up to ~~$312.5~~$396.8 million of additional equity capital through the sale and issuance of securities that are registered under ~~our universal shelf registration statement on Form S-3 (File No. 333-208953), or~~ the 2019 Universal Shelf, in one or more future public offerings. Of the ~~$312.5~~$396.8 million of available capacity under our 2019 Universal Shelf, approximately ~~$100.9~~$203.2 million ~~of common stock~~ is reserved for additional sales under our Common Stock ATM Program, ~~approximately $37.2 million of preferred stock is reserved for additional sales under our Series A and B Preferred ATM Program,~~ and approximately ~~$22.3~~$93.1 million is reserved for additional sales under our Series DE Preferred ~~ATM Program~~Stock Sales Agreement as of ~~October 31, 2017.~~November 5, 2020. We expect to continue to use our ~~ATM~~at-the-market programs as a source of liquidity for the remainder of ~~2017.~~2020.

As of November 5, 2020, we had the ability to raise up to $798.4 million of additional equity capital through the sale and issuance of securities that are registered under the 2020 Universal Shelf, in one or more future public offerings. Of the $798.4 million of available capacity under our 2020 Universal Shelf, approximately $634.9 million is reserved for the sale of our Series F Preferred Stock as of November 5, 2020.

As of September 30, ~~2017,~~2020, we had 4554 mortgage notes payable in the aggregate principal amount of ~~$455.4~~$462.1 million, collateralized by a total of 6769 properties with a remaining weighted average maturity of ~~6.7~~4.6 years. The weighted-average interest rate on the mortgage notes payable as of September 30, ~~2017~~2020 was ~~4.52%~~4.28%.

We continue to see banks and other non-bank lenders willing to issue mortgages. Consequently, we are focused on obtaining mortgages through regional banks, non-bank lenders and the CMBS market.

~~We have~~As of September 30, 2020, we had mortgage debt in the aggregate principal amount of ~~$10.4~~$6.0 million payable during the remainder of ~~2017~~2020 and ~~$47.8~~$33.6 million payable during ~~2018.~~2021. The ~~2017~~2020 principal ~~amounts~~amount payable ~~include~~includes both amortizing principal payments and one balloon principal payment due ~~in December~~during the remaining three months of ~~2017.~~2020. Subsequent to September 30, 2020, we repaid the balloon payment. We anticipate being able to refinance our mortgages that come due during ~~the remainder of 2017 and 2018~~2021 with a combination of new ~~mortgage~~ debt and the issuance of additional equity securities. In addition, we have raised substantial equity under our ~~ATM~~at-the-market programs and plan to continue to use these programs.

Operating Activities

Net cash provided by operating activities during the nine months ended September 30, ~~2017,~~2020, was ~~$34.8~~$52.4 million, as compared to net cash provided by operating activities of ~~$29.8~~$43.1 million for the nine months ended September 30, ~~2016.~~2019. This ~~increase~~change was primarily a result of an increase in ~~rental receipts~~operating revenues from our 18 property acquisitions completed during and subsequent to September 30, ~~2016, a decrease in interest expense from refinanced and repaid mortgages during~~2019, coupled with contractual lease revenue increases on the ~~previous 12 months, and a decrease in general and administrative fees from reducing our professional fees. These increases are~~in-place portfolio, partially offset by an increase in ~~the~~general and administrative expenses, base management ~~fee, an increase in net property operating expenses,~~fees and ~~a reduction in income earned due to the repayment of a mortgage interest receivable held through January 2016.~~incentive fees. The majority of cash from operating activities is generated from the ~~rental payments and operating expense recoveries~~lease revenues that we receive from our tenants. We utilize this cash to fund our property-level operating expenses and use the excess cash primarily for debt and interest payments on our mortgage notes payable, interest payments on our ~~Revolver and Term Loan,~~Credit Facility, distributions to our stockholders, management fees to our Adviser, Administration fees to our Administrator and other entity-level operating expenses.

Investing Activities

Net cash used in investing activities during the nine months ended September 30, ~~2017,~~2020, was ~~$63.4~~$73.0 million, which primarily consisted of ~~five~~six property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of ~~four properties, coupled with recovering funds held in escrow from our lender for the mortgages we repaid.~~two properties. Net cash used in investing activities during the nine months ended September 30, ~~2016,~~2019, was ~~$35.2~~$63.6 million, which primarily consisted of ~~two~~nine property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the ~~collection~~sale of ~~a $5.9 million mortgage note receivable.~~one property.

During 2017, we have been executing our capital recycling program, whereby we opportunistically sell properties outside of our core markets, and use proceeds to repay outstanding debt, and fund mission critical property acquisitions located in our target secondary growth markets. During the nine months ended September 30, 2017, we sold four non-core properties and applied the proceeds towards outstanding debt. We will continue to sell non-core properties as reasonable disposition opportunities are available.

Financing Activities

Net cash provided by financing activities during the nine months ended September 30, ~~2017,~~2020, was ~~$28.2~~$24.4 million, which primarily consisted of the issuance of ~~$69.9~~$39.6 million of common and preferred equity, borrowings from our Term Loan of $37.7 million, and ~~mezzanine equity, coupled with~~ the issuance of ~~$51.2~~$35.9 million of new mortgage debt, ~~in connection with property acquisitions,~~ partially offset by the repayment of ~~$57.2~~$31.7 million of mortgage principal ~~coupled with~~and distributions paid to common, senior common and preferred shareholders. Net cash ~~used in~~provided by financing activities for the nine months ended September 30, ~~2016,~~2019, was ~~$9.0~~$20.4 million, which primarily consisted of $41.1 million in new mortgage borrowings coupled with the ~~repayment~~issuance of ~~$67.1~~$41.2 million of common equity, partially offset by $48.1 million of mortgage principal ~~coupled with~~repayments, and distributions paid to common, senior common and preferred ~~shareholders, partially offset by $56.0 million of new mortgage debt in connection with certain acquisitions.~~shareholders.

~~In August 2013,~~On July 2, 2019, we ~~procured~~amended, extended and upsized our Revolver with KeyBank (serving as a revolving lender, a letter of credit issuer and an administrative agent). In October 2015, we expanded our Revolver to $85.0 million, and entered into a Term Loan, whereby we added a $25.0 million, five-year Term Loan subject to the same leverage tiers as the Revolver, with the interest rate at each leverage tier being 5 basis points lower. We have the option to repayCredit Facility, expanding the Term Loan ~~in full, or in part, at any time without penalty or premium prior~~from $75.0 million to $160.0 million, inclusive of a delayed Term Loan draw component whereby we can incrementally borrow on the Term Loan up to the ~~maturity date.~~ ~~In October 2017, we amended our existing Credit Facility. The Term Loan component of~~$160.0 million commitment, and increasing the ~~Credit Facility was increased~~Revolver from ~~$25.0~~$85.0 million to ~~$75.0 million, with the Revolver commitment remaining at $85.0~~$100.0 million. The Term Loan has a new five-year term, with a maturity date of ~~October 27, 2022,~~July 2, 2024, and the Revolver has a new four-year term, with a maturity date of ~~October 27, 2021.~~July 2, 2023. The interest rate for the Credit Facility was reduced by 2510 basis points at each of the leverage tiers. We entered into multiple interest rate cap agreements on the amended Term Loan, which cap LIBOR at ranging from 2.50% to 2.75%., to hedge our exposure to variable interest rates. We used the net proceeds ofderived from the amended Credit Facility to repay all previously existing borrowings under the Revolver. We incurred fees of approximately ~~$0.9~~$1.3 million in connection with the Credit Facility amendment. The bank syndicate is now comprised of KeyBank, Fifth Third Bank, USU.S. Bank National Association, The Huntington National Bank, Goldman Sachs Bank USA, and ~~Huntington~~Wells Fargo Bank.

As of September 30, ~~2017,~~2020, there was ~~$69.2~~$203.8 million outstanding under our Credit Facility at a weighted average interest rate of approximately ~~3.22%~~1.76% and ~~$1.0~~$13.7 million outstanding under letters of credit at a weighted average interest rate of ~~2.00%~~1.65%. As of ~~October 31, 2017,~~November 5, 2020, the maximum additional amount we could draw under the ~~Revolver and Term Loan~~Credit Facility was ~~$29.4~~$30.0 million. We were in compliance with all covenants under the Credit Facility as of September 30, ~~2017.~~2020.

Contractual Obligations

The following table reflects our material contractual obligations as of September 30, ~~2017~~2020 (in thousands):

(1)Debt obligations represent borrowings under our Revolver, which represents $43.8 million of the debt obligation due in 2023, our Term Loan, which represents $160.0 million of the debt obligation due in 2024, and mortgage notes payable that were outstanding as of September 30, 2020. This figure does not include $0.2 million of premiums and discounts, net and $5.1 million of deferred financing costs, net, which are reflected in mortgage notes payable, net, borrowings under Revolver, net and borrowings under Term Loan, net on the condensed consolidated balance sheets.

(2)Interest on debt obligations includes estimated interest on borrowings under our Revolver and Term Loan and mortgage notes payable. The balance and interest rate on our Revolver and Term Loan is variable; thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of September 30, 2020.

(3)Operating lease obligations represent the ground lease payments due on four of our properties.

(4)Purchase obligations consist of tenant and capital improvements at seven of our properties.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of September 30, ~~2017.~~2020.

Funds from Operations

The National Association of Real Estate Investment Trusts ~~or NAREIT,~~(“NAREIT”) developed ~~FFO~~Funds from Operations (“FFO”) as a relevant non-GAAP supplemental measure of operating performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the same basis determined under GAAP. FFO, as defined by NAREIT, is net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses on property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures.

FFO does not represent cash flows from operating activities in accordance with GAAP, which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income. FFO should not be considered an alternative to net income as an indication of our performance or to cash flows from operations as a measure of liquidity or ability to make distributions. Comparison of FFO, using the NAREIT definition, to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.

FFO available to common stockholders is FFO adjusted to subtract distributions made to holders of preferred stock and senior common stock. We believe that net income available to common stockholders is the most directly comparable GAAP measure to FFO available to common stockholders.

Basic funds from operations per share or (“Basic FFO per ~~share,~~share”), and diluted funds from operations per share or (“Diluted FFO per ~~share,~~share”), is FFO available to common stockholders divided by the number of weighted average shares of common stock outstanding and FFO available to common stockholders divided by the number of weighted average shares of common stock outstanding on a diluted basis, respectively, during a period. We believe that FFO available to common stockholders, Basic FFO per share and Diluted FFO per share are useful to investors because they provide investors with a further context for evaluating our FFO results in the same manner that investors use net income and earnings per share ~~or EPS,~~(“EPS”), in evaluating net income available to common stockholders. In addition, because most REITs provide FFO available to common stockholders, Basic FFO and Diluted FFO per share information to the investment community, we believe these are useful supplemental measures when comparing us to other REITs. We believe that net income is the most directly comparable GAAP measure to FFO, Basic EPS is the most directly comparable GAAP measure to Basic FFO per share, and that Diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share.

The following table provides a reconciliation of our FFO available to common stockholders for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, to the most directly comparable GAAP measure, net income available to common stockholders, and a computation of basic and diluted FFO per weighted average share of common stock:

For the three months ended September 30, For the nine months ended September 30,

(Dollars in Thousands, Except for Per Share Amounts) (Dollars in Thousands, Except for Per Share Amounts)

2017
2016 2017 2016
Calculation of basic FFO per share of common stock
Net income (loss) $ 2,383
$ (73 ) $ 7,403
$ 1,665
Less: Distributions attributable to preferred and senior common stock (2,767 ) (2,256 ) (8,074 ) (5,050 )
Net loss attributable to common stockholders $ (384 ) $ (2,329 ) $ (671 ) $ (3,385 )
Adjustments:
Add: Real estate depreciation and amortization 10,829
9,459
30,673
27,796
Add: Impairment charge —
1,786
3,999
2,016
Add: Loss on sale of real estate, net —
24
—
24
Less: Gain on sale of real estate, net (1 ) —
(3,993 ) —
FFO available to common stockholders - basic $ 10,444
$ 8,940
$ 30,008
$ 26,451
Weighted average common shares outstanding - basic 27,234,569
23,509,054
25,833,423
22,915,086
Basic FFO per weighted average share of common stock $ 0.38
$ 0.38
$ 1.16
$ 1.15
Calculation of diluted FFO per share of common stock
Net income (loss) $ 2,383
$ (73 ) $ 7,403
$ 1,665
Less: Distributions attributable to preferred and senior common stock (2,767 ) (2,256 ) (8,074 ) (5,050 )
Net loss attributable to common stockholders $ (384 ) $ (2,329 ) $ (671 ) $ (3,385 )
Adjustments:
Add: Real estate depreciation and amortization 10,829
9,459
30,673
27,796
Add: Impairment charge —
1,786
3,999
2,016
Add: Income impact of assumed conversion of senior common stock 247
254
744
758
Add: Loss on sale of real estate, net —
24
—
24
Less: Gain on sale of real estate, net (1 ) —
(3,993 ) —
FFO available to common stockholders plus assumed conversions $ 10,691
$ 9,194
$ 30,752
$ 27,209
Weighted average common shares outstanding - basic 27,234,569
23,509,054
25,833,423
22,915,086
Effect of convertible senior common stock 773,553
800,116
773,553
800,116
Weighted average common shares outstanding - diluted 28,008,122
24,309,170
26,606,976
23,715,202
Diluted FFO per weighted average share of common stock $ 0.38
$ 0.38
$ 1.16
$ 1.15
Distributions declared per share of common stock $ 0.375
$ 0.375
$ 1.125
$ 1.125

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The primary risk that we believe we are and will be exposed to is interest rate risk. Certain of our leases contain escalations based on market indices, and the interest rate on our Credit Facility is variable. Although we seek to mitigate this risk by structuring such provisions of our loans and leases to contain a minimum interest rate or escalation rate, as applicable, these features do not eliminate this risk. To that end, we have entered into derivative contracts to cap interest rates for our variable rate notes payable, and we have ~~assumed an~~entered into interest rate ~~swap~~swaps whereby we pay a fixed interest rate ~~of 1.80%~~ to our respective counterparty, and receive one month LIBOR in return. For details regarding our rate cap agreements and our interest rate swap ~~agreement~~agreements see Note 76 – Mortgage Notes Payable and Credit Facility of the accompanying condensed consolidated financial statements.

To illustrate the potential impact of changes in interest rates on our net income for the nine months ended September 30, ~~2017,~~2020, we have performed the following analysis, which assumes that our condensed consolidated balance ~~sheet remains~~sheets remain constant and that no further actions beyond a minimum interest rate or escalation rate are taken to alter our existing interest rate sensitivity.

The following table summarizes the annual impact of a 1%, 2% and 3% increase in the one month LIBOR as of September 30, ~~2017.~~2020. As of September 30, ~~2017,~~2020, our effective average LIBOR was ~~1.24%; thus,~~0.15%. Given that a 1%, 2%, or 3% decrease ~~could~~in LIBOR would result in a negative rate, the impact of this fluctuation is not ~~occur~~presented below (dollars in thousands).

Interest Rate Change
Increase to Interest
Expense

Net Decrease to
Net Income
1% Increase to LIBOR $ 1,409
$ (1,409 )
2% Increase to LIBOR 2,546
(2,546 )
3% Increase to LIBOR 2,884
(2,884 )

As of September 30, ~~2017,~~2020, the fair value of our mortgage debt outstanding was ~~$461.8~~$473.4 million. Interest rate fluctuations may affect the fair value of our debt instruments. If interest rates on our debt instruments, using rates at September 30, ~~2017,~~2020, had been one percentage point higher or lower, the fair value of those debt instruments on that date would have decreased or increased by ~~$19.7~~$17.1 million and ~~$21.2~~$18.2 million, respectively.

The amount outstanding under the Credit Facility approximates fair value as of September 30, ~~2017.~~2020.

In the future, we may be exposed to additional effects of interest rate changes, primarily as a result of our Revolver, Term Loan or long-term mortgage debt, which we use to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates. Additionally, we believe that there may be minimal impact on our variable rate debt, which is based upon the one month LIBOR rate, as a result of the expected transition from LIBOR to SOFR. We are currently monitoring the transition and the potential risks to us. We may also enter into derivative financial instruments such as interest rate swaps and caps ~~in order~~ to mitigate the interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.

In addition to changes in interest rates, the value of our real estate is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees and borrowers, all of which may affect our ability to refinance debt, if necessary.

a) Evaluation of Disclosure Controls and Procedures

As of September 30, ~~2017,~~2020, our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective as of September 30, ~~2017~~2020 in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of necessarily achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.

Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. For a discussion of these risks, please refer to the section captioned “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016, filed by us with~~2019, and the ~~U.S. Securities and Exchange Commission on February 15, 2017. There~~risk factor below. Other than the risk factor below, there are no other material changes to risks associated with our business or investment in our securities from those previously set forth in the reports described above.

Currently, both the investing and leasing environments are highly competitive. While there was an increase in the amount of capital flowing into the U.S. real estate markets early in 2020, which resulted in an increase in real estate values in certain markets, the recent downturn and uncertainty regarding the economic and political environment has made businesses reluctant to make long-term commitments or changes in their business plans. Specifically, the ongoing and resurging outbreak of a novel strain of coronavirus (“COVID-19”), both in the U.S. and globally, has created significant disruptions to financial markets, has resulted in business shutdowns and has led to recessionary conditions in the economy in the short term. We expect the significance of the COVID-19 pandemic, including the extent of its effects on our financial and operational results, to be dictated by, among, other things, its nature, duration and scope, the success of efforts to contain the spread of COVID-19 and the impact of actions taken in response to the pandemic including travel bans and restrictions, quarantines, shelter in place orders, the promotion of social distancing and limitations on business activity, including business closures. At this point, the extent to which the COVID-19 pandemic may impact the United States and global economies and our business is uncertain, but pandemics or other significant public health events could have a material adverse effect on our business and results of operations.

Volatility in global markets and changing political environments can cause fluctuations in the performance of the U.S. commercial real estate markets. Economic slowdowns of large economies outside the United States are likely to negatively impact growth of the U.S. economy. Political uncertainties both home and abroad may discourage business investment in real estate and other capital spending. Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, or requests from tenants for rent abatements during periods when they are severely impacted by COVID-19, may result in decreases in our cash flows from investment properties. Increases in the cost of financing due to higher interest rates may cause difficulty in refinancing our debt obligations prior to maturity at terms as favorable as the terms of existing indebtedness. Market conditions can change quickly, potentially negatively impacting the value of our real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.

The debt market remains sensitive to the macro-economic environment, such as Federal Reserve policy, market sentiment or regulatory factors affecting the banking and commercial mortgage backed securities ("CMBS") industries and the COVID-19 pandemic. We may experience more stringent lending criteria, which may affect our ability to finance certain property acquisitions or refinance any debt at maturity. Additionally, for properties for which we are able to obtain financing, the interest rates and other terms on such loans may be unacceptable. We expect to manage the current mortgage lending environment by considering alternative lending sources, including but not limited to securitized debt, fixed rate loans, short-term variable rate loans, assumed mortgage loans in connection with property acquisitions, interest rate lock or swap agreements, or any combination of the foregoing.

Disruptions in the financial markets and uncertain economic conditions could adversely affect the values of our investments. Furthermore, declining economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have a negative effect on the values of our properties and revenues from our properties. Additionally, the significant disruption and volatility in the global capital markets increases the cost of capital and may adversely impact our access to the capital markets, including our ability to raise capital through our at the market and continuous offering programs.

Sales of Unregistered Securities

Issuer Purchases of Equity Securities

On October 27, 2017, the Company, through its wholly owned subsidiary Gladstone Commercial Limited Partnership, and certain of its other wholly owned subsidiaries, entered into a second amended and restated credit agreement ("Credit Facility") with KeyBank National Association and certain other lenders. The Credit Facility was amended to, among other things:None.

~~Increase the term loan facility from $25.0 million to $75.0 million;~~

~~Decrease interest rate spreads by 25 basis points at all leverage tiers; and~~

~~As part of the amendment, the Company paid modification fees in the aggregate of $0.9 million.~~

This description of the Credit Facility is not complete and and is qualified by the full text of the Second Amended and Restated Credit Agreement, a copy of which is filed as Exhibit 10.1 to this Form 10-Q.



~~MARYLAND~~Maryland		02-0681276
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1521 ~~WESTBRANCH DRIVE, SUITE~~Westbranch Drive,	Suite 100 ~~MCLEAN, VIRGINIA~~	22102
McLean,	Virginia
(Address of principal executive offices)		(Zip Code)




	PAGE
PART I		FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019	4

		Condensed Consolidated Statements of Operations and ~~Other~~ Comprehensive Income ~~(Loss)~~ for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019	5

		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019	6

		Notes to Condensed Consolidated Financial Statements	78

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2627

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	4647

Item 4.		Controls and Procedures	4748

PART II		OTHER INFORMATION

Item 1.		Legal Proceedings	4849

Item 1A.		Risk Factors	4849

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	4850

Item 3.		Defaults Upon Senior Securities	4850

Item 4.		Mine Safety Disclosures	4850

Item 5.		Other Information	4850

Item 6.		Exhibits	4850

SIGNATURES			5153


	For the nine months ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	6,070	$	9,068
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	42,076		38,611
Impairment charge	2,905		0

Gain on sale of real estate, net	(1,184)		(2,952)
Amortization of deferred financing costs	1,156		1,268
Amortization of deferred rent asset and liability, net	(1,472)		(1,071)
Amortization of discount and premium on assumed debt, net	43		47
Asset retirement obligation expense	72		81
Amortization of right-of-use asset from operating leases and operating lease liabilities, net	39		40
Operating changes in assets and liabilities
Decrease (increase) in other assets	2,397		(88)
Increase in deferred rent receivable	(1,042)		(1,448)
Increase (decrease) in accounts payable, accrued expenses, and amount due to Adviser and Administrator	2,028		(13)


Increase in other liabilities	660		398

Leasing commissions paid	(1,364)		(875)
Net cash provided by operating activities	$	52,384	$	43,066
Cash flows from investing activities:
Acquisition of real estate and related intangible assets	$	(82,098)	$	(67,272)
Improvements of existing real estate	(5,112)		(3,261)
Proceeds from sale of real estate	14,363		6,318
Receipts from lenders for funds held in escrow	171		1,424
Payments to lenders for funds held in escrow	(1,881)		(1,425)
Receipts from tenants for reserves	1,740		2,166
Payments to tenants from reserves	(1,507)		(1,589)
Deposits on future acquisitions	(1,575)		(1,490)
Deposits applied against acquisition of real estate investments	2,891		1,490
Net cash used in investing activities	$	(73,008)	$	(63,639)
Cash flows from financing activities:
Proceeds from issuance of equity	$	39,624	$	41,231
Offering costs paid	(559)		(620)


Borrowings under mortgage notes payable	35,855		41,140
Payments for deferred financing costs	(422)		(2,075)
Principal repayments on mortgage notes payable	(31,667)		(48,116)
Borrowings from revolving credit facility	95,600		94,500
Repayments on revolving credit facility	(104,200)		(109,300)
Borrowings on term loan	37,700		47,300
Decrease in security deposits	(1)		(106)
Distributions paid for common, senior common, preferred stock and Non-controlling OP Unitholders	(47,532)		(43,510)
Net cash provided by financing activities	$	24,398	$	20,444
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	3,774	$	(129)
Cash, cash equivalents, and restricted cash at beginning of period	$	11,488	$	9,082
Cash, cash equivalents, and restricted cash at end of period	$	15,262	$	8,953
SUPPLEMENTAL NON-CASH INFORMATION
Tenant funded fixed asset improvements	$	1,972	$	2,665



Unrealized loss related to interest rate hedging instruments, net	$	(2,733)	$	(2,335)



	For the nine months ended September 30,
	2017			2016
Cash flows from operating activities:
Net income	$	7,403		$	1,665
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	30,673			27,796
Impairment charge	3,999			2,016
(Gain) loss on sale of real estate, net	(3,993		)	24
Amortization of deferred financing costs	1,248			1,537
Amortization of deferred rent asset and liability, net	(633		)	(363		)
Amortization of discount and premium on assumed debt	(80		)	(145		)
Gain on interest rate swap	172			—
Asset retirement obligation expense	96			114
Operating changes in assets and liabilities
(Increase) decrease in other assets	(1,732		)	288
Increase in deferred rent receivable	(2,437		)	(2,780		)
(Decrease) increase in accounts payable, accrued expenses, and amount due Adviser and Administrator	(239		)	240
Increase in other liabilities	634			51
Tenant inducement payments	(122		)	—
Leasing commissions paid	(192		)	(628		)
Net cash provided by operating activities	34,797			29,815
Cash flows from investing activities:
Acquisition of real estate and related intangible assets	(83,242		)	(40,900		)
Improvements of existing real estate	(8,233		)	(3,793		)
Proceeds from sale of real estate	29,499			3,022
Collection of mortgage note receivable	—			5,900
Receipts from lenders for funds held in escrow	3,712			2,747
Payments to lenders for funds held in escrow	(5,252		)	(2,385		)
Receipts from tenants for reserves	1,450			2,678
Payments to tenants from reserves	(783		)	(2,219		)
(Increase) decrease in restricted cash	(503		)	203
Deposits on future acquisitions	(1,650		)	(1,750		)
Deposits applied against acquisition of real estate investments	1,650			1,250
Net cash used in investing activities	(63,352		)	(35,247		)
Cash flows from financing activities:
Proceeds from issuance of equity	69,891			90,999
Offering costs paid	(1,922		)	(2,367		)
Retirement of senior common stock	(24		)	(178		)
Redemption of Series C mandatorily redeemable preferred stock	—			(38,500		)
Borrowings under mortgage notes payable	51,208			56,005
Payments for deferred financing costs	(992		)	(1,024		)
Principal repayments on mortgage notes payable	(57,182		)	(67,119		)
Borrowings from revolving credit facility	89,800			132,500
Repayments on revolving credit facility	(85,300		)	(130,500		)
(Decrease) increase in security deposits	(165		)	73
Distributions paid for common, senior common and preferred stock	(37,130		)	(30,862		)
Net cash provided by financing activities	28,184			9,027
Net (decrease) increase in cash and cash equivalents	$	(371	)	$	3,595
Cash and cash equivalents, beginning of period	$	4,658		$	5,152
Cash and cash equivalents, end of period	$	4,287		$	8,747
NON-CASH INVESTING AND FINANCING INFORMATION
Tenant funded fixed asset improvements	$	2,201		$	2,570
Assumed mortgage in connection with acquisition	$	11,179		$	—
Assumed interest rate swap fair market value	$	42		$	—
Assumed tenant improvement allowance in connection with acquisition	$	3,966		$	—
Capital improvements included in accounts payable and accrued expenses	$	2,053		$	2,023


Right-of-use asset from operating leases	$	0	$	5,998
Operating lease liabilities	$	0	$	(5,998)
Capital improvements and leasing commissions included in accounts payable and accrued expenses	$	670	$	371
Increase in asset retirement obligation assumed in acquisition	$	0	$	164
Non-controlling OP Units issued in connection with acquisition	$	502	$	0



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	September 30, 2020		December 31, 2019
ASSETS
Real estate, at cost	$	1,094,854	$	1,056,978
Less: accumulated depreciation	221,849		207,523
Total real estate, net	873,005		849,455
Lease intangibles, net	114,242		115,465
Real estate and related assets held for sale, net	18,173		3,990
Cash and cash equivalents	10,370		6,849
Restricted cash	4,892		4,639
Funds held in escrow	8,936		7,226
Right-of-use assets from operating leases	5,636		5,794
Deferred rent receivable, net	35,661		37,177
Other assets	4,921		8,913
TOTAL ASSETS	$	1,075,836	$	1,039,508
LIABILITIES, MEZZANINE EQUITY AND EQUITY
LIABILITIES
Mortgage notes payable, net (1)	$	458,364	$	453,739
Borrowings under Revolver, net	43,149		51,579
Borrowings under Term Loan, net	159,146		121,276
Deferred rent liability, net	19,773		19,322
Operating lease liabilities	5,728		5,847
Asset retirement obligation	3,060		3,137
Accounts payable and accrued expenses	7,700		5,573
Liabilities related to assets held for sale, net	1,108		21
Due to Adviser and Administrator (1)	2,971		2,904
Other liabilities	16,275		12,920
TOTAL LIABILITIES	$	717,274	$	676,318
Commitments and contingencies (2)
MEZZANINE EQUITY
Series D and E redeemable preferred stock, net, par value $0.001 per share; $25 per share liquidation preference; 12,760,000 shares authorized, and 6,508,954 and 6,269,555 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively (3)	$	157,751	$	152,153
TOTAL MEZZANINE EQUITY	$	157,751	$	152,153
EQUITY
Senior common stock, par value $0.001 per share; 950,000 shares authorized; and 766,492 and 806,435 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively (3)	$	1	$	1
Common stock, par value $0.001 per share, 60,290,000 and 86,290,000 shares authorized and 34,183,869 and 32,593,651 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively (3)	34		32
Series F redeemable preferred stock, par value $0.001 per share; $25 per share liquidation preference; 26,000,000 and 0 shares authorized and 45,102 and 0 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively (3)	0		0
Additional paid in capital	604,707		571,205
Accumulated other comprehensive income	(4,859)		(2,126)
Distributions in excess of accumulated earnings	(401,834)		(360,978)
TOTAL STOCKHOLDERS' EQUITY	198,049		208,134
OP Units held by Non-controlling OP Unitholders (3)	$	2,762	$	2,903
TOTAL EQUITY	$	200,811	$	211,037
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	1,075,836	$	1,039,508



Nine Months Ended		Square Footage	Lease Term	Purchase Price		Acquisition Expenses			Annualized GAAP Rent		Debt Issued or Assumed
September 30, 2017	(1)	666,451	10.7 Years	$	94,421	$	1,171	(3)	$	10,776	$	54,887	(4)
September 30, 2016	(2)	226,286	7.8 Years	$	40,900	$	179		$	3,367	$	24,000



Business Combinations
	Nine months ended September 30, 2017			Nine months ended September 30, 2016
Acquired assets and liabilities	Purchase price			Purchase price
Land	$	—		$	7,125
Building and improvements	—			22,934
Tenant Improvements	—			3,240
In-place Leases	—			3,355
Leasing Costs	—			1,437
Customer Relationships	—			3,090
Above Market Leases	—			—
Below Market Leases	—			(281		)
Total Purchase Price	$	—		$	40,900

Asset Acquisitions
	Nine months ended September 30, 2017			Nine months ended September 30, 2016
Acquired assets and liabilities	Purchase price			Purchase price
Land	$	15,137		$	—
Building	51,186			—
Tenant Improvements	6,060			—
In-place Leases	9,516			—
Leasing Costs	5,083			—
Customer Relationships	6,851			—
Above Market Leases	1,916			—
Below Market Leases	(1,769		)	—
Discount on Assumed Debt	399			—
Fair Value of Interest Rate Swap Assumed	42			—
Total Purchase Price	$	94,421		$	—

Total Purchase Price on all Acquisitions	$	94,421		$	40,900



	For the three months ended September 30,			For the nine months ended September 30,
	2016 (1)
	(unaudited)
Operating Data:
Total operating revenue	$	22,012		$	66,406
Total operating expenses	(15,205		)	(42,968		)
Other expenses, net	(6,612		)	(21,453		)
Net income	195			1,985
Dividends attributable to preferred and senior common stock	(2,256		)	(5,050		)
Net loss attributable to common stockholders	$	(2,061	)	$	(3,065	)
Share and Per Share Data:
Basic and diluted loss per share of common stock - pro forma	$	(0.09	)	$	(0.13	)
Basic and diluted loss per share of common stock - actual	$	(0.10	)	$	(0.15	)
Weighted average shares outstanding-basic and diluted	23,509,054			22,915,086



Aggregate Square Footage Sold	Aggregate Sales Price		Aggregate Sales Costs		Aggregate Impairment Charge for the Nine Months Ended September 30, 2017		Aggregate Gain on Sale of Real Estate, net
593,763	$	30,302	$	803	$	3,999	$	3,993



Aggregate Variable Rate Debt Repaid		Weighted Average Interest Rate on Variable Rate Debt Repaid
$	8,163	LIBOR +	2.50%



Aggregate Fixed Rate Debt Issued or Assumed			Weighted Average Interest Rate on Fixed Rate Debt		Aggregate Variable Rate Debt Issued or Assumed
$	54,887	(1)	3.78%	(2)	$	7,500	(3)



Year	Scheduled Principal Payments
Three Months Ending December 31, 2017	$	10,405
2018	47,806
2019	47,474
2020	19,387
2021	33,367
2022	97,187
Thereafter	199,764
Total	$	455,390	(1)



Year		Minimum Rental Payments Due
Three Months Ending December 31, 2017	��	$	117
2018		465
2019		465
2020		466
2021		392
2022		319
Thereafter		4,236
Total		$	6,460



	Shares Issued and Retired
	Series A and B Preferred Stock	Common Stock	Senior Common Stock		Series A and B Preferred Stock		Senior Common Stock		Common Stock		Additional Paid in Capital			Accumulated Other Comprehensive Income (1)		Distributions in Excess of Accumulated Earnings			Total Stockholders' Equity
Balance at December 31, 2016	2,264,000	24,882,758	959,552		$	2	$	1	$	25	$	463,436		$	—	$	(223,587	)	$	239,877
Issuance of Series A and B preferred stock and common stock, net	—	2,785,303	—		—		—		3		56,731			—		—			56,734
Conversion of senior common stock to common stock	—	26,563	(29,762	)	—		—		—		—			—		—			—
Retirement of senior common stock, net	—	—	(1,598	)	—		—		—		(24		)	—		—			(24		)
Distributions declared to common, senior common and preferred stockholders	—	—	—		—		—		—		—			—		(37,130		)	(37,130		)
Comprehensive income	—	—	—		—		—		—		—			172		—			172
Net income	—	—	—		—		—		—		—			—		7,403			7,403
Balance at September 30, 2017	2,264,000	27,694,624	928,192		$	2	$	1	$	28	$	520,143		$	172	$	(253,314	)	$	267,032



Record Date	Payment Date	Common Stock Distributions per Share		Series A Preferred Distributions per Share		Series B Preferred Distributions per Share		Series D Preferred Distributions per Share
October 20, 2017	October 31, 2017	$	0.125	$	0.1614583	$	0.15625	$	0.1458333
November 20, 2017	November 30, 2017	0.125		0.1614583		0.15625		0.1458333
December 19, 2017	December 29, 2017	0.125		0.1614583		0.15625		0.1458333
		$	0.375	$	0.4843749	$	0.46875	$	0.4374999


~~(1)~~	~~We issued or assumed $54.9~~(1)We issued $18.3 million of ~~fixed rate or swapped to~~ fixed rate debt in connection ~~with our five property acquisitions with maturity dates ranging from April 1, 2026 to August 10, 2027.~~



State	Rental Revenue for the three months ended September 30, 2017		% of Base Rent		Number of Leases for the three months ended September 30, 2017	Rental Revenue for the three months ended September 30, 2016		% of Base Rent		Number of Leases for the three months ended September 30, 2016
Texas	$	3,822	16.0	%	12	$	3,722	17.6	%	12
Pennsylvania	3,214		13.5		9	1,678		7.9		6
Florida	2,264		9.5		10	723		3.4		3
Ohio	1,964		8.3		13	2,385		11.2		15
North Carolina	1,512		6.4		8	1,499		7.1		8
Georgia	1,192		5.0		6	1,194		5.6		6
South Carolina	1,153		4.8		2	1,153		5.4		2
Michigan	1,082		4.5		4	1,074		5.1		4
Utah	946		4.0		2	946		4.5		2
Minnesota	930		3.9		6	843		4.0		4
All Other States	5,736		24.1		33	5,988		28.2		36
Total	$	23,815	100.0	%	105	$	21,205	100.0	%	98



State	Rental Revenue for the nine months ended September 30, 2017		% of Base Rent		Number of Leases for the nine months ended September 30, 2017	Rental Revenue for the nine months ended September 30, 2016		% of Base Rent		Number of Leases for the nine months ended September 30, 2016
Texas	$	11,372	16.7	%	12	$	11,157	17.8	%	12
Pennsylvania	7,721		11.3		9	5,035		8.0		6
Ohio	7,016		10.3		13	7,152		11.4		15
North Carolina	4,518		6.6		8	4,382		7.0		8
Florida	4,499		6.6		10	1,957		3.1		3
Georgia	3,577		5.2		6	3,578		5.7		6
South Carolina	3,459		5.1		2	3,459		5.5		2
Michigan	3,245		4.8		4	3,221		5.1		4
Utah	2,839		4.2		2	2,261		3.6		2
Minnesota	2,773		4.1		6	2,531		4.0		4
All Other States	17,234		25.1		33	18,019		28.8		36
Total	$	68,253	100.0	%	105	$	62,752	100.0	%	98


	Payments Due by Period											Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Debt Obligations (1)	$	524,590	$	96,035	$	92,306	$	95,206	$	241,043	Debt Obligations (1)	$	665,910	$	25,556	$	235,325	$	243,532	$	161,497
Interest on Debt Obligations (2)	109,884		21,498		35,746		28,110		24,530		Interest on Debt Obligations (2)	93,387		22,319		37,806		19,290		13,972
Operating Lease Obligations (3)	6,460		470		926		747		4,317		Operating Lease Obligations (3)	9,866		472		980		986		7,428
Purchase Obligations (4)	1,526		777		749		—		—		Purchase Obligations (4)	2,824		1,508		1,308		8		—
	$	642,460	$	118,780	$	129,727	$	124,063	$	269,890		$	771,987	$	49,855	$	275,419	$	263,816	$	182,897


~~(2)~~	Interest on debt obligations includes estimated interest on borrowings under our Revolver and Term Loan and mortgage notes payable. The balance and interest rate on our Revolver and Term Loan is variable; thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of September 30, 2017.


~~(3)~~	~~Operating lease obligations represent the ground lease payments due on our four of our properties.~~


~~(4)~~	~~Purchase obligations consist of tenant and capital improvements at five of our properties. These items were recognized on our balance sheet as of September 30, 2017.~~


	For the three months ended September 30,				For the nine months ended September 30,
	(Dollars in Thousands, Except for Per Share Amounts)				(Dollars in Thousands, Except for Per Share Amounts)
	2020		2019		2020		2019
Calculation of basic FFO per share of common stock and Non-controlling OP Unit
Net income	$	2,844	$	2,191	$	6,070	$	9,068
Less: Distributions attributable to preferred and senior common stock	(2,974)		(2,838)		(8,752)		(8,512)
Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders	$	(130)	$	(647)	$	(2,682)	$	556
Adjustments:
Add: Real estate depreciation and amortization	$	13,798	$	12,979	$	42,076	$	38,611
Add: Impairment charge	1,184		—		2,905		—

Less: Gain on sale of real estate, net	(1,196)		—		(1,184)		(2,952)
FFO available to common stockholders and Non-controlling OP Unitholders - basic	$	13,656	$	12,332	$	41,115	$	36,215
Weighted average common shares outstanding - basic	34,075,147		31,032,802		33,884,007		30,338,690
Weighted average Non-controlling OP Units outstanding	503,033		742,937		502,435		742,937
Total common shares and Non-controlling OP Units	34,578,180		31,775,739		34,386,442		31,081,627
Basic FFO per weighted average share of common stock and Non-controlling OP Unit	$	0.39	$	0.39	$	1.20	$	1.17
Calculation of diluted FFO per share of common stock and Non-controlling OP Unit
Net income	$	2,844	$	2,191	$	6,070	$	9,068
Less: Distributions attributable to preferred and senior common stock	(2,974)		(2,838)		(8,752)		(8,512)
Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders	$	(130)	$	(647)	$	(2,682)	$	556
Adjustments:
Add: Real estate depreciation and amortization	$	13,798	$	12,979	$	42,076	$	38,611
Add: Impairment charge	1,184		—		2,905		—
Add: Income impact of assumed conversion of senior common stock	203		226		615		675

Less: Gain on sale of real estate, net	(1,196)		—		(1,184)		(2,952)
FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions	$	13,859	$	12,558	$	41,730	$	36,890
Weighted average common shares outstanding - basic	34,075,147		31,032,802		33,884,007		30,338,690
Weighted average Non-controlling OP Units outstanding	503,033		742,937		502,435		742,937
Effect of convertible senior common stock	641,430		709,906		641,430		709,906
Weighted average common shares and Non-controlling OP Units outstanding - diluted	35,219,610		32,485,645		35,027,872		31,791,533
Diluted FFO per weighted average share of common stock and Non-controlling OP Unit	$	0.39	$	0.39	$	1.19	$	1.16
Distributions declared per share of common stock and Non-controlling OP Unit	$	0.37545	$	0.37500	$	1.12635	$	1.12500


Interest Rate Change	Increase to Interest Expense	Net decrease to Net Income
1% Increase to LIBOR	2,353	(2,353)
2% Increase to LIBOR	4,691	(4,691)
3% Increase to LIBOR	6,021	(6,021)



~~Exhibit~~ ~~Number~~	~~Exhibit Description~~

~~3.1~~	Articles of Restatement of the Registrant, incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed January 12, 2017.

3.2		Articles Supplementary, filed with the Maryland State Department of Assessments and Taxation on April 11, 2018, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed April 12, 2018.

3.3		Articles of Amendment, filed with the Maryland State Department of Assessments and Taxation on April 11, 2018, incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed April 12, 2018.

3.4		Articles Supplementary for 6.625% Series E Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed September 27, 2019.

3.5		Articles Supplementary, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed December 3, 2019.


3.6		Articles Supplementary for 6.00% Series F Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed February 20, 2020.

3.7		Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11 (File No. 333-106024), filed June 11, 2003.

~~3.3~~3.8		First Amendment to Bylaws of the Registrant, incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed July 10, 2007.

~~3.4~~3.9		Second Amendment to Bylaws of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed December 1, 2016.

4.1		Form of Certificate for Common Stock of the Registrant, incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11 (File No. 333-106024), filed August 8, 2003.

4.2		Form of Certificate for 7.75% Series A Cumulative Redeemable Preferred Stock of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-A12G (File No. 000-50363), filed January 19, 2006.

~~4.3~~	Form of Certificate for 7.50% Series B Cumulative Redeemable Preferred Stock of the Registrant, incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-A12B (File No. 001-33097), filed October 19, 2006.

~~4.4~~	Form of Certificate for 7.00% Series D Cumulative Redeemable Preferred Stock of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed May 25, 2016.

~~10.1~~4.3		~~Second~~Form of Certificate for 6.625% Series E Cumulative Redeemable Preferred Stock of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed September 27, 2019.

4.4		Form of Certificate for 6.00% Series F Cumulative Redeemable Preferred Stock of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed February 20, 2020.

4.5		Form of Indenture, incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-3 (File No. 333-229209), filed January 11, 2019.

4.6		Form of Indenture, incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form S-3 (File No. 333-236143), filed January 29, 2020.

10.1*		Sixth Amended and Restated ~~Credit~~Investment Advisory Agreement, dated as of ~~October 27, 2017,~~July 14, 2020, by and ~~among~~between the Registrant and Gladstone ~~Commercial Limited Partnership, as borrower, Gladstone Commercial Corporation and certain of its wholly owned subsidiaries, as guarantors, each of~~Management Corporation. incorporated by reference to Exhibit 10.1 to the ~~financial institutions initially a signatory thereto together with their successors and assignees, as lenders, and KeyBank National Association, as lender and agent.~~Registrant's Quarterly Report on Form 10-Q (File No. 001-33097), filed July 27, 2020.

1131.1*		~~Computation of Per Share Earnings from Operations.~~

12	~~Statements re: computation of ratios.~~

~~31.1~~	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1~~32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2~~32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS***	~~XBRL Instance Document~~

101.SCH***	~~XBRL Taxonomy Extension Schema Document~~



99.1*						Estimated Value Methodology for Series F Cumulative Redeemable Preferred Stock as of September 30, 2020.

101.INS***						XBRL Instance Document

101.SCH***						XBRL Taxonomy Extension Schema Document


101.CAL***						XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB***						XBRL Taxonomy Extension Label Linkbase Document

101.PRE***						XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF***						XBRL Definition Linkbase

104						Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)



*			Filed herewith
**			Furnished herewith
***			Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, (ii) the Condensed Consolidated Statements of Operations and ~~Other~~ Comprehensive Income ~~(Loss)~~ for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 and (iv) the Notes to Condensed Consolidated Financial Statements.