UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172023
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-33097
GLADSTONE COMMERCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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MARYLANDMaryland | | 02-0681276 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.)
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1521 WESTBRANCH DRIVE, SUITEWestbranch Drive, | Suite 100 MCLEAN, VIRGINIA
| | 22102 |
McLean, | Virginia | |
(Address of principal executive offices) | | (Zip Code) |
(703) 287-5800
(Registrant’s telephone number, including area code)
Not Applicable
(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 | | The Nasdaq Stock Market LLC |
6.625% Series E Cumulative Redeemable Preferred Stock, par value $0.001 per share | | GOODN | | The Nasdaq Stock Market LLC |
6.00% Series G Cumulative Redeemable Preferred Stock, par value $0.001 per share | | GOODO | | The Nasdaq Stock Market LLC |
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.
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Large accelerated filer | | ¨☒ | | Accelerated filer | | ý☐ |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) ☐ | | Smaller reporting company | | ¨☐ |
| | | | Emerging growth company | | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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,common stock, $0.001 par value, outstanding as of October 31, 2017August 8, 2023 was 27,705,664.39,917,995.
GLADSTONE COMMERCIAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
SeptemberJune 30, 20172023
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Gladstone Commercial Corporation
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
ASSETS | | | | |
Real estate, at cost | | $ | 1,232,860 | | | $ | 1,287,297 | |
Less: accumulated depreciation | | 286,911 | | | 286,150 | |
Total real estate, net | | 945,949 | | | 1,001,147 | |
Lease intangibles, net | | 104,439 | | | 111,622 | |
Real estate and related assets held for sale | | 36,766 | | | 3,293 | |
Cash and cash equivalents | | 16,487 | | | 11,653 | |
Restricted cash | | 4,076 | | | 4,339 | |
Funds held in escrow | | 8,459 | | | 8,818 | |
Right-of-use assets from operating leases | | 5,011 | | | 5,131 | |
Deferred rent receivable, net | | 40,035 | | | 38,884 | |
Other assets | | 20,713 | | | 17,746 | |
TOTAL ASSETS | | $ | 1,181,935 | | | $ | 1,202,633 | |
LIABILITIES, MEZZANINE EQUITY AND EQUITY | | | | |
LIABILITIES | | | | |
Mortgage notes payable, net (1) | | $ | 348,371 | | | $ | 359,389 | |
Borrowings under Revolver | | 38,450 | | | 23,250 | |
Borrowings under Term Loan A, Term Loan B and Term Loan C, net | | 366,913 | | | 366,567 | |
Deferred rent liability, net | | 35,761 | | | 39,997 | |
Operating lease liabilities | | 5,202 | | | 5,308 | |
Asset retirement obligation | | 4,811 | | | 4,793 | |
Accounts payable and accrued expenses | | 11,479 | | | 9,606 | |
Liabilities related to assets held for sale | | 933 | | | — | |
Due to Adviser and Administrator (1) | | 2,624 | | | 3,356 | |
Other liabilities | | 13,627 | | | 14,617 | |
TOTAL LIABILITIES | | $ | 828,171 | | | $ | 826,883 | |
Commitments and contingencies (2) | | | | |
MEZZANINE EQUITY | | | | |
Series E and G redeemable preferred stock, net, par value $0.001 per share; $25 per share liquidation preference; 10,750,886 and 10,751,486 shares authorized; and 7,052,334 and 7,052,934 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (3) | | $ | 170,041 | | | $ | 170,056 | |
TOTAL MEZZANINE EQUITY | | $ | 170,041 | | | $ | 170,056 | |
EQUITY | | | | |
Senior common stock, par value $0.001 per share; 950,000 shares authorized; and 406,425 and 431,064 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (3) | | $ | 1 | | | $ | 1 | |
Common stock, par value $0.001 per share, 62,315,414 and 62,305,727 shares authorized; and 39,917,995 and 39,744,359 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (3) | | 39 | | | 39 | |
Series F redeemable preferred stock, par value $0.001 per share; $25 per share liquidation preference; 25,983,700 and 25,992,787 shares authorized and 860,677 and 670,895 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (3) | | 1 | | | 1 | |
Additional paid in capital | | 728,580 | | | 721,327 | |
Accumulated other comprehensive income | | 14,297 | | | 11,640 | |
Distributions in excess of accumulated earnings | | (560,719) | | | (529,104) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 182,199 | | | $ | 203,904 | |
OP Units held by Non-controlling OP Unitholders (3) | | 1,524 | | | 1,790 | |
TOTAL EQUITY | | $ | 183,723 | | | $ | 205,694 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,181,935 | | | $ | 1,202,633 | |
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| | | | | | | | |
| | 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 |
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Lease intangibles, net | | 115,210 |
| | 105,553 |
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Real estate and related assets held for sale, net | | — |
| | 9,562 |
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Cash and cash equivalents | | 4,287 |
| | 4,658 |
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Restricted cash | | 3,533 |
| | 3,030 |
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Funds held in escrow | | 12,312 |
| | 6,806 |
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Deferred rent receivable, net | | 31,030 |
| | 29,725 |
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Other assets | | 4,094 |
| | 2,320 |
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TOTAL ASSETS | | $ | 904,851 |
| | $ | 851,742 |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | | | | |
LIABILITIES | | | | |
Mortgage notes payable, net (1) | | $ | 450,032 |
| | $ | 445,278 |
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Borrowings under Revolver, net | | 43,933 |
| | 39,225 |
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Borrowings under Term Loan, net | | 24,912 |
| | 24,892 |
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Deferred rent liability, net | | 15,554 |
| | 12,647 |
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Asset retirement obligation | | 3,136 |
| | 3,406 |
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Accounts payable and accrued expenses | | 8,221 |
| | 5,891 |
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Liabilities related to assets held for sale, net | | — |
| | 1,041 |
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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) | |
| |
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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 |
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TOTAL MEZZANINE EQUITY | | $ | 81,978 |
| | $ | 70,743 |
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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 |
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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 |
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Additional paid in capital | | 520,143 |
| | 463,436 |
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Accumulated other comprehensive income | | 172 |
| | — |
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Distributions in excess of accumulated earnings | | (253,314 | ) | | (223,587 | ) |
TOTAL STOCKHOLDERS' EQUITY | | 267,032 |
| | 239,877 |
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TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | | $ | 904,851 |
| | $ | 851,742 |
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(1) | Refer to Note 2 "Related-Party Transactions" |
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(2) | Refer to Note 9 “Commitments and Contingencies”
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(3) | Refer to Note 10 “Stockholders' and Mezzanine Equity”
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(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)
(Unaudited)
| | | | For the three months ended September 30, | | For the nine months ended September 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Operating revenues | | | | | | | | | Operating revenues | | | | | | | | |
Rental revenue | | $ | 23,815 |
| | $ | 21,205 |
| | $ | 68,253 |
| | $ | 62,752 |
| |
Tenant recovery revenue | | 550 |
| | 384 |
| | 1,294 |
| | 1,226 |
| |
Interest income from mortgage note receivable | | — |
| | — |
| | — |
| | 385 |
| |
Lease revenue | | Lease revenue | | $ | 38,658 | | | $ | 36,399 | | | $ | 75,212 | | | $ | 71,930 | |
Total operating revenues | | 24,365 |
| | 21,589 |
| | 69,547 |
| | 64,363 |
| Total operating revenues | | $ | 38,658 | | | $ | 36,399 | | | $ | 75,212 | | | $ | 71,930 | |
Operating expenses | | | | | | | | | Operating expenses | | | | | | | | |
Depreciation and amortization | | 10,829 |
| | 9,459 |
| | 30,673 |
| | 27,796 |
| Depreciation and amortization | | $ | 16,936 | | | $ | 15,167 | | | $ | 31,640 | | | $ | 29,804 | |
Property operating expenses | | 2,178 |
| | 1,410 |
| | 5,062 |
| | 4,455 |
| Property operating expenses | | 6,738 | | | 6,959 | | | 13,465 | | | 13,582 | |
Base management fee (1) | | 1,277 |
| | 1,072 |
| | 3,665 |
| | 2,789 |
| Base management fee (1) | | 1,605 | | | 1,577 | | | 3,210 | | | 3,124 | |
Incentive fee (1) | | 640 |
| | 564 |
| | 1,760 |
| | 1,837 |
| Incentive fee (1) | | — | | | 1,339 | | | — | | | 2,679 | |
Administration fee (1) | | 293 |
| | 311 |
| | 993 |
| | 1,086 |
| Administration fee (1) | | 546 | | | 399 | | | 1,110 | | | 861 | |
General and administrative | | 650 |
| | 570 |
| | 1,776 |
| | 1,882 |
| General and administrative | | 1,068 | | | 958 | | | 2,131 | | | 1,955 | |
Impairment charge | | — |
| | 1,786 |
| | 3,999 |
| | 2,016 |
| Impairment charge | | 6,823 | | | 1,374 | | | 6,823 | | | 1,374 | |
| Total operating expenses | | 15,867 |
| | 15,172 |
| | 47,928 |
| | 41,861 |
| Total operating expenses | | $ | 33,716 | | | $ | 27,773 | | | $ | 58,379 | | | $ | 53,379 | |
Other (expense) income | | | | | | | | | |
Other income (expense) | | Other income (expense) | | | | | | | | |
Interest expense | | (6,119 | ) | | (6,338 | ) | | (18,223 | ) | | (19,648 | ) | Interest expense | | $ | (9,081) | | | $ | (7,121) | | | $ | (17,909) | | | $ | (13,706) | |
Distributions attributable to Series C mandatorily redeemable preferred stock | | — |
| | (131 | ) | | — |
| | (1,502 | ) | |
Gain (loss) on sale of real estate, net | | 1 |
| | (24 | ) | | 3,993 |
| | (24 | ) | |
Loss on sale of real estate, net | | Loss on sale of real estate, net | | (451) | | | — | | | (451) | | | — | |
Other income | | 3 |
| | 3 |
| | 14 |
| | 337 |
| Other income | | 2 | | | 119 | | | 107 | | | 223 | |
Total other expense, net | | (6,115 | ) | | (6,490 | ) | | (14,216 | ) | | (20,837 | ) | Total other expense, net | | $ | (9,530) | | | $ | (7,002) | | | $ | (18,253) | | | $ | (13,483) | |
Net income (loss) | | 2,383 |
| | (73 | ) | | 7,403 |
| | 1,665 |
| |
Distributions attributable to Series A, B and D preferred stock | | (2,520 | ) | | (2,002 | ) | | (7,330 | ) | | (4,292 | ) | |
Net (loss) income | | Net (loss) income | | $ | (4,588) | | | $ | 1,624 | | | $ | (1,420) | | | $ | 5,068 | |
Net loss attributable to OP Units held by Non-controlling OP Unitholders | | Net loss attributable to OP Units held by Non-controlling OP Unitholders | | 73 | | | 10 | | | 81 | | | 8 | |
Net (loss) income (attributable) available to the Company | | Net (loss) income (attributable) available to the Company | | $ | (4,515) | | | $ | 1,634 | | | $ | (1,339) | | | $ | 5,076 | |
Distributions attributable to Series E, F, and G preferred stock | | Distributions attributable to Series E, F, and G preferred stock | | (3,058) | | | (2,967) | | | (6,080) | | | (5,913) | |
| Distributions attributable to senior common stock | | (247 | ) | | (254 | ) | | (744 | ) | | (758 | ) | Distributions attributable to senior common stock | | (106) | | | (114) | | | (215) | | | (230) | |
Loss on extinguishment of Series F preferred stock | | Loss on extinguishment of Series F preferred stock | | (6) | | | — | | | (11) | | | (5) | |
Gain on repurchase of Series G preferred stock | | Gain on repurchase of Series G preferred stock | | — | | | — | | | 3 | | | — | |
Net loss attributable to common stockholders | | $ | (384 | ) | | $ | (2,329 | ) | | $ | (671 | ) | | $ | (3,385 | ) | Net loss attributable to common stockholders | | $ | (7,685) | | | $ | (1,447) | | | $ | (7,642) | | | $ | (1,072) | |
Loss per weighted average share of common stock - basic & diluted | | | | | | | | | Loss per weighted average share of common stock - basic & diluted | | | | | | | | |
Loss attributable to common shareholders | | $ | (0.01 | ) | | $ | (0.10 | ) | | $ | (0.03 | ) | | $ | (0.15 | ) | Loss attributable to common shareholders | | $ | (0.19) | | | $ | (0.04) | | | $ | (0.19) | | | $ | (0.03) | |
Weighted average shares of common stock outstanding | | | | | | | | | Weighted average shares of common stock outstanding | | | | | | | | |
Basic and Diluted | | 27,234,569 |
| | 23,509,054 |
| | 25,833,423 |
| | 22,915,086 |
| Basic and Diluted | | 39,978,674 | | | 38,745,751 | | | 39,950,672 | | | 38,326,531 | |
Distributions declared per common share | | $ | 0.375 |
| | $ | 0.375 |
| | $ | 1.125 |
| | $ | 1.125 |
| |
Earnings per weighted average share of senior common stock | | $ | 0.26 |
| | $ | 0.26 |
| | $ | 0.79 |
| | $ | 0.79 |
| Earnings per weighted average share of senior common stock | | $ | 0.26 | | | $ | 0.26 | | | $ | 0.52 | | | $ | 0.52 | |
Weighted average shares of senior common stock outstanding - basic | | 932,636 |
| | 959,552 |
| | 947,238 |
| | 961,041 |
| Weighted average shares of senior common stock outstanding - basic | | 407,099 | | | 435,364 | | | 413,438 | | | 442,364 | |
Other comprehensive income | | | | | | | | | |
Change in unrealized (loss) gain related to interest rate swap | | $ | (7 | ) | | $ | — |
| | $ | 172 |
| | $ | — |
| |
Other comprehensive income | | (7 | ) | | — |
| | 172 |
| | — |
| |
Net income (loss) | | 2,383 |
| | (73 | ) | | 7,403 |
| | 1,665 |
| |
Comprehensive income (loss) | | $ | 2,376 |
| | $ | (73 | ) | | $ | 7,575 |
| | $ | 1,665 |
| |
Comprehensive income | | Comprehensive income | | | | | | | | |
Change in unrealized gain related to interest rate hedging instruments, net | | Change in unrealized gain related to interest rate hedging instruments, net | | $ | 8,025 | | | $ | 2,603 | | | $ | 2,130 | | | $ | 6,870 | |
Other Comprehensive gain | | Other Comprehensive gain | | 8,025 | | | 2,603 | | | 2,130 | | | 6,870 | |
Net (loss) income | | Net (loss) income | | $ | (4,588) | | | $ | 1,624 | | | $ | (1,420) | | | $ | 5,068 | |
Comprehensive income | | Comprehensive income | | $ | 3,437 | | | $ | 4,227 | | | $ | 710 | | | $ | 11,938 | |
Comprehensive loss attributable to OP Units held by Non-controlling OP Unitholders | | Comprehensive loss attributable to OP Units held by Non-controlling OP Unitholders | | 73 | | | 10 | | | 81 | | | 8 | |
Total comprehensive income available to the Company | | Total comprehensive income available to the Company | | $ | 3,510 | | | $ | 4,237 | | | $ | 791 | | | $ | 11,946 | |
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(1) | Refer to Note 2 “Related-Party Transactions” |
(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)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | |
| | 2023 | | 2022 | | |
Cash flows from operating activities: | | | | | | |
Net (loss) income | | $ | (1,420) | | | $ | 5,068 | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 31,640 | | | 29,804 | | | |
Impairment charge | | 6,823 | | | 1,374 | | | |
| | | | | | |
Loss on sale of real estate, net | | 451 | | | — | | | |
Amortization of deferred financing costs | | 819 | | | 860 | | | |
Amortization of deferred rent asset and liability, net | | (4,129) | | | (1,194) | | | |
Amortization of discount and premium on assumed debt, net | | 21 | | | 24 | | | |
Asset retirement obligation expense | | 63 | | | 45 | | | |
Amortization of right-of-use asset from operating leases and operating lease liabilities, net | | 14 | | | 16 | | | |
Operating changes in assets and liabilities | | | | | | |
Increase in other assets | | (761) | | | (1,716) | | | |
Decrease in deferred rent receivable | | (1,452) | | | (57) | | | |
Increase in accounts payable and accrued expenses | | 1,199 | | | 1,817 | | | |
(Decrease) increase in amount due to Adviser and Administrator | | (732) | | | 215 | | | |
| | | | | | |
| | | | | | |
Decrease in other liabilities | | (517) | | | (569) | | | |
| | | | | | |
Leasing commissions paid | | (1,331) | | | (1,079) | | | |
Net cash provided by operating activities | | $ | 30,688 | | | $ | 34,608 | | | |
Cash flows from investing activities: | | | | | | |
Acquisition of real estate and related intangible assets | | $ | (5,363) | | | $ | (51,919) | | | |
Improvements of existing real estate | | (5,973) | | | (1,816) | | | |
Proceeds from sale of real estate | | 4,417 | | | — | | | |
Receipts from lenders for funds held in escrow | | 3,370 | | | 1,826 | | | |
Payments to lenders for funds held in escrow | | (3,011) | | | (4,530) | | | |
Receipts from tenants for reserves | | 206 | | | 1,385 | | | |
Payments to tenants from reserves | | — | | | (2,247) | | | |
Deposits on future acquisitions | | (570) | | | (545) | | | |
| | | | | | |
Net cash used in investing activities | | $ | (6,924) | | | $ | (57,846) | | | |
Cash flows from financing activities: | | | | | | |
Proceeds from issuance of equity | | $ | 8,768 | | | $ | 35,260 | | | |
Offering costs paid | | (423) | | | (681) | | | |
Redemption of Series F preferred stock | | (229) | | | (55) | | | |
Retirement of Senior Common stock | | (55) | | | — | | | |
Repurchase of Series G preferred stock | | (12) | | | — | | | |
Repurchase of common stock | | (998) | | | — | | | |
| | | | | | |
Borrowings under mortgage notes payable | | — | | | 35,000 | | | |
Payments for deferred financing costs | | (118) | | | (667) | | | |
Principal repayments on mortgage notes payable | | (11,305) | | | (22,040) | | | |
| | | | | | |
Borrowings from revolving credit facility | | 34,200 | | | 51,500 | | | |
Repayments on revolving credit facility | | (19,000) | | | (38,100) | | | |
| | | | | | |
| | | | | | |
Increase in security deposits | | 253 | | | 73 | | | |
Distributions paid for common, senior common, preferred stock and Non-controlling OP Unitholders | | (30,274) | | | (35,026) | | | |
Net cash (used in) provided by financing activities | | $ | (19,193) | | | $ | 25,264 | | | |
Net increase in cash, cash equivalents, and restricted cash | | $ | 4,571 | | | $ | 2,026 | | | |
Cash, cash equivalents, and restricted cash at beginning of period | | $ | 15,992 | | | $ | 13,178 | | | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 20,563 | | | $ | 15,204 | | | |
SUPPLEMENTAL AND NON-CASH INFORMATION | | | | | | |
|
| | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | |
Tenant funded fixed asset improvements included in deferred rent liability, net | | $ | 861 | | | $ | 12,952 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Unrealized gain related to interest rate hedging instruments, net | | $ | 2,130 | | | $ | 6,870 | | | |
| | | | | | |
| | | | | | |
Capital improvements and leasing commissions included in accounts payable and accrued expenses | | $ | 2,116 | | | $ | 645 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Dividends paid on Series F Preferred Stock via additional share issuances | | $ | 226 | | | $ | 184 | | | |
| | | | | | |
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):
| | | | | | | | | | | | | | |
| | For the six months ended June 30, |
| | 2023 | | 2022 |
Cash and cash equivalents | | $ | 16,487 | | | $ | 10,741 | |
Restricted cash | | 4,076 | | | 4,463 | |
Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows | | $ | 20,563 | | | $ | 15,204 | |
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 mortgage loans; however, we do not have any mortgage loans currently outstanding.office properties. 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, 2016,2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2017.22, 2023. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.
Revision of Previously Issued Financial Statements
In connection with the preparation of its financial statements for the second quarter of 2023, the Company identified errors in the calculation of depreciation of tenant funded improvement assets at a number of its properties. The Company had depreciated these assets through a term that was different than their useful lives, the correction of which resulted in changes to depreciation expense, a non-cash amount, and net income. The correction of these errors had an immaterial impact on the Incentive Fee for each period presented and had no impact on any other Advisory fees. The identified errors were included in the Company's previously issued 2021 quarterly and annual financial statements, 2022 quarterly and annual financial statements, and quarterly financial statements for the three months ended March 31, 2023. The Company evaluated the errors and determined that the related impact was not material to the Consolidated Statements of Operations and Comprehensive Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows or Consolidated Statements of Equity for any period impacted. The Company has revised the previously issued Condensed Consolidated Statements of Operations and Comprehensive Income, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows and Stockholders’ Equity tables as of and for the three and six months ended June 30, 2022 to correct for such errors and these revisions are reflected in this Form 10-Q. The Company will also correct previously reported financial information for these errors in its future filings, as applicable. A summary of the corrections to the impacted financial statement line items to the Company’s previously issued Consolidated Statements of Operations and Comprehensive Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows and Consolidated Statements of Equity for each affected period is presented in Note 9, “Revision of Previously Issued Financial Statements.”
Use of Estimates
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, 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 materiallymay differ from those estimates.these estimates under different assumptions or conditions.
CriticalSignificant Accounting Policies
The preparation of our financial statements in accordance with GAAP we apply certain critical accounting policies which requirerequires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of ourthese 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, 2016.2022. There were no material changes to our critical accounting policies during the three and ninesix months ended SeptemberJune 30, 2017.2023.
Reclassifications
Certain items on condensed consolidated statement of operations and other comprehensive income (loss) for the three and nine months ended September 30, 2016 have been reclassified to conform to the current period's presentation. These reclassifications had no impact on previously-reported equity, net loss attributable to common stockholders, or net change in cash and cash equivalents.
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 2016, the FASB issued ASU 2016-02, “Leases: Amendments to the FASB Accounting Standards Codification” (“ASU 2016-02”). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on 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 term of the lease, respectively. A lessee is also required 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 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.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification 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 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.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)," which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts described as restricted cash or restricted cash equivalents. 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.
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 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,Arthur “Buzz” Cooper, is analso executive managing directorvice president of commercial and 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 the Advisory Agreement,(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 SeptemberJune 30, 20172023 and December 31, 2016, $2.32022, $2.6 million and $2.1$3.4 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 wasamendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreementagreements with our Adviser and Administrator each July. As such, during theDuring their July 20172023 meeting, theour Board of Directors reviewed and renewed each of the Advisory Agreement and Administration Agreement for anotheran additional year, through August 31, 2018.2024.
As a result ofBase Management Fee
On July 14, 2020, we amended and restated the July 2015 amendment,Advisory Agreement by entering into the calculation ofSixth Amended and Restated Investment Advisory Agreement between us and the annual base management fee equals 1.5% of our adjusted total stockholders’ equity,Adviser (the “Sixth Amended Advisory Agreement”), which is our total stockholders’ equity (before giving effect toreplaced 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). The fee is 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 theprevious calculation of the base management fee with a calculation based on Gross Tangible Real Estate. The revised base management fee is payable quarterly in arrears and calculated at an annual rate of 0.425% (0.10625% per quarter) of the incentive fee (described below) includes total mezzanine equity. Our Adviser does not chargeprior calendar quarter’s “Gross Tangible Real Estate,” defined in the Sixth Amended Advisory Agreement as the current gross value of our property portfolio (meaning the aggregate of each property’s original acquisition or dispositionprice plus the cost of any subsequent capital improvements thereon). The calculation of the other 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).remains unchanged.
For the three and ninesix months ended SeptemberJune 30, 2017,2023, we recorded a base management fee of $1.3$1.6 million and $3.7$3.2 million, respectively. For the three and ninesix months ended SeptemberJune 30, 2016,2022, we recorded a base management fee of $1.1$1.6 million and $2.8$3.1 million, respectively.
Incentive Fee
As a result ofPursuant to the July 2015 amendment,Advisory Agreement, the calculation of the incentive fee was revised to rewardrewards 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 quarters (excluding quarters for which no incentive fee was paid). Core FFO (as defined in the Advisory Agreement) is GAAP net (loss) income (loss)(attributable) 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 (loss) income (loss)(attributable) available to common stockholders for the period, and one-time events pursuant to changes in GAAP.
On January 10, 2023, the Company amended and restated the Sixth Amended Advisory Agreement by entering into the Seventh Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Seventh Amended Advisory Agreement”), as approved unanimously by our Board of Directors, including specifically, our independent directors.
The Seventh Amended Advisory Agreement contractually eliminated the payment of the incentive fee prior tofor the quarters ended March 31, 2023 and June 30, 2023. The calculation of the other fees remains unchanged.
On July 2015 amendment rewarded11, 2023, the Adviser in circumstances whereCompany amended and restated the Seventh Amended Advisory Agreement by entering into the Eighth Amended and Restate Investment Advisory Agreement between the Company and the Advisory (the “Eighth Amended Advisory Agreement”), as approved unanimously by our quarterly funds from operations, or FFO, before giving effect to anyBoard of Directors, including specifically, our independent directors. The Eight Amended Advisory Agreement contractually eliminated the payment of the incentive fee or pre-incentive fee FFO, exceeded 1.75%, or 7.0% annualized, orfor the hurdle rate, of common stockholders’ equity. FFO, includedquarters ending September 30, 2023 and December 31, 2023. In addition, the Eight Amended Advisory Agreement also clarifies that for 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 receivedfuture quarter whereby an incentive fee of 20.0%would exceed by greater than 15% the average quarterly incentive fee paid, the measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the amount of our pre-incentive fee FFO that exceeded 2.1875% of common stockholders’ equity.other fees remains unchanged.
For the three and ninesix months ended SeptemberJune 30, 2017,2023, the contractually eliminated incentive fee would have been $1.4 million and $2.5 million, respectively. For the three and six months ended June 30, 2022, we recorded an incentive fee of $0.6$1.3 million and $1.8 million, respectively. For the three and nine months ended September 30, 2016, we recorded an incentive fee of $0.6 million and $1.8$2.7 million, respectively. The Adviser did not waive any portion of the incentive fee for the three and ninesix months ended SeptemberJune 30, 2017 or 2016. Waivers are unconditional and cannot be recouped by the Adviser in the future.2022.
Capital Gain Fee
Under the Advisory Agreement, as amended in July 2015, we will pay to the Adviser a capital gains-basedgain-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 ninesix months ended SeptemberJune 30, 20172023 or 2016.2022.
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.
Termination Fee
The Advisory Agreement includes a termination fee clause whereby, in the event of our termination thereofof 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 (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'sAdministrator’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 methodology 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. For the three and ninesix months ended SeptemberJune 30, 2017,2023, we recorded an administration fee of $0.3$0.5 million and $1.0$1.1 million, respectively, and forrespectively. For the three and ninesix months ended SeptemberJune 30, 2016,2022, we recorded an administration fee of $0.3$0.4 million and $1.1$0.9 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%1.00% 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 partythird-party brokers and market conditions. We paid financing fees to Gladstone Securities of $0.1 million and $0.2 million$17,500 during the three and ninesix months ended SeptemberJune 30, 2017, respectively,2023, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.25% and 0.27%, respectively,0.20% of the mortgage principal secured. We paid financing fees to Gladstone Securities of $0.1 million and $0.2 million during the three and ninesix months ended SeptemberJune 30, 2016, respectively,2022, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.28% and 0.36%, respectively,0.35% of the mortgage principal secured. Our Board of Directors renewed the agreement for an additional year, through August 31, 2018,2024, at its July 20172023 meeting.
On February 20, 2020 we entered into a dealer manager agreement, as amended on February 9, 2023 (together, the “Dealer Manager Agreement”), whereby Gladstone Securities acts as the 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, 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 an automatic registration statement on Form S-3 (File No. 333-268549), as the same may be amended and/or supplemented (the “2022 Registration Statement”), under the Securities Act of 1933, as amended, and will be offered and sold pursuant to a prospectus supplement, dated February 9, 2023, and a base prospectus dated November 23, 2022 relating to the 2022 Registration Statement. During the years ended December 31, 2020, 2021 and 2022, the Series F Preferred Stock was registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-236143) (the “2020 Registration Statement”), and offered and sold pursuant to a prospectus supplement, dated February 20, 2020, and a base prospectus dated February 11, 2020.
Under the Dealer Manager Agreement, Gladstone Securities, as dealer manager, provides certain sales, promotional and marketing services to us in connection with the Offering, and we pay Gladstone Securities (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 are paid with respect to shares sold pursuant to the DRIP. Gladstone Securities may, in its sole discretion, re-allow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $0.3 million and $0.4 million to Gladstone Securities during the three and six months ended June 30, 2023, respectively, in connection with the Offering. We paid fees of $0.1 million and $0.3 million to Gladstone Securities during the three and six months ended June 30, 2022, respectively, in connection with the Offering.
3. Loss perPer Share of Common Stock
The following tables set forth the computation of basic and diluted loss per share of common stock for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016. 2022. The operating partnership units in the Operating Partnership (“OP Units”) held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”) (which may be redeemed for shares of common stock) have been excluded from the diluted loss per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of loss would also be added back to net loss. Net loss figures are presented net of such non-controlling interests in the loss per share calculation.
We computed basic loss per share for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 using the weighted average number of shares outstanding during the respective periods. Diluted loss per share for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022 reflects additional shares of common stock related to our convertible Seniorsenior common stock (the “Senior Common Stock (ifStock”), if the effect of conversion would be dilutive),dilutive, that would have been outstanding if such dilutive potential shares of common stock had been issued, as well as an adjustment to net income availableloss attributable to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts).
| | | | For the three months ended September 30, | | For the nine months ended September 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Calculation of basic loss per share of common stock: | | | | | | | | | Calculation of basic loss per share of common stock: | | | | | | | | |
Net loss attributable to common stockholders | | $ | (384 | ) | | $ | (2,329 | ) | | $ | (671 | ) | | $ | (3,385 | ) | Net loss attributable to common stockholders | | $ | (7,685) | | | $ | (1,447) | | | $ | (7,642) | | | $ | (1,072) | |
Denominator for basic weighted average shares of common stock | | 27,234,569 |
| | 23,509,054 |
| | 25,833,423 |
| | 22,915,086 |
| |
Denominator for basic weighted average shares of common stock (1) | | Denominator for basic weighted average shares of common stock (1) | | 39,978,674 | | | 38,745,751 | | | 39,950,672 | | | 38,326,531 | |
Basic loss per share of common stock | | $ | (0.01 | ) | | $ | (0.10 | ) | | $ | (0.03 | ) | | $ | (0.15 | ) | Basic loss per share of common stock | | $ | (0.19) | | | $ | (0.04) | | | $ | (0.19) | | | $ | (0.03) | |
Calculation of diluted loss per share of common stock: | | | | | | | | | Calculation of diluted loss per share of common stock: | | | | | | | | |
Net loss attributable to common stockholders | | $ | (384 | ) | | $ | (2,329 | ) | | $ | (671 | ) | | $ | (3,385 | ) | Net loss attributable to common stockholders | | $ | (7,685) | | | $ | (1,447) | | | $ | (7,642) | | | $ | (1,072) | |
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 |
| |
| Net loss attributable to common stockholders plus assumed conversions (2) | | Net loss attributable to common stockholders plus assumed conversions (2) | | $ | (7,685) | | | $ | (1,447) | | | $ | (7,642) | | | $ | (1,072) | |
Denominator for basic weighted average shares of common stock (1) | | Denominator for basic weighted average shares of common stock (1) | | 39,978,674 | | | 38,745,751 | | | 39,950,672 | | | 38,326,531 | |
Effect of convertible Senior Common Stock (2) | | Effect of convertible Senior Common Stock (2) | | — | | | — | | | — | | | — | |
Denominator for diluted weighted average shares of common stock (2) | | Denominator for diluted weighted average shares of common stock (2) | | 39,978,674 | | | 38,745,751 | | | 39,950,672 | | | 38,326,531 | |
Diluted loss per share of common stock | | $ | (0.01 | ) | | $ | (0.10 | ) | | $ | (0.03 | ) | | $ | (0.15 | ) | Diluted loss per share of common stock | | $ | (0.19) | | | $ | (0.04) | | | $ | (0.19) | | | $ | (0.03) | |
| |
(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 391,468 and 391,468 for the three and six months ended June 30, 2023, respectively, and 256,994 and 256,994 for the three and six months ended June 30, 2022, respectively.
(2)We excluded convertible shares of Senior Common Stock of 345,132 and 363,246 from the calculation of diluted earnings per share for the three and six months ended June 30, 2023 and 2022, 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 SeptemberJune 30, 20172023 and December 31, 20162022, respectively, excluding real estate held for sale as of June 30, 2023 and December 31, 20162022 (dollars in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
Real estate: | | | | |
Land (1) | | $ | 144,228 | | | $ | 152,916 | |
Building and improvements | | 1,029,967 | | | 1,069,407 | |
Tenant improvements | | 58,665 | | | 64,974 | |
Accumulated depreciation | | (286,911) | | | (286,150) | |
Real estate, net | | $ | 945,949 | | | $ | 1,001,147 | |
(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. |
| | | | | | | | |
| | 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 |
|
Real estate depreciation expense on building and tenant improvements was $6.9$11.8 million and $19.8$22.3 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2023, respectively. Real estate depreciation expense on building and $6.1tenant improvements was $10.1 million and $17.9$20.0 million for the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively.
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 fiveone property during the six months ended June 30, 2023, and acquired seven industrial properties during the ninesix months ended SeptemberJune 30, 2017, and two properties during the nine months ended September 30, 2016, which2022. The acquisitions are summarized below (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
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 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended | | Aggregate Square Footage | | Weighted Average Lease Term | | Aggregate Purchase Price | | Aggregate Capitalized Acquisition Costs | | | | |
June 30, 2023 | (1) | 76,089 | | | 20.0 years | | $ | 5,363 | | | $ | 98 | | | | | |
June 30, 2022 | (2) | 742,303 | | | 11.7 years | | $ | 51,919 | | | $ | 519 | | | | | |
(1)On April 14, 2023, we acquired a 76,089 square foot property in Riverdale, Illinois for $5.4 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property.
| |
(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. |
(2)On February 24, 2022, we acquired an 80,000 square foot property in Wilkesboro, North Carolina for $7.5 million. The property is fully leased to one tenant and had 12.7 years of remaining lease term at the time we acquired the property. On March 11, 2022, we acquired a 56,000 square foot property in Oklahoma City, Oklahoma for $6.0 million. The property is fully leased to one tenant and had 7.0 years of remaining lease term at the time we acquired the property. On May 4, 2022, we acquired a two-property, 260,719 square foot portfolio in Cleveland, Ohio and Fort Payne, Alabama for $19.5 million. The properties are fully leased to one tenant and had 11.4 years of remaining lease term at the time we acquired the properties. On May 12, 2022, we acquired a three-property, 345,584 square foot portfolio in Wilmington, North Carolina for $18.9 million. The properties are fully leased to one tenant and had 13.1 years of remaining lease term at the time we acquired the properties.
| |
(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 ninesix months ended SeptemberJune 30, 20172023 and 20162022 as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 | |
Acquired assets and liabilities | | Purchase price | | Purchase price | |
Land | | $ | 675 | | | $ | 3,380 | | |
Building | | 3,678 | | | 40,855 | | |
Tenant Improvements | | 184 | | | 768 | | |
In-place Leases | | 307 | | | 2,952 | | |
Leasing Costs | | 405 | | | 2,296 | | |
Customer Relationships | | 114 | | | 1,932 | | |
Above Market Leases | | — | | | 319 | | |
Below Market Leases | | — | | | (583) | | (1) |
| | | | | |
| | | | | |
Total Purchase Price | | $ | 5,363 | | | $ | 51,919 | | |
|
| | | | | | | | |
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 $17 of prepaid rent included in Other liabilities on the condensed consolidated balance sheets.
Below is a summaryFuture Lease Payments
Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the six months ending December 31, 2023 and each of the total revenuefive succeeding fiscal years and loss recognized on the two acquisitions treatedthereafter is as business combinations completed during the nine months ended Septemberfollows, excluding real estate held for sale as of June 30, 20162023 (dollars in thousands):
| | | | | |
Year | Tenant Lease Payments |
Six Months Ending December 31, 2023 | $ | 57,904 | |
2024 | 112,610 | |
2025 | 111,833 | |
2026 | 106,202 | |
2027 | 89,935 | |
2028 | 74,706 | |
Thereafter | 334,312 | |
| |
In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant directly, or reimbursed to us from the tenant; however, we would be required to pay operating expenses on the respective properties in the event the tenants fail to pay them.
|
| | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2016 | | 2016 |
Rental Revenue | | $ | 464 |
| | $ | 603 |
|
(Loss) | | (82 | ) | | (203 | ) |
Lease Revenue Reconciliation
Pro Forma
The following table reflects pro-forma consolidated statementsbelow sets forth the allocation of operations as if the business combinations completed in 2016, were completed as of January 1, 2015. The pro-forma earningslease revenue between fixed contractual payments and variable lease payments for the three and ninesix months ended SeptemberJune 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, 20172023 and 2016, we executed six and seven lease extensions and/or modifications, or new leases,2022, respectively which are aggregated below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, |
| | (Dollars in Thousands) |
Lease revenue reconciliation | | 2023 | | 2022 | | $ Change | | % Change |
Fixed lease payments | | $ | 34,380 | | | $ | 31,878 | | | $ | 2,502 | | | 7.8 | % |
Variable lease payments | | 4,278 | | | 4,521 | | | (243) | | | (5.4) | % |
| | $ | 38,658 | | | $ | 36,399 | | | $ | 2,259 | | | 6.2 | % |
|
| | | | | | | | | | | | | | |
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 |
|
| |
(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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, |
| | (Dollars in Thousands) |
Lease revenue reconciliation | | 2023 | | 2022 | | $ Change | | % Change |
Fixed lease payments | | $ | 66,521 | | | $ | 63,210 | | | $ | 3,311 | | | 5.2 | % |
Variable lease payments | | 8,691 | | | 8,720 | | | (29) | | | (0.3) | % |
| | $ | 75,212 | | | $ | 71,930 | | | $ | 3,282 | | | 4.6 | % |
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 SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively, excluding real estate held for sale as of June 30, 2023 and December 31, 20162022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | Lease Intangibles | | Accumulated Amortization | | Lease Intangibles | | Accumulated Amortization |
In-place leases | | $ | 99,022 | | | $ | (61,538) | | | $ | 104,394 | | | $ | (63,240) | |
Leasing costs | | 82,946 | | | (44,538) | | | 85,038 | | | (45,501) | |
Customer relationships | | 64,266 | | | (35,719) | | | 69,586 | | | (38,655) | |
| | $ | 246,234 | | | $ | (141,795) | | | $ | 259,018 | | | $ | (147,396) | |
| | | | | | | | |
| | Deferred Rent Receivable/(Liability) | | Accumulated (Amortization)/Accretion | | Deferred Rent Receivable/(Liability) | | Accumulated (Amortization)/Accretion |
Above market leases | | $ | 13,826 | | | $ | (10,663) | | | $ | 15,371 | | | $ | (11,909) | |
Below market leases and deferred revenue | | (63,100) | | | 27,339 | | | (66,138) | | | 26,141 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | 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$5.2 million and $10.9$9.3 million for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, and $3.4$5.0 million and $9.9$9.8 million for the three and ninesix months ended SeptemberJune 30, 2016,2022, 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 $0.1 million and $0.3 million for the three and six months ended June 30, 2023, respectively, and $0.2 million and $0.4 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2016,2022, respectively, and is included in rentallease 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$2.5 million and $1.1$4.4 million for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, and $0.3$0.8 million and $0.7$1.6 million for the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively, and is included in rentallease 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 ninesix months ended SeptemberJune 30, 20172023 and 20162022, were as follows:
| | Intangible Assets & Liabilities | | 2017 | | 2016 | Intangible Assets & Liabilities | | June 30, 2023 | | June 30, 2022 |
In-place leases | | 9.7 | | 7.9 | In-place leases | | 20.1 | | 11.6 |
Leasing costs | | 9.7 | | 7.9 | Leasing costs | | 20.1 | | 11.6 |
Customer relationships | | 12.7 | | 12.2 | Customer relationships | | 25.1 | | 18.9 |
Above market leases | | 10.2 | | 0.0 | Above market leases | | 0.0 | | 12.1 |
Below market leases | | 9.4 | | 7.9 | Below market leases | | 0.0 | | 11.2 |
All intangible assets & liabilities | | 10.4 | | 9.0 | All intangible assets & liabilities | | 21.7 | | 13.3 |
5. Real Estate Dispositions, Held for Sale and Impairment Charges
Real Estate Dispositions
We sold two properties during the six months ended June 30, 2023. We did not sell any properties during the six months ended June 30, 2022.
During the ninesix months ended SeptemberJune 30, 2017,2023, we continued to execute our capital recycling program, whereby we sold non-core properties outside of our core markets and redeployed proceeds to either fund property acquisitions in our target secondary growth markets or repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as well as repayreasonable disposition opportunities become available, and use the sales proceeds to acquire properties in our target, secondary growth markets or pay down outstanding debt. During the ninesix months ended SeptemberJune 30, 2017,2023, we sold fourtwo non-core properties, located in Franklin, New Jersey, Hazelwood, Missouri, Concord Township, Ohio,Baytown, Texas and Newburyport, Massachusetts,Birmingham, Alabama, which are summarized in the table below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate Square Footage Sold | | Aggregate Sales Price | | Aggregate Sales Costs | | | | Aggregate Loss on Sale of Real Estate, net |
42,868 | | | $ | 4,650 | | | $ | 233 | | | | | $ | (451) | |
|
| | | | | | | | | | | | | | | | | |
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 |
|
Our dispositions during the ninesix months ended SeptemberJune 30, 20172023 were not classified as discontinued operations because they did not represent a strategic shift in operations, nor will theysuch 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 ninesix months ended SeptemberJune 30, 2017,2023 and 20162022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Operating revenue | | $ | 105 | | | $ | 137 | | | $ | 235 | | | $ | 275 | |
Operating expense | | 34 | | | 124 | | | 171 | | | 246 | |
Other income (expense), net | | (451) | | (1) | — | | | (451) | | (1) | — | |
Income from real estate and related assets sold | | $ | (380) | | | $ | 13 | | | $ | (387) | | | $ | 29 | |
|
| | | | | | | | | | | | | | | | | |
| | 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 a $(0.5) million loss on sale of real estate, net, on two 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. |
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(4) | Includes a $0.7 million impairment charge. |
Real Estate Held for Sale
At SeptemberJune 30, 2017, we did not have any properties classified as held for sale. At December 31, 2016,2023, we had twosix properties classified as held for sale, located in Hazelwood, MissouriColumbia, South Carolina; Richardson, Texas; Taylorsville, Utah; Pittsburgh, Pennsylvania; Eatontown, New Jersey; and Franklin, New Jersey. BothBlaine, Minnesota. We consider these assets to be non-core to our long term strategy. At December 31, 2022, we had one property classified as held for sale, located in Columbia, South Carolina.
The table below summarizes the components of the assets and liabilities held for sale at June 30, 2023 and December 31, 2022 reflected on the accompanying condensed consolidated balance sheetsheets (dollars in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
Assets Held for Sale | | | | |
Total real estate held for sale | | $ | 36,220 | | | $ | 3,293 | |
Lease intangibles, net | | 546 | | | — | |
| | | | |
| | | | |
Total Assets Held for Sale | | $ | 36,766 | | | $ | 3,293 | |
Liabilities Held for Sale | | | | |
Deferred rent liability, net | | $ | 873 | | | $ | — | |
Asset retirement obligation | | 60 | | | — | |
| | | | |
| | | | |
Total Liabilities Held for Sale | | $ | 933 | | | $ | — | |
|
| | | | | | | |
| 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 ninesix months ended SeptemberJune 30, 20172023 and identified two held for sale assets, located in Richardson, Texas and Taylorsville, Utah, and one held and used assetsasset, located in Columbus, Ohio, which were impaired during first quarter 2017. We did not identify any 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 shortenedby $6.8 million. In performing our hold period when comparing the undiscounted cash flows against the respective carrying values. Based upon our analysis, we concluded that the undiscounted cash flows for these properties were below their respective carrying values indicating that these assets were impaired as of March 31, 2017, and accordingly, we recorded an impairment charge of $3.7 million during 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 againstassessment, the carrying value of assets available for sale. We recorded an impairment charge of $0.3 million during the three months ended June 30, 2017 to reduce the carrying value equal to the sales price per the executed purchase and sale agreement, less estimated selling costs.
Fair market value for these assets was calculated using Level 3 inputs, which were determined using comparable asset sale data fromabove the respective asset locations, as well as sales prices from an executed purchase and sale agreement. We continuefair value, less costs of sale. As a result, we impaired these properties 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 we are 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 thatequal the fair market value less selling costs was belowof sale. We recognized an impairment charge of $1.4 million during the six months ended June 30, 2022 on one held for sale asset, located in Parsippany, New Jersey. In performing our held for sale assessment, the carrying value of this property. We have sold fourasset was above the fair value, less costs of these properties, and onesale. As a result, we impaired this property to equal the fair market value less costs of these properties is classified as a held and used asset during the three and nine months ended September 30, 2017.sale.
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 $125.0 million unsecured revolving credit facility (“Revolver”), $160.0 million term loan facility (“Term Loan A”), $60.0 million term loan facility (“Term Loan B”), and $150.0 million term loan facility (“Term Loan C”), are collectively referred to herein as the Credit Facility.
Our mortgage notes payable and Credit Facility as of SeptemberJune 30, 20172023 and December 31, 20162022 are summarized below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Encumbered properties at | | Carrying Value at | | Stated Interest Rates at | | Scheduled Maturity Dates at |
| | June 30, 2023 | | June 30, 2023 | | December 31, 2022 | | June 30, 2023 | | June 30, 2023 |
Mortgage and other secured loans: | | | | | | | | | | |
Fixed rate mortgage loans | | 49 | | | $ | 350,732 | | | $ | 362,037 | | | (1) | | (2) |
| | | | | | | | | | |
Premiums and discounts, net | | — | | | (62) | | | (83) | | | N/A | | N/A |
Deferred financing costs, mortgage loans, net | | — | | | (2,299) | | | (2,565) | | | N/A | | N/A |
Total mortgage notes payable, net | | 49 | | | $ | 348,371 | | | $ | 359,389 | | | (3) | | |
Variable rate revolving credit facility | | 85 | | (6) | $ | 38,450 | | | $ | 23,250 | | | SOFR + 1.50% | (4) | 8/18/2026 |
| | | | | | | | | | |
Total revolver | | 85 | | | $ | 38,450 | | | $ | 23,250 | | | | | |
Variable rate term loan facility A | | — | | (6) | $ | 160,000 | | | $ | 160,000 | | | SOFR + 1.45% | (4) | 8/18/2027 |
Variable rate term loan facility B | | — | | (6) | 60,000 | | | 60,000 | | | SOFR + 1.45% | (4) | 2/11/2026 |
Variable rate term loan facility C | | — | | (6) | 150,000 | | | 150,000 | | | SOFR + 1.45% | (4) | 2/18/2028 |
Deferred financing costs, term loan facility | | — | | | (3,087) | | | (3,433) | | | N/A | | N/A |
Total term loan, net | | N/A | | $ | 366,913 | | | $ | 366,567 | | | | | |
Total mortgage notes payable and credit facility | | 134 | | | $ | 753,734 | | | $ | 749,206 | | | (5) | | |
|
| | | | | | | | | | | | | | | | | |
| | 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 |
Mortgage and other secured loans: | | | | | | | | | | | | |
Fixed rate mortgage loans | | 48 |
| | | | $ | 385,555 |
| | $ | 378,477 |
| | (1) | | (2) |
Variable rate mortgage loans | | 19 |
| | | | 69,835 |
| | 71,707 |
| | (3) | | (2) |
Premiums and discounts, net | | - |
| | | | (262 | ) | | 217 |
| | N/A | | N/A |
Deferred financing costs, mortgage loans, net | | - |
| | | | (5,096 | ) | | (5,123 | ) | | N/A | | N/A |
Total mortgage notes payable, net | | 67 |
| | | | $ | 450,032 |
| | $ | 445,278 |
| | (4) | | |
Variable rate revolving credit facility | | 24 |
| | (6) | | $ | 44,200 |
| | $ | 39,700 |
| | LIBOR + 2.00% | | 8/7/2018 |
Deferred financing costs, revolving credit facility | | - |
| | | | (267 | ) | | (475 | ) | | N/A | | N/A |
Total revolver, net | | 24 |
| | | | $ | 43,933 |
| | $ | 39,225 |
| | | | |
Variable rate term loan facility | | - |
| | (6) | | $ | 25,000 |
| | $ | 25,000 |
| | LIBOR + 1.95% | | 10/5/2020 |
Deferred financing costs, term loan facility | | - |
| | | | (88 | ) | | (108 | ) | | N/A | | N/A |
Total term loan, net | | N/A |
| | | | $ | 24,912 |
| | $ | 24,892 |
| | | | |
Total mortgage notes payable and credit facility | | 91 |
| | | | $ | 518,877 |
| | $ | 509,395 |
| | (5) | | |
(1)As of June 30, 2023, interest rates on our fixed rate mortgage notes payable varied from 2.80% to 6.63%.(2)As of June 30, 2023, we had 43 mortgage notes payable with maturity dates ranging from August 1, 2023 through August 1, 2037.
| |
(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%. |
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(5) | The weighted average interest rate on all debt outstanding at September 30, 2017 was approximately 4.34%. |
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(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. |
(3)The weighted average interest rate on the mortgage notes outstanding as of June 30, 2023 was approximately 4.23%.
(4)As of June 30, 2023, Secured Overnight Financing Rate (“SOFR”) was approximately 5.09%.
(5)The weighted average interest rate on all debt outstanding as of June 30, 2023 was approximately 5.48%.
(6)The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 85 unencumbered properties as of June 30, 2023.
N/A - Not Applicable
Mortgage Notes Payable
As of SeptemberJune 30, 2017,2023, we had 4543 mortgage notes payable, collateralized by a total of 6749 properties with a net book value of $674.9$536.9 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. WeAs of June 30, 2023, we did not have full recourse for $11.7 million of theany mortgages notes payable outstanding, or 2.6% of the outstanding balance.subject to recourse. 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 ninesix months ended SeptemberJune 30, 2017,2023, we repaid four mortgages, collateralized by ten properties, which are aggregated below (dollars in thousands):
|
| | | | |
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, we issued or assumed four mortgages, collateralized by seven properties, and drew an additional advance on an existingone mortgage, note, collateralized by one property, which are aggregatedis summarized in the table 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 | | |
Fixed Rate Debt Repaid | | Fixed Rate Debt Repaid | | Interest Rate on Fixed Rate Debt Repaid |
$ | 54,887 |
| (1) | 3.78% | (2) | $ | 7,500 |
| (3) | 2,690 | | | 4.16 | % |
| |
(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. |
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(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%. |
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(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. |
During the six months ended June 30, 2023, we extended the maturity date of one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):
| | | | | | | | | | | | | | |
Fixed Rate Debt Extended | | Interest Rate on Fixed Rate Debt Extended | | Extension Term |
$ | 8,769 | | | 6.50 | % | | 1.0 year |
We made payments of $0.6$0.05 million and $1.0$0.12 million for deferred financing costs during the three and ninesix months ended SeptemberJune 30, 2017, respectively.2023. We made payments of $0.4 million and $1.0$0.7 million for deferred financing costs during the three and ninesix months ended SeptemberJune 30, 2016, respectively.2022.
Scheduled principal payments of mortgage notes payable for the remainder of 2017,six months ending December 31, 2023, and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands):
| | | | | | | | | | | |
Year | | Scheduled Principal Payments | |
Six Months Ending December 31, 2023 | | $ | 50,163 | | |
2024 | | 28,578 | | |
2025 | | 36,559 | | |
2026 | | 42,379 | | |
2027 | | 94,848 | | |
2028 | | 28,858 | | |
Thereafter | | 69,347 | | |
Total | | $ | 350,732 | | (1) |
|
| | | | | |
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) |
(1)This figure does not include $(0.1) million of premiums and (discounts), net, and $2.3 million of deferred financing costs, which are reflected in mortgage notes payable, net on the condensed consolidated balance sheets.
| |
(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. |
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.
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 agreementagreements 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 SeptemberJune 30, 20172023 and December 31, 2016,2022, our interest rate cap agreements and interest rate swapswaps 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 asend. 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 SeptemberJune 30, 20172023 and December 31, 20162022 (dollars in thousands):
| | | | | September 30, 2017 | | December 31, 2016 | | June 30, 2023 | | December 31, 2022 |
Aggregate Cost | Aggregate Cost | | Aggregate Notional Amount | | Aggregate Fair Value | | Aggregate Notional Amount | | Aggregate Fair Value | Aggregate Cost | | Aggregate Notional Amount | | Aggregate Fair Value | | Aggregate Notional Amount | | Aggregate Fair Value |
$ | 482 |
| (1) | $ | 93,920 |
| | $ | 49 |
| | $ | 71,721 |
| | $ | 101 |
| 620 | | (1) | $ | 225,000 | | | $ | 2,095 | | | $ | 225,000 | | | $ | 4,629 | |
| |
(1) | We have entered into various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 2.50% to 3.00%. |
(1)We have entered into various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 1.49% to 2.50%.
We have assumed anor entered into interest rate swap agreementagreements in connection with certain of our June 22, 2017 acquisition,mortgage financings and Credit Facility, 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 of our interest rate swap agreementagreements is recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate swapswaps 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 assumedThe following table summarizes our interest rate swap with a valueswaps at June 30, 2023 and December 31, 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2023 | | December 31, 2022 |
Aggregate Notional Amount | | Aggregate Fair Value Asset | | Aggregate Fair Value Liability | | Aggregate Notional Amount | | Aggregate Fair Value Asset | | Aggregate Fair Value Liability |
$ | 362,258 | | | $ | 11,380 | | | $ | (110) | | | $ | 362,832 | | | $ | 8,264 | | | $ | (897) | |
The following table presents the impact of $0.04 million onour derivative instruments in the datecondensed consolidated financial statements (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of (loss) gain, net, recognized in Comprehensive Income |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Derivatives in cash flow hedging relationships | | | | | | | | |
Interest rate caps | | $ | (768) | | | $ | 1,138 | | | $ | (1,774) | | | $ | 2,762 | |
Interest rate swaps | | 8,793 | | | 1,465 | | | 3,904 | | | 4,108 | |
Total | | $ | 8,025 | | | $ | 2,603 | | | $ | 2,130 | | | $ | 6,870 | |
The following table presents the reclassifications of assumption, andour derivative instruments out of accumulated other comprehensive income into interest expense in the fair market value increased to $0.2 million at September 30, 2017. condensed consolidated financial statements (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount reclassified out of Accumulated Other Comprehensive Income |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Interest rate caps | | $ | 264 | | | $ | — | | | $ | 527 | | | $ | — | |
Total | | $ | 264 | | | $ | — | | | $ | 527 | | | $ | — | |
The swap has a notional value equal to the debt we assumed of $11.2 million, and has a termination date of April 1, 2026, which is also the maturity date of the assumed debt.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 | | June 30, 2023 | | December 31, 2022 |
Interest rate caps | | Other assets | | $ | 2,095 | | | $ | 4,629 | |
Interest rate swaps | | Other assets | | 11,380 | | | 8,264 | |
Interest rate swaps | | Other liabilities | | (110) | | | (897) | |
Total derivative liabilities, net | | | | $ | 13,365 | | | $ | 11,996 | |
The fair value of all mortgage notes payable outstanding as of SeptemberJune 30, 20172023 was $461.8$323.2 million, as compared to the carrying value stated above of $455.4$348.4 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
InOn August 2013,18, 2022, we procured a senior unsecured revolving credit facility, or the Revolver, with KeyBank National Association (“KeyBank”) (serving as a lender, a letter of credit issueramended, extended and an administrative agent). On October 5, 2015, we expandedupsized our Credit Facility, increasing 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 the Term Loan, which matures in October 2020. The Revolver and the Term Loan are referred to collectively herein as the Credit Facility. The interest rate on the Revolver was also reduced by 25 basis points at each of the leverage tiers and the total maximum commitment under the Credit Facility was increased from $100.0 million to $120.0 million (and its term to August 2026), adding the new $140.0 million Term Loan C, decreasing the principal balance of Term Loan B to $60.0 million and extending the maturity date of Term Loan A to August 2027. Term Loan C has a maturity date of February 18, 2028 and a SOFR spread ranging from 125 to 195 basis points, depending on our leverage. On September 27, 2022 we further increased the Revolver to $125.0 million and Term Loan C to $150.0 million.million, as permitted under the terms of the Credit Facility. We also added three new lendersentered into multiple interest rate swap agreements on Term Loan C, which swap the interest rate to fixed rates from 3.15% to 3.75%. We incurred fees of approximately $4.2 million in connection with extending and upsizing our Credit Facility. As of June 30, 2023, there was $150.0 million outstanding under Term Loan C, and we used all net proceeds to repay all outstanding borrowings on the Revolver, pay off mortgage debt, and fund acquisitions. The Credit Facility’s current bank syndicate which is now comprised of KeyBank, Comerica Bank, Fifth Third Bank, USThe Huntington National Bank, Bank of America, Synovus Bank, United Bank, First Financial Bank, and HuntingtonS&T Bank.
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 SeptemberJune 30, 2017,2023, there was $69.2$408.5 million outstanding under our Credit Facility, at a weighted average interest rate of approximately 3.22%6.54%, and $1.0$14.4 million outstanding under letters of credit, at a weighted average interest rate of 2.00%1.50%. As of SeptemberJune 30, 2017,2023, the maximum additional amount we could draw under the RevolverCredit Facility was $34.0$70.3 million. We were in compliance with all covenants under the Credit Facility as of SeptemberJune 30, 2017.2023.
The amount outstanding under the Credit Facility approximates fair value as of SeptemberJune 30, 2017.2023.
8. Mandatorily Redeemable Term Preferred Stock
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 ground leases. Future minimum rental payments due under the terms of these leases asfor the six months ending December 31, 2023 and each of September 30, 2017 arethe five succeeding fiscal years and thereafter is as follows (dollars in thousands):
| | | | | | | | |
Year | | Future Lease Payments Due Under Operating Leases |
Six Months Ending December 31, 2023 | | $ | 247 | |
2024 | | 493 | |
2025 | | 494 | |
2026 | | 498 | |
2027 | | 506 | |
2028 | | 510 | |
Thereafter | | 5,790 | |
Total anticipated lease payments | | $ | 8,538 | |
Less: amount representing interest | | (3,336) | |
Present value of lease payments | | $ | 5,202 | |
|
| | | | |
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 rentalRental expense incurred for the properties listed abovewith ground lease obligations during the three and ninesix months ended SeptemberJune 30, 2017 were2023 was $0.1 million and $0.4$0.2 million, respectively, and during the three and ninesix months ended SeptemberJune 30, 2016 were2022 was $0.1 million and $0.4$0.2 million, respectively. RentalOur 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. Our ground leases have a weighted average remaining lease term of 18.1 years and a weighted average discount rate of 5.33%.
Letters of Credit
As of SeptemberJune 30, 2017,2023, there was $1.0$14.4 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 ninethree and six months ended SeptemberJune 30, 2017 (dollars in2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| 2023 | 2022 | | 2023 | 2022 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Senior Common Stock | | | | | |
Balance, beginning of period | $ | 1 | | $ | 1 | | | $ | 1 | | $ | 1 | |
Issuance of senior common stock, net | — | | — | | | — | | — | |
Balance, end of period | $ | 1 | | $ | 1 | | | $ | 1 | | $ | 1 | |
Common Stock | | | | | |
Balance, beginning of period | $ | 40 | | $ | 38 | | | $ | 39 | | $ | 37 | |
Issuance of common stock, net | — | | 1 | | | 1 | | 2 | |
Repurchase of common stock, net | (1) | | — | | | (1) | | — | |
Balance, end of period | $ | 39 | | $ | 39 | | | $ | 39 | | $ | 39 | |
Series F Preferred Stock | | | | | |
Balance, beginning of period | $ | 1 | | $ | — | | | $ | 1 | | $ | — | |
Issuance of Series F preferred stock, net | — | | 1 | | | — | | 1 | |
Redemption of Series F preferred stock, net | — | | — | | | — | | — | |
Balance, end of period | $ | 1 | | $ | 1 | | | $ | 1 | | $ | 1 | |
Additional Paid in Capital | | | | | |
Balance, beginning of period | $ | 725,874 | | $ | 692,795 | | | $ | 721,327 | | $ | 671,134 | |
Issuance of common stock and Series F preferred stock, net | 1,651 | | 12,908 | | | 6,036 | | 34,657 | |
Repurchase of common stock, net | 998 | | — | | | 998 | | — | |
| | | | | |
Redemption of Series F preferred stock, net | 131 | | — | | | 217 | | 55 | |
Retirement of senior common stock, net | — | | — | | | 52 | | — | |
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership | (74) | | (74) | | | (50) | | (217) | |
Balance, end of period | $ | 728,580 | | $ | 705,629 | | | $ | 728,580 | | $ | 705,629 | |
Accumulated Other Comprehensive Income | | | | | |
Balance, beginning of period | $ | 6,008 | | $ | 2,921 | | | $ | 11,640 | | $ | (1,346) | |
Comprehensive income | 8,025 | | 2,603 | | | 2,130 | | 6,870 | |
Reclassification into interest expense | 264 | | — | | | 527 | | — | |
Balance, end of period | $ | 14,297 | | $ | 5,524 | | | $ | 14,297 | | $ | 5,524 | |
Distributions in Excess of Accumulated Earnings | | | | | |
Balance, beginning of period | $ | (541,042) | | $ | (482,827) | | | $ | (529,104) | | $ | (468,908) | |
Distributions declared to common, senior common, and preferred stockholders | (15,156) | | (17,663) | | | (30,265) | | (35,019) | |
| | | | | |
Redemption of Series F preferred stock, net | (6) | | — | | | (11) | | (5) | |
Net income attributable to the Company | (4,515) | | 1,634 | | | (1,339) | | 5,076 | |
Balance, end of period | $ | (560,719) | | $ | (498,856) | | | $ | (560,719) | | $ | (498,856) | |
Total Stockholders' Equity | | | | | |
Balance, beginning of period | $ | 190,882 | | $ | 212,928 | | | $ | 203,904 | | $ | 200,918 | |
Issuance of common stock and Series F preferred stock, net | 1,651 | | 12,910 | | | 6,037 | | 34,660 | |
Repurchase of common stock, net | 997 | | — | | | 997 | | — | |
| | | | | |
| | | | | |
Redemption of Series F preferred stock, net | 125 | | — | | | 206 | | 50 | |
Retirement of senior common stock, net | — | | — | | | 52 | | — | |
Distributions declared to common, senior common, and preferred stockholders | (15,156) | | (17,663) | | | (30,265) | | (35,019) | |
Comprehensive income | 8,025 | | 2,603 | | | 2,130 | | 6,870 | |
Reclassification into interest expense | 264 | | — | | | 527 | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | |
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership | (74) | | (74) | | | (50) | | (217) | |
Net income attributable to the Company | (4,515) | | 1,634 | | | (1,339) | | 5,076 | |
Balance, end of period | $ | 182,199 | | $ | 212,338 | | | $ | 182,199 | | $ | 212,338 | |
Non-Controlling Interest | | | | | |
Balance, beginning of period | $ | 1,641 | | $ | 1,308 | | | $ | 1,790 | | $ | 1,259 | |
Distributions declared to Non-controlling OP Unit holders | (118) | | (97) | | | (235) | | (193) | |
| | | | | |
| | | | | |
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership | 74 | | 74 | | | 50 | | 217 | |
Net loss attributable to OP units held by Non-controlling OP Unitholders | (73) | | (10) | | | (81) | | (8) | |
Balance, end of period | $ | 1,524 | | $ | 1,275 | | | $ | 1,524 | | $ | 1,275 | |
Total Equity | $ | 183,723 | | $ | 213,613 | | | $ | 183,723 | | $ | 213,613 | |
| |
(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.
|
Distributions
We paid the following distributions per share for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Common Stock and Non-controlling OP Units | | $ | 0.30000 | | | $ | 0.37620 | | | $ | 0.60000 | | | $ | 0.75240 | |
Senior Common Stock | | 0.2625 | | | 0.2625 | | | 0.5250 | | | 0.5250 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Series E Preferred Stock | | 0.414063 | | | 0.414063 | | | 0.828126 | | | 0.828126 | |
Series F Preferred Stock | | 0.375 | | | 0.375 | | | 0.750 | | | 0.750 | |
Series G Preferred Stock | | 0.375 | | | 0.375 | | | 0.750 | | | 0.750 | |
|
| | | | | | | | | | | | | | | | | |
| | 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 our Series C Preferred Stock on August 19, 2016. |
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 ProgramPrograms
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 ninesix months ended SeptemberJune 30, 2017,2023, we sold 1.50.2 million shares of common stock, raising $30.8approximately $4.0 million in net proceeds under our At-the-Market Equity Offering Sales Agreement 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”). On February 22, 2022, we entered into Amendment No. 1 to the At-the-Market Equity Offering Sales Agreement, dated December 3, 2019 (together, the “Prior Common Stock Sales Agreement”). The amendment permitted shares of common stock to be issued pursuant to the Prior Common Stock Sales Agreement under the 2020 Registration Statement, and future registration statements on Form S-3 (the “Prior Common Stock ATM Program. As of September 30, 2017, we had a remaining capacity to sell up to $101.1 million of common stock underProgram”). We terminated the Prior Common Stock ATM Program.Sales Agreement effective as of February 10, 2023 in connection with the expiration of the 2020 Registration Statement on February 11, 2023.
Series A and B Preferred Stock ATM Programs
In February 2016,On March 3, 2023, we entered into an open market sales agreementAt-the-Market Equity Offering Sales Agreement (the “2023 Common Stock Sales Agreement”), with Cantor Fitzgerald (the “Series A and B Preferred ATM Program”BofA Securities, inc. (“BofA”), pursuant to which we may, from time to time, offer to sell (i) shares of our 7.75% Series A Cumulative Redeemable Preferred StockGoldman Sachs, Baird, KeyBanc Capital Markets Inc. (“Series A Preferred”KeyBanc”), and (ii) sharesFifth Third (collectively the “Common Stock Sales Agents”). In connection with the 2023 Common Stock Sales Agreement, we filed prospectus supplements dated March 3, 2023 and March 7, 2023, to the prospectus dated November 23, 2022, with the SEC, for the offer and sale of our 7.50% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred”), having an aggregate offering priceamount of up to $40.0$250.0 million through Cantor Fitzgerald, acting as sales agent and/or principal. Weof common stock. During the six months ended June 30, 2023, 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 preferredcommon stock under the Series A and B Preferred ATM Program.2023 Common Stock Sales Agreement.
During the six months ended June 30, 2023, we repurchased $1.0 million worth of our common stock through our common stock repurchase program.
Mezzanine Equity
The 7.00%Our 6.625% Series DE Cumulative Redeemable Preferred Stock (“Series D Preferred”E Preferred Stock”), isand our 6.00% Series G Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”) are classified as mezzanine equity in our condensed consolidated balance sheetsheets because it isboth 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 and Series G Preferred Stock are redeemable at the option of the applicable 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 DE Preferred Stock, and Series G 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 of greater than 50%, or a delisting event, is remote.
In June 2016,Prior to February 10, 2023, we entered intohad an open market sales agreement with Cantor FitzgeraldAt-the-Market Equity Offering Sales Agreement (the “Series DE Preferred ATM Program”Stock Sales Agreement”) with sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S. Bancorp Investments, Inc., pursuant to which we may,could, from time to time, offer to sell shares of our Series DE Preferred havingStock, in an aggregate offering price of up to $50.0 million, through Cantor Fitzgerald, acting as sales agent and/or principal. During the nine months ended September 30, 2017, we sold approximately 0.4 million$100.0 million. We did not sell any shares of our Series DE Preferred for net proceeds of $11.2 million. As of September 30, 2017, we had a remaining capacityStock pursuant to sell up to $22.3 million of Series D Preferred under the Series DE Preferred ATM Program.Stock Sales Agreement during the six months ended June 30, 2023. However, we terminated the Series E Preferred Stock Sales Agreement effective as of February 10, 2023.
Amendment to Articles of IncorporationUniversal Shelf Registration Statements
On January 29, 2020, we filed the 2020 Registration Statement. The 2020 Registration Statement was declared effective on February 11, 2017,2020. The 2020 Registration Statement allowed us to issue up to $800.0 million of securities. Of the $800.0 million of available capacity under our 2020 Registration Statement, approximately $636.5 million was reserved for the sale of our Series F Preferred Stock, and $63.0 million was reserved for our Prior Common Stock ATM Program. The 2020 Registration Statement expired on February 11, 2023.
On November 23, 2022, we filed the 2022 Registration Statement. There is no limit on the aggregate amount of the securities that we may offer pursuant to the 2022 Registration Statement.
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 our authorized and unissued shares of common stock as shares of Series F Preferred Stock. The reclassification decreased the remaining 160,000 authorized but unissuednumber 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 188,919 shares of our Series CF Preferred Stock, raising $4.3 million in net proceeds, during the six months ended June 30, 2023.
Non-controlling Interest in Operating Partnership
As of June 30, 2023 and December 31, 2022, we owned approximately 99.0% and 99.0%, respectively, of the outstanding OP Units.
The Operating Partnership is required to make distributions on each OP Unit in the same amount as authorized but unissued sharesthose paid on each share of our common stock, with the distributions on the OP Units held by us being utilized to make distributions to our common stockholders.
As of June 30, 2023 and madeDecember 31, 2022, there were 391,468 and 391,468 outstanding OP Units held by Non-controlling OP Unitholders, respectively.
9. Revision of Previously Issued Financial Statements
As discussed in Note 1, the Company identified errors in its calculation of the depreciation of tenant funded improvement assets at a corresponding amendmentnumber of its properties. A summary of the corrections to the Operating Partnership’s Partnership Agreement with regard to corresponding unitsimpacted financial statement line items in the Company’s previously issued Consolidated Statements of partnership interest. As a resultOperations and Comprehensive Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows and Consolidated Statements of Equity for the reclassification, there are zero authorized sharesyears ended December 31, 2021, and December 31, 2022 included in previously filed Annual Reports on Form 10-K and Condensed Consolidated Statements of Series C Preferred Stock
Operations and zero authorized corresponding unitsComprehensive Income, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of partnership interest remaining. OnCash Flows and the same date, weStockholders’ Equity tables for periods presented below, which were presented in previously filed with the Maryland State DepartmentQuarterly Reports on Form 10-Q, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations and Comprehensive Income |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | $ | 14,191 | | | $ | (42) | | | $ | 14,149 | | | $ | 30,901 | | | $ | (1,084) | | | $ | 29,817 | |
Total operating expense before incentive fee waiver | | $ | 25,003 | | | $ | (42) | | | $ | 24,961 | | | $ | 51,905 | | | $ | (1,084) | | | $ | 50,821 | |
Total operating expenses | | $ | 24,987 | | | $ | (42) | | | $ | 24,945 | | | $ | 51,889 | | | $ | (1,084) | | | $ | 50,805 | |
Net income | | $ | 2,121 | | | $ | 42 | | | $ | 2,163 | | | $ | 2,160 | | | $ | 1,084 | | | $ | 3,244 | |
Net income available to the Company | | $ | 2,142 | | | $ | 42 | | | $ | 2,184 | | | $ | 2,223 | | | $ | 1,084 | | | $ | 3,307 | |
Net loss attributable to common stockholders | | $ | (3,032) | | | $ | 42 | | | $ | (2,990) | | | $ | (5,985) | | | $ | 1,084 | | | $ | (4,901) | |
Loss per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Loss attributable to common shareholders | | $ | (0.08) | | | $ | — | | | $ | (0.08) | | | $ | (0.17) | | | $ | 0.03 | | | $ | (0.14) | |
Comprehensive income | | | | | | | | | | | | |
Net income | | $ | 2,121 | | | $ | 42 | | | $ | 2,163 | | | $ | 2,160 | | | $ | 1,084 | | | $ | 3,244 | |
Total comprehensive income available to the Company | | $ | 1,422 | | | $ | 42 | | | $ | 1,464 | | | $ | 3,927 | | | $ | 1,084 | | | $ | 5,011 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations and Comprehensive Income |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | $ | 14,760 | | | $ | (39) | | | $ | 14,721 | | | $ | 45,661 | | | $ | (1,123) | | | $ | 44,538 | |
Total operating expense before incentive fee waiver | | $ | 25,498 | | | $ | (39) | | | $ | 25,459 | | | $ | 77,404 | | | $ | (1,123) | | | $ | 76,281 | |
Total operating expenses | | $ | 25,498 | | | $ | (39) | | | $ | 25,459 | | | $ | 77,388 | | | $ | (1,123) | | | $ | 76,265 | |
Net income | | $ | 4,498 | | | $ | 39 | | | $ | 4,537 | | | $ | 6,657 | | | $ | 1,123 | | | $ | 7,780 | |
Net income available to the Company | | $ | 4,477 | | | $ | 39 | | | $ | 4,516 | | | $ | 6,699 | | | $ | 1,123 | | | $ | 7,822 | |
Net income (loss) available (attributable) to common stockholders | | $ | 1,439 | | | $ | 39 | | | $ | 1,478 | | | $ | (4,547) | | | $ | 1,123 | | | $ | (3,424) | |
Earnings (loss) per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Income (loss) available (attributable) to common shareholders | | $ | 0.04 | | | $ | — | | | $ | 0.04 | | | $ | (0.13) | | | $ | 0.03 | | | $ | (0.10) | |
Comprehensive income | | | | | | | | | | | | |
Net income | | $ | 4,498 | | | $ | 39 | | | $ | 4,537 | | | $ | 6,657 | | | $ | 1,123 | | | $ | 7,780 | |
Total comprehensive income available to the Company | | $ | 4,898 | | | $ | 39 | | | $ | 4,937 | | | $ | 8,824 | | | $ | 1,123 | | | $ | 9,947 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Operations and Comprehensive Income |
| | | | Year Ended December 31, 2021 |
| | | | | | | | As Previously Reported | | Adjustments | | As Revised |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | $ | 60,311 | | | $ | (1,162) | | | $ | 59,149 | |
Total operating expense before incentive fee waiver | | | | | | | | $ | 102,816 | | | $ | (1,162) | | | $ | 101,654 | |
Total operating expenses | | | | | | | | $ | 102,800 | | | $ | (1,162) | | | $ | 101,638 | |
Net income | | | | | | | | $ | 9,733 | | | $ | 1,162 | | | $ | 10,895 | |
Net income available to the Company | | | | | | | | $ | 9,773 | | | $ | 1,162 | | | $ | 10,935 | |
Net loss attributable to common stockholders | | | | | | | | $ | (4,554) | | | $ | 1,162 | | | $ | (3,392) | |
Loss per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Loss attributable to common shareholders | | | | | | | | $ | (0.12) | | | $ | 0.03 | | | $ | (0.09) | |
Comprehensive income | | | | | | | | | | | | |
Net income | | | | | | | | $ | 9,733 | | | $ | 1,162 | | | $ | 10,895 | |
Total comprehensive income available to the Company | | | | | | | | $ | 12,627 | | | $ | 1,162 | | | $ | 13,789 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations and Comprehensive Income |
| | Three Months Ended March 31, 2022 | | |
| | As Previously Reported | | Adjustments | | As Revised | | | | | | |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | $ | 14,689 | | | $ | (51) | | | $ | 14,638 | | | | | | | |
Total operating expenses | | $ | 25,658 | | | $ | (51) | | | $ | 25,607 | | | | | | | |
Net income | | $ | 3,391 | | | $ | 51 | | | $ | 3,442 | | | | | | | |
Net income available to the Company | | $ | 3,389 | | | $ | 51 | | | $ | 3,440 | | | | | | | |
Net income available to common stockholders | | $ | 322 | | | $ | 51 | | | $ | 373 | | | | | | | |
Earnings per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Income available to common shareholders | | $ | 0.01 | | | $ | — | | | $ | 0.01 | | | | | | | |
Comprehensive income | | | | | | | | | | | | |
Net income | | $ | 3,391 | | | $ | 51 | | | $ | 3,442 | | | | | | | |
Total comprehensive income available to the Company | | $ | 7,656 | | | $ | 51 | | | $ | 7,707 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations and Comprehensive Income |
| | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | $ | 15,219 | | | $ | (52) | | | $ | 15,167 | | | $ | 29,907 | | | $ | (103) | | | $ | 29,804 | |
Total operating expense before incentive fee waiver | | $ | 27,825 | | | $ | (52) | | | $ | 27,773 | | | $ | 53,482 | | | $ | (103) | | | $ | 53,379 | |
Total operating expenses | | $ | 27,825 | | | $ | (52) | | | $ | 27,773 | | | $ | 53,482 | | | $ | (103) | | | $ | 53,379 | |
Net income | | $ | 1,572 | | | $ | 52 | | | $ | 1,624 | | | $ | 4,965 | | | $ | 103 | | | $ | 5,068 | |
Net income available to the Company | | $ | 1,582 | | | $ | 52 | | | $ | 1,634 | | | $ | 4,973 | | | $ | 103 | | | $ | 5,076 | |
Net loss attributable to common stockholders | | $ | (1,499) | | | $ | 52 | | | $ | (1,447) | | | $ | (1,175) | | | $ | 103 | | | $ | (1,072) | |
Loss per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Loss attributable to common shareholders | | $ | (0.04) | | | $ | — | | | $ | (0.04) | | | $ | (0.03) | | | $ | — | | | $ | (0.03) | |
Comprehensive income | | | | | | | | | | | | |
Net income | | $ | 1,572 | | | $ | 52 | | | $ | 1,624 | | | $ | 4,965 | | | $ | 103 | | | $ | 5,068 | |
Total comprehensive income available to the Company | | $ | 4,185 | | | $ | 52 | | | $ | 4,237 | | | $ | 11,843 | | | $ | 103 | | | $ | 11,946 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations and Comprehensive Income |
| | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | $ | 15,764 | | | $ | (290) | | | $ | 15,474 | | | $ | 45,672 | | | $ | (393) | | | $ | 45,279 | |
Total operating expense before incentive fee waiver | | $ | 37,448 | | | $ | (290) | | | $ | 37,158 | | | $ | 90,932 | | | $ | (393) | | | $ | 90,539 | |
Total operating expenses | | $ | 37,448 | | | $ | (290) | | | $ | 37,158 | | | $ | 90,932 | | | $ | (393) | | | $ | 90,539 | |
Net income | | $ | 2,497 | | | $ | 290 | | | $ | 2,787 | | | $ | 7,459 | | | $ | 393 | | | $ | 7,852 | |
Net income available to the Company | | $ | 2,501 | | | $ | 290 | | | $ | 2,791 | | | $ | 7,471 | | | $ | 393 | | | $ | 7,864 | |
Net loss attributable to common stockholders | | $ | (600) | | | $ | 290 | | | $ | (310) | | | $ | (1,778) | | | $ | 393 | | | $ | (1,385) | |
Loss per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Loss attributable to common shareholders | | $ | (0.02) | | | $ | 0.01 | | | $ | (0.01) | | | $ | (0.05) | | | $ | 0.01 | | | $ | (0.04) | |
Comprehensive income | | | | | | | | | | | | |
Net income | | $ | 2,497 | | | $ | 290 | | | $ | 2,787 | | | $ | 7,459 | | | $ | 393 | | | $ | 7,852 | |
Total comprehensive income available to the Company | | $ | 9,291 | | | $ | 290 | | | $ | 9,581 | | | $ | 21,131 | | | $ | 393 | | | $ | 21,524 | |
11. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Operations and Comprehensive Income |
| | | | Year Ended December 31, 2022 |
| | | | | | | | As Previously Reported | | Adjustments | | As Revised |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | $ | 61,664 | | | $ | (1,510) | | | $ | 60,154 | |
Total operating expense before incentive fee waiver | | | | | | | | $ | 117,758 | | | $ | (1,510) | | | $ | 116,248 | |
Total operating expenses | | | | | | | | $ | 117,758 | | | $ | (1,510) | | | $ | 116,248 | |
Net income | | | | | | | | $ | 9,272 | | | $ | 1,510 | | | $ | 10,782 | |
Net income available to the Company | | | | | | | | $ | 9,295 | | | $ | 1,510 | | | $ | 10,805 | |
Net loss attributable to common stockholders | | | | | | | | $ | (3,039) | | | $ | 1,510 | | | $ | (1,529) | |
Loss per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Loss attributable to common shareholders | | | | | | | | $ | (0.08) | | | $ | 0.04 | | | $ | (0.04) | |
Comprehensive income | | | | | | | | | | | | |
Net income | | | | | | | | $ | 9,272 | | | $ | 1,510 | | | $ | 10,782 | |
Total comprehensive income available to the Company | | | | | | | | $ | 21,410 | | | $ | 1,510 | | | $ | 22,920 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations and Comprehensive Income |
| | Three Months Ended March 31, 2023 | | |
| | As Previously Reported | | Adjustments | | As Revised | | | | | | |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | $ | 15,474 | | | $ | (770) | | | $ | 14,704 | | | | | | | |
Total operating expenses | | $ | 25,434 | | | $ | (770) | | | $ | 24,664 | | | | | | | |
Net income | | $ | 2,397 | | | $ | 770 | | | $ | 3,167 | | | | | | | |
Net income available to the Company | | $ | 2,404 | | | $ | 770 | | | $ | 3,174 | | | | | | | |
Net loss attributable to common stockholders | | $ | (729) | | | $ | 770 | | | $ | 41 | | | | | | | |
Loss per weighted average share of common stock - basic & diluted | | | | | | | | | | | | |
Loss attributable to common shareholders | | $ | (0.02) | | | $ | 0.02 | | | $ | — | | | | | | | |
Comprehensive income | | | | | | | | | | | | |
Net income | | $ | 2,397 | | | $ | 770 | | | $ | 3,167 | | | | | | | |
Total comprehensive loss attributable to the Company | | $ | (3,491) | | | $ | 770 | | | $ | (2,721) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets |
| | As of June 30, 2021 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 249,797 | | | $ | 464 | | | $ | 250,261 | |
Total real estate, net | | $ | 902,505 | | | $ | (464) | | | $ | 902,041 | |
TOTAL ASSETS | | $ | 1,089,224 | | | $ | (464) | | | $ | 1,088,760 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (442,122) | | | $ | (464) | | | $ | (442,586) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 203,386 | | | $ | (464) | | | $ | 202,922 | |
TOTAL EQUITY | | $ | 204,724 | | | $ | (464) | | | $ | 204,260 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,089,224 | | | $ | (464) | | | $ | 1,088,760 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets |
| | As of September 30, 2021 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 257,050 | | | $ | 425 | | | $ | 257,475 | |
Total real estate, net | | $ | 915,498 | | | $ | (425) | | | $ | 915,073 | |
TOTAL ASSETS | | $ | 1,104,794 | | | $ | (425) | | | $ | 1,104,369 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (454,494) | | | $ | (425) | | | $ | (454,919) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 200,259 | | | $ | (425) | | | $ | 199,834 | |
TOTAL EQUITY | | $ | 201,542 | | | $ | (425) | | | $ | 201,117 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,104,794 | | | $ | (425) | | | $ | 1,104,369 | |
| | | | | | | | | | | | | | | | | | | | |
Consolidated Balance Sheets |
| | As of December 31, 2021 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 266,672 | | | $ | 385 | | | $ | 267,057 | |
Total real estate, net | | $ | 958,586 | | | $ | (385) | | | $ | 958,201 | |
TOTAL ASSETS | | $ | 1,143,352 | | | $ | (385) | | | $ | 1,142,967 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (468,523) | | | $ | (385) | | | $ | (468,908) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 201,303 | | | $ | (385) | | | $ | 200,918 | |
TOTAL EQUITY | | $ | 202,562 | | | $ | (385) | | | $ | 202,177 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,143,352 | | | $ | (385) | | | $ | 1,142,967 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets |
| | As of March 31, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 276,612 | | | $ | 334 | | | $ | 276,946 | |
Total real estate, net | | $ | 964,316 | | | $ | (334) | | | $ | 963,982 | |
TOTAL ASSETS | | $ | 1,154,409 | | | $ | (334) | | | $ | 1,154,075 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (482,493) | | | $ | (334) | | | $ | (482,827) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 213,262 | | | $ | (334) | | | $ | 212,928 | |
TOTAL EQUITY | | $ | 214,570 | | | $ | (334) | | | $ | 214,236 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,154,409 | | | $ | (334) | | | $ | 1,154,075 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets |
| | As of June 30, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 279,331 | | | $ | 282 | | | $ | 279,613 | |
Total real estate, net | | $ | 981,091 | | | $ | (282) | | | $ | 980,809 | |
TOTAL ASSETS | | $ | 1,193,389 | | | $ | (282) | | | $ | 1,193,107 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (498,574) | | | $ | (282) | | | $ | (498,856) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 212,620 | | | $ | (282) | | | $ | 212,338 | |
TOTAL EQUITY | | $ | 213,895 | | | $ | (282) | | | $ | 213,613 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,193,389 | | | $ | (282) | | | $ | 1,193,107 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets |
| | As of September 30, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 284,802 | | | $ | (7) | | | $ | 284,795 | |
Total real estate, net | | $ | 994,653 | | | $ | 7 | | | $ | 994,660 | |
TOTAL ASSETS | | $ | 1,209,668 | | | $ | 7 | | | $ | 1,209,675 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (514,057) | | | $ | 7 | | | $ | (514,050) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 215,448 | | | $ | 7 | | | $ | 215,455 | |
TOTAL EQUITY | | $ | 217,386 | | | $ | 7 | | | $ | 217,393 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,209,668 | | | $ | 7 | | | $ | 1,209,675 | |
| | | | | | | | | | | | | | | | | | | | |
Consolidated Balance Sheets |
| | As of December 31, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 286,994 | | | $ | (844) | | | $ | 286,150 | |
Total real estate, net | | $ | 1,000,303 | | | $ | 844 | | | $ | 1,001,147 | |
Real estate and related assets held for sale | | $ | 3,013 | | | $ | 280 | | | $ | 3,293 | |
TOTAL ASSETS | | $ | 1,201,509 | | | $ | 1,124 | | | $ | 1,202,633 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (530,228) | | | $ | 1,124 | | | $ | (529,104) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 202,780 | | | $ | 1,124 | | | $ | 203,904 | |
TOTAL EQUITY | | $ | 204,570 | | | $ | 1,124 | | | $ | 205,694 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,201,509 | | | $ | 1,124 | | | $ | 1,202,633 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets |
| | As of March 31, 2023 |
| | As Previously Reported | | Adjustments | | As Revised |
ASSETS | | | | | | |
Less: accumulated depreciation | | $ | 294,773 | | | $ | (644) | | | $ | 294,129 | |
Total real estate, net | | $ | 990,766 | | | $ | 644 | | | $ | 991,410 | |
Real estate and related assets held for sale | | $ | 4,722 | | | $ | 1,251 | | | $ | 5,973 | |
TOTAL ASSETS | | $ | 1,186,583 | | | $ | 1,895 | | | $ | 1,188,478 | |
EQUITY | | | | | | |
Distributions in excess of accumulated earnings | | $ | (542,937) | | | $ | 1,895 | | | $ | (541,042) | |
TOTAL STOCKHOLDERS' EQUITY | | $ | 188,987 | | | $ | 1,895 | | | $ | 190,882 | |
TOTAL EQUITY | | $ | 190,628 | | | $ | 1,895 | | | $ | 192,523 | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | | $ | 1,186,583 | | | $ | 1,895 | | | $ | 1,188,478 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Distributions in Excess of Accumulated Earnings | | | | | | | | | | | | |
Balance, beginning of period | | $ | (425,422) | | | $ | (506) | | | $ | (425,928) | | | $ | (409,041) | | | $ | (1,548) | | | $ | (410,589) | |
Net income attributable to the Company | | 2,142 | | | 42 | | | 2,184 | | | 2,223 | | | 1,084 | | | 3,307 | |
Balance, end of period | | $ | (442,122) | | | $ | (464) | | | $ | (442,586) | | | $ | (442,122) | | | $ | (464) | | | $ | (442,586) | |
Total Stockholders' Equity | | | | | | | | | | | | |
Balance, beginning of period | | $ | 211,747 | | | $ | (506) | | | $ | 211,241 | | | $ | 213,183 | | | $ | (1,548) | | | $ | 211,635 | |
Net income attributable to the Company | | 2,142 | | | 42 | | | 2,184 | | | 2,223 | | | 1,084 | | | 3,307 | |
Balance, end of period | | $ | 203,386 | | | $ | (464) | | | $ | 202,922 | | | $ | 203,386 | | | $ | (464) | | | $ | 202,922 | |
Total Equity | | $ | 204,724 | | | $ | (464) | | | $ | 204,260 | | | $ | 204,724 | | | $ | (464) | | | $ | 204,260 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Distributions in Excess of Accumulated Earnings | | | | | | | | | | | | |
Balance, beginning of period | | $ | (442,122) | | | $ | (464) | | | $ | (442,586) | | | $ | (409,041) | | | $ | (1,548) | | | $ | (410,589) | |
Net income attributable to the Company | | 4,477 | | | 39 | | | 4,516 | | | 6,699 | | | 1,123 | | | 7,822 | |
Balance, end of period | | $ | (454,494) | | | $ | (425) | | | $ | (454,919) | | | $ | (454,494) | | | $ | (425) | | | $ | (454,919) | |
Total Stockholders' Equity | | | | | | | | | | | | |
Balance, beginning of period | | $ | 203,386 | | | $ | (464) | | | $ | 202,922 | | | $ | 213,183 | | | $ | (1,548) | | | $ | 211,635 | |
Net income attributable to the Company | | 4,477 | | | 39 | | | 4,516 | | | 6,699 | | | 1,123 | | | 7,822 | |
Balance, end of period | | $ | 200,259 | | | $ | (425) | | | $ | 199,834 | | | $ | 200,259 | | | $ | (425) | | | $ | 199,834 | |
Total Equity | | $ | 201,542 | | | $ | (425) | | | $ | 201,117 | | | $ | 201,542 | | | $ | (425) | | | $ | 201,117 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Consolidated Statements of Equity |
| | As of December 31, 2021 |
| | Distributions in Excess of Accumulated Earnings | | Total Stockholders' Equity | | Total Equity |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Balance at December 31, 2020 | | $ | (409,041) | | | $ | (1,548) | | | $ | (410,589) | | | $ | 213,183 | | | $ | (1,548) | | | $ | 211,635 | | | $ | 216,037 | | | $ | (1,548) | | | $ | 214,489 | |
Net income | | 9,773 | | | 1,162 | | | 10,935 | | | 9,773 | | | 1,162 | | | 10,935 | | | 9,733 | | | 1,162 | | | 10,895 | |
Balance at December 31, 2021 | | $ | (468,523) | | | $ | (385) | | | $ | (468,908) | | | $ | 201,303 | | | $ | (385) | | | $ | 200,918 | | | $ | 202,562 | | | $ | (385) | | | $ | 202,177 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity |
| | Three Months Ended March 31, 2022 | | |
| | As Previously Reported | | Adjustments | | As Revised | | | | | | |
Distributions in Excess of Accumulated Earnings | | | | | | | | | | | | |
Balance, beginning of period | | $ | (468,523) | | | $ | (385) | | | $ | (468,908) | | | | | | | |
Net income attributable to the Company | | 3,389 | | | 51 | | | 3,440 | | | | | | | |
Balance, end of period | | $ | (482,493) | | | $ | (334) | | | $ | (482,827) | | | | | | | |
Total Stockholders' Equity | | | | | | | | | | | | |
Balance, beginning of period | | $ | 201,303 | | | $ | (385) | | | $ | 200,918 | | | | | | | |
Net income attributable to the Company | | 3,389 | | | 51 | | | 3,440 | | | | | | | |
Balance, end of period | | $ | 213,262 | | | $ | (334) | | | $ | 212,928 | | | | | | | |
Total Equity | | $ | 214,570 | | | $ | (334) | | | $ | 214,236 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity |
| | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Distributions in Excess of Accumulated Earnings | | | | | | | | | | | | |
Balance, beginning of period | | $ | (482,493) | | | $ | (334) | | | $ | (482,827) | | | $ | (468,523) | | | $ | (385) | | | $ | (468,908) | |
Net income attributable to the Company | | 1,582 | | | 52 | | | 1,634 | | | 4,973 | | | 103 | | | 5,076 | |
Balance, end of period | | $ | (498,574) | | | $ | (282) | | | $ | (498,856) | | | $ | (498,574) | | | $ | (282) | | | $ | (498,856) | |
Total Stockholders' Equity | | | | | | | | | | | | |
Balance, beginning of period | | $ | 213,262 | | | $ | (334) | | | $ | 212,928 | | | $ | 201,303 | | | $ | (385) | | | $ | 200,918 | |
Net income attributable to the Company | | 1,582 | | | 52 | | | 1,634 | | | 4,973 | | | 103 | | | 5,076 | |
Balance, end of period | | $ | 212,620 | | | $ | (282) | | | $ | 212,338 | | | $ | 212,620 | | | $ | (282) | | | $ | 212,338 | |
Total Equity | | $ | 213,895 | | | $ | (282) | | | $ | 213,613 | | | $ | 213,895 | | | $ | (282) | | | $ | 213,613 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity |
| | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Distributions in Excess of Accumulated Earnings | | | | | | | | | | | | |
Balance, beginning of period | | $ | (498,574) | | | $ | (282) | | | $ | (498,856) | | | $ | (468,523) | | | $ | (385) | | | $ | (468,908) | |
Net income attributable to the Company | | 2,501 | | | 290 | | | 2,791 | | | 7,471 | | | 393 | | | 7,864 | |
Balance, end of period | | $ | (514,057) | | | $ | 7 | | | $ | (514,050) | | | $ | (514,057) | | | $ | 7 | | | $ | (514,050) | |
Total Stockholders' Equity | | | | | | | | | | | | |
Balance, beginning of period | | $ | 212,620 | | | $ | (282) | | | $ | 212,338 | | | $ | 201,303 | | | $ | (385) | | | $ | 200,918 | |
Net income attributable to the Company | | 2,501 | | | 290 | | | 2,791 | | | 7,471 | | | 393 | | | 7,864 | |
Balance, end of period | | $ | 215,448 | | | $ | 7 | | | $ | 215,455 | | | $ | 215,448 | | | $ | 7 | | | $ | 215,455 | |
Total Equity | | $ | 217,386 | | | $ | 7 | | | $ | 217,393 | | | $ | 217,386 | | | $ | 7 | | | $ | 217,393 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Equity |
| | As of December 31, 2022 |
| | Distributions in Excess of Accumulated Earnings | | Total Stockholders' Equity | | Total Equity |
| | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised | | As Previously Reported | | Adjustments | | As Revised |
Balance at December 31, 2021 | | $ | (468,523) | | | $ | (385) | | | $ | (468,908) | | | $ | 201,303 | | | $ | (385) | | | $ | 200,918 | | | $ | 202,562 | | | $ | (385) | | | $ | 202,177 | |
Net income | | 9,295 | | | 1,510 | | | 10,805 | | | 9,295 | | | 1,510 | | | 10,805 | | | 9,272 | | | 1,510 | | | 10,782 | |
Balance at December 31, 2022 | | $ | (530,228) | | | $ | 1,124 | | | $ | (529,104) | | | $ | 202,780 | | | $ | 1,124 | | | $ | 203,904 | | | $ | 204,570 | | | $ | 1,124 | | | $ | 205,694 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity |
| | Three Months Ended March 31, 2023 | | |
| | As Previously Reported | | Adjustments | | As Revised | | | | | | |
Distributions in Excess of Accumulated Earnings | | | | | | | | | | | | |
Balance, beginning of period | | $ | (530,228) | | | $ | 1,124 | | | $ | (529,104) | | | | | | | |
Net income attributable to the Company | | 2,404 | | | 770 | | | 3,174 | | | | | | | |
Balance, end of period | | $ | (542,937) | | | $ | 1,895 | | | $ | (541,042) | | | | | | | |
Total Stockholders' Equity | | | | | | | | | | | | |
Balance, beginning of period | | $ | 202,780 | | | $ | 1,124 | | | $ | 203,904 | | | | | | | |
Net income attributable to the Company | | 2,404 | | | 770 | | | 3,174 | | | | | | | |
Balance, end of period | | $ | 188,987 | | | $ | 1,895 | | | $ | 190,882 | | | | | | | |
Total Equity | | $ | 190,628 | | | $ | 1,895 | | | $ | 192,523 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows |
| | Six Months Ended June 31, 2021 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 2,160 | | | $ | 1,084 | | | $ | 3,244 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 30,901 | | | (1,084) | | | 29,817 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows |
| | Nine Months Ended September 30, 2021 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 6,657 | | | $ | 1,123 | | | $ | 7,780 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 45,661 | | | (1,123) | | | 44,538 | |
| | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Cash Flows |
| | Year Ended December 31, 2021 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 9,733 | | | $ | 1,162 | | | $ | 10,895 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 60,311 | | | (1,162) | | | 59,149 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows |
| | Three Months Ended March 31, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 3,391 | | | $ | 51 | | | $ | 3,442 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 14,689 | | | (51) | | | 14,638 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows |
| | Six Months Ended June 31, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 4,965 | | | $ | 103 | | | $ | 5,068 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 29,907 | | | (103) | | | 29,804 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows |
| | Nine Months Ended September 30, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 7,459 | | | $ | 393 | | | $ | 7,852 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 45,672 | | | (393) | | | 45,279 | |
| | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Cash Flows |
| | Year Ended December 31, 2022 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 9,272 | | | $ | 1,510 | | | $ | 10,782 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 61,664 | | | (1,510) | | | 60,154 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows |
| | Three Months Ended March 31, 2023 |
| | As Previously Reported | | Adjustments | | As Revised |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 2,397 | | | $ | 770 | | | $ | 3,167 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 15,474 | | | (770) | | | 14,704 | |
10. Subsequent Events
Distributions
On October 10, 2017,July 11, 2023, our Board of Directors declared the following monthly distributions for the months of October, NovemberJuly, August and DecemberSeptember of 2017:2023:
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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 |
|
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Record Date | | Payment Date | | Common Stock and Non-controlling OP Unit Distributions per Share | | Series E Preferred Distributions per Share | | Series G Preferred Distributions per Share |
July 21, 2023 | | July 31, 2023 | | $ | 0.10 | | | $ | 0.138021 | | | $ | 0.125 | |
August 23, 2023 | | August 31, 2023 | | 0.10 | | | 0.138021 | | | 0.125 | |
September 21, 2023 | | September 29, 2023 | | 0.10 | | | 0.138021 | | | 0.125 | |
| | | | $ | 0.30 | | | $ | 0.414063 | | | $ | 0.375 | |
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Senior Common Stock Distributions |
Payable to the Holders of Record During the Month of: | | Payment Date | | Distribution per Share |
July | | August 4, 2023 | | $ | 0.0875 | |
August | | September 6, 2023 | | 0.0875 | |
September | | October 5, 2023 | | 0.0875 | |
| | | | $ | 0.2625 | |
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| | | | | | |
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 |
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| | | | | | | | | | | | | | |
Series F Preferred Stock Distributions |
Record Date | | Payment Date | | Distribution per Share |
July 27, 2023 | | August 4, 2023 | | $ | 0.125 | |
August 28, 2023 | | September 6, 2023 | | 0.125 | |
September 27, 2023 | | October 5, 2023 | | 0.125 | |
| | | | $ | 0.375 | |
Held for Sale and Leasing Activity
On October 19, 2017, we executed a purchase and sale agreement with the tenant leasing our Arlington, Texas property to sell them the property for $5.6 million. We expect the sale to be completed during first quarter 2018. Concurrently with the purchase and sale agreement, we executed a lease amendment with this tenant, whereby the tenant has agreed 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 rate for the Credit Facility was reduced by 25 basis points at each of the leverage tiers. We entered into interest rate cap agreements on the amended Term Loan, which cap LIBOR 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.
ATM Equity Activity
Subsequent to SeptemberJune 30, 20172023 and through October 31, 2017,August 8, 2023, we raised $0.2$0.8 million in net proceeds from the sale of 0.01 million33,198 shares of common stockSeries F Preferred Stock.
Acquisition Activity
On July 10, 2023, we purchased a 7,714 square foot medical office property in Dallas Fort Worth, Texas for $2.9 million. This property is fully leased to one tenant on a 10-year lease.
On July 28, 2023 we purchased a 100,000 square foot industrial property in Cedar Hill, Texas for $9.1 million. This property is fully leased to one tenant on a 20-year lease.
Sale Activity
On July 27, 2023 we sold our Common Stock ATM Program.26,080 square foot office property in Pittsburgh, Pennsylvania for $6.8 million. We made no sales under our Series A, B or D Preferred ATM Programs subsequent to September 30,2017 and through October 31, 2017.realized a $3.6 million gain on sale.
Financing Activity
On July 28, 2023 we repaid $6.8 million in fixed rate mortgage debt, collateralized by one property, at an interest rate of 5.00%.
On August 4, 2023 we repaid $28.9 million in fixed rate mortgage debt, collateralized by one property, at an interest rate of 4.81%.
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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, 2016.2022. 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-advisedexternally 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 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. companies, many of which are corporations that do not have publicly rated debt. 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 seven to 15 years and contractual 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.
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:August 8, 2023:
•we owned 97137 properties totaling 11.217.3 million square feet of rentable space, located in 2427 states;
•our occupancy rate was 97.9%96.0%;
•the weighted average remaining term of our mortgage debt was 6.64.2 years and the weighted average interest rate was 4.52%4.16%; and
•the average remaining lease term of the portfolio was 7.76.8 years.
Business Environment
The commercial real estate sector was marked by continued uncertainty and volatility in the second quarter of 2023. In June, the Federal Reserve held rates steady for the first time in 15 months due to inflation decreasing to 3.0%, its biggest improvement since March 2021. However, the Federal Reserve continued its path of rising rates by raising them 0.25% in the July meeting, signaling that the Fed will look for lower levels of inflation before determining peak rate levels. With inflation moderating to its lowest year-over-year increase since March 2021, the economy is showing the effects of the rapid rate hikes and tightening credit standards over the past 18 months. Real estate transaction volumes remain low, as tightened credit standards and increasing capital costs have sidelined many investors.
In
The industrial sector normalized in the United States,second quarter of 2023, relative to the record setting years of 2021 and 2022; however, overall fundamentals remain sound, and the sector continues to outperform other property types. The second quarter of 2023
posted 44.9 million square feet of net absorption, down from 71.0 million square feet in the first quarter of 2023. Absorption levels for the first half of 2023 were in line with the years leading up to the pandemic, which were historically strong years in the broader context of the e-commerce demand boom kickstarted by the pandemic. Leasing activity in the industrial sector totaled 141.0 million square feet in the second quarter of 2023, down 8.9% from the first quarter of 2023. New deliveries totaled 140.0 million square feet, pushing the vacancy rates have decreasedrate to 4.1%. This is the first time the vacancy rate has surpassed 4.0% since the first half of 2021, but it still remains below the 10-year historical average of 5.2%. The sunbelt continues to outperform, with Savannah, Dallas, and Houston leading major markets for bothnet absorption.
The office and industrial propertiessector continued to weaken in most markets, asthe second quarter of 2023. Nonetheless, for the first time in over a year, second quarter 2023 leasing volume increased user demand has ledby 11.6% to improved conditions. Vacancy rates42.0 million square feet. The sector posted negative 12.5 million square feet of net absorption, which is 40.0% less than the 20.0 million square feet lost in many markets have been reduced to levels seen at the peak beforefirst quarter of 2023. Only 1.4 million square feet of new product broke ground in 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. second quarter of 2023, which will limit future new deliveries.
Interest rates have beenremain volatile in response to competing concerns about inflationary pressures, and interest rate increases by the Federal Reserve are expected to continue. The yield on the 10-year U.S. Treasury Note has increased significantly since the beginning of 20162022 and although interest rates are still relatively low, lenders have varied on their required spreads over the last several quarters and overall financing costs for fixed rate mortgages appear to be on the rise. At the beginning 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 national research firms indicate that total investment sales volume was approximately 10% less than the volume recorded in 2015. That reduction continued throughfinished the second quarter of 20172023 at 3.81%. Global recessionary conditions may occur over the next 6-24 months as research firms reported that investment volumea direct result of central bank intervention to curb inflation.
We collected 100% of all outstanding cash rents for the quarter was nearly 10% less thansix months ended June 30, 2023. In the levelpast, we have received rent modification requests from our tenants, and we may receive additional requests in the future. However, we are unable to quantify the outcomes of the negotiation of 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. Additionally, our properties are located across 27 states, which we believe mitigates our exposure to economic issues, including regulations or laws implemented by state and local governments, 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 and to continue our industrial growth strategy. We are in compliance with all of our debt covenants as of June 30, 2023. We amended our Credit Facility in 2019 to increase our borrowing capacity and extend its maturity date. In addition, on August 18, 2022, we added a new $150.0 million term loan component. We have had numerous conversations with lenders, and credit continues to be available for well-capitalized borrowers. We continue to monitor our portfolio and intend to maintain a reasonably conservative liquidity position for the first six monthsforeseeable future.
Other Business Environment Considerations
The short-term and long-term economic implications are unknown, in relation to recent world events, including inflation, supply chain disruptions and related inventory management issues, labor shortages, rising interest rates, public health emergencies such as the COVID-19 pandemic and associated governmental responses in addition to any subsequent shift in policy, geopolitical conditions, new regulations or the long-term impact of 2016.
From a more macro-economic perspective, the strength of the global economysocial and U.S. economy in particular continue to be uncertain with increased volatility due to the vote last year in the United Kingdom to exit the European Union, the uncertainty of health careinfrastructure spending and tax reform initiatives in the United States, and an apparentU.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, as well as other geo-politicalgeopolitical 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 effectimpact on our tenants as well.
The London Inter-bank Offered Rate (“LIBOR”) has been phased out as of June 2023. The Secured Overnight Financing Rate (“SOFR”) is now the new rate standard. During 2022 and the first half of 2023, we began transitioning our variable rate debt to SOFR, and, at June 30, 2023, all of our variable rate debt was based upon SOFR, with the exception of $20.5 million of hedged variable rate mortgages still based on LIBOR. We are actively working to transition the remaining debt to SOFR.
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 onefour 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 expiring in 2017, which accounts for 0.04% 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.
Our available vacant space at SeptemberJune 30, 20172023 represents 2.1%4.0% 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 million.$3.9 million. We continue to actively seek new tenants for these properties.
We believe our lease expiration schedule for the remainder of 2023 is quite manageable, as it equates to only 2.1% of our lease revenue at June 30, 2023. Property acquisitions since the beginning of 2020 have totaled $348.4 million and all transactions were industrial in nature, with a weighted average lease term of 13.3 years and a current weighted average lease term today of 11.0 years.
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$125.0 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)(“KeyBank”), which matures in October 2021, andAugust 2026, our $75.0$160.0 million term loan facility (“Term Loan”Loan A”), which matures in October 2022,August 2027, our $60.0 million term loan facility (“Term Loan B”), which wematures in February 2026, and our $150.0 million term loan facility (“Term Loan C”) which matures in February 2028. We refer to the Revolver, Term Loan A, Term Loan B and Term Loan C 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 collateralizedmake mortgage backed securities market, or the CMBS market, to issue mortgagesloans 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 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.
Recent Developments
2017 Sale Activity
During the ninesix months ended SeptemberJune 30, 2017,2023 we continued to execute our capital recycling program, whereby we sellsold non-core properties outside of our core markets and redeployredeployed proceeds to either fund property acquisitions located in our target secondary growth markets or repay outstanding debt. We willexpect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities are available.become available, and use the sales proceeds to acquire properties in our target, secondary growth markets or pay down outstanding debt. During the ninesix months ended SeptemberJune 30, 2017,2023, we sold fourtwo non-core properties, located in Baytown, Texas and appliedBirmingham, Alabama, which are summarized in the proceeds towards outstanding debt,table below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate Square Footage Sold | | Aggregate Sales Price | | Aggregate Sales Costs | | | | Aggregate Loss on Sale of Real Estate, net |
42,868 | | | $ | 4,650 | | | $ | 233 | | | | | $ | (451) | |
On July 27, 2023 we sold our 26,080 square foot office property in Pittsburgh, Pennsylvania for $6.8 million. We realized a $3.6 million gain on sale.
Acquisition Activity
During the six months ended June 30, 2023, we acquired one industrial property located in Riverdale, Illinois, which is summarized below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregate Square Footage | | Weighted Average Remaining Lease Term at Time of Acquisition | | Aggregate Purchase Price | | Aggregate Capitalized Acquisition Expenses | | Aggregate Annualized GAAP Fixed Lease Payments | | |
76,089 | | | 20.0 years | | $ | 5,363 | | | $ | 98 | | | $ | 511 | | | |
On July 10, 2023, we purchased a 7,714 square foot medical office property in Dallas Fort Worth, Texas for $2.9 million. This property is fully leased to one tenant on a 10-year lease.
On July 28, 2023 we purchased a 100,000 square foot industrial property in Cedar Hill, Texas for $9.1 million. This property is fully leased to one tenant on a 20-year lease.
Leasing Activity
During and subsequent to the six months ended June 30, 2023, we executed ten 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 |
1,256,292 | | | 18.7 years | | $ | 8,614 | | | $ | 4,657 | | | $ | 1,750 | |
During the six months ended June 30, 2023, we had one lease termination, which is summarized below (dollars in thousands):
| | | | | | | | | | | | | | |
Square Footage Reduced | | Accelerated Rent | | Accelerated Rent Recognized through June 30, 2023 |
119,224 | | | $ | 2,045 | | | $ | 2,045 | |
Financing Activity
During the six months ended June 30, 2023, we repaid one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):
| | | | | | | | |
Fixed Rate Debt Repaid | | Interest Rate on Fixed Rate Debt Repaid |
$ | 2,690 | | | 4.16 | % |
|
| | | | | | | | | | | | | | | | | |
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 July 28, 2023 we repaid $6.8 million in fixed rate mortgage debt, collateralized by one property, at an interest rate of 5.00%.
2017 Acquisition Activity
On August 4, 2023 we repaid $28.9 million in fixed rate mortgage debt, collateralized by one property, at an interest rate of 4.81%.
During the ninesix months ended SeptemberJune 30, 2017,2023, we acquired five properties,extended the maturity date of one located in Conshohocken, Pennsylvania,mortgage, collateralized by one located in Philadelphia, Pennsylvania, and three-properties located in Maitland, Florida, all ofproperty, which areis summarized in the table below (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | |
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 |
|
| | | | | | | | | | | | | | |
Fixed Rate Debt Extended | | Interest Rate on Fixed Rate Debt Extended | | Extension Term |
$ | 8,769 | | | 6.50 | % | | 1.0 year |
| |
(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. |
2017 Leasing ActivityEquity Activities
Common Stock ATM Programs
During the ninesix months ended SeptemberJune 30, 2017, we executed six lease extensions and/or modifications, or new leases, which are summarized below (dollars in thousands):
|
| | | | | | | | | | | | | | |
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 | | 4,062 |
| | 1,181 |
| | 475 |
|
2017 Financing Activity
During the nine months ended September 30, 2017, we repaid four mortgages, collateralized by ten properties, which are aggregated below (dollars in thousands):
|
| | | | |
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 nine months ended September 30, 2017, we issued or assumed four mortgages, collateralized by seven 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) |
| |
(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. |
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 rate for the Credit Facility was reduced by 25 basis points at each of the leverage tiers. We entered into interest rate cap agreements on the amended Term Loan, which cap LIBOR 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.
2017 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, 2017,2023, we sold 1.50.2 million shares of common stock, raising $30.8$4.0 million in net proceeds under theour At-the-Market Equity Offering Sales Agreement (the “Common Stock Sales Agreement”) 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”). On February 22, 2022, we entered into Amendment No. 1 to our Common Stock ATM Program. As of September 30, 2017, we had a remaining capacity to sell up to $101.1 million of common stock underSales Agreement, dated December 3, 2019 (together, the “Prior 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 millionSales Agreement”). The amendment permitted shares of common stock through ourto be issued pursuant to the Prior Common Stock Sales Agreement under the Company’s Registration Statement on Form S-3 (File No. 333-236143) (the “2020 Registration Statement”), and future registration statements on Form S-3 (the “Prior Common Stock ATM Program.Program”). We terminated the Prior Common Stock Sales Agreement effective as of February 10, 2023 in connection with the expiration of the 2020 Registration Statement on February 11, 2023.
Preferred ATM Programs
Series A and B Preferred Stock: In February 2016,On March 3, 2023, we entered into an open market sales agreementAt-the-Market Equity Offering Sales Agreement (the “Series A and B Preferred ATM Program”“2023 Common Stock 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 StockBofA Securities, Inc. (“Series A Preferred”BofA”), Goldman Sachs, Baird, KeyBanc Capital Markets Inc. (“KeyBanc”), and (ii) sharesFifth Third (collectively the “Common Stock Sales Agents”). In connection with the 2023 Common Stock Sales Agreement, we filed prospectus supplements dated March 3, 2023 and March 7, 2023, to the prospectus dated November 23, 2022, with the SEC, for the offer and sale of our 7.50% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred”), having an aggregate offering priceamount of up to $40.0$250.0 million through Cantor Fitzgerald, acting as sales agent and/or principal. Weof common stock. During the six months ended June 30, 2023, 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 preferredcommon stock under the 2023 Common Stock Sales Agreement.
During the six months ended June 30, 2023, we utilized our common stock repurchase program, repurchasing $1.0 million worth of common stock. All repurchased shares were retired.
Series A and BE Preferred ATM Program. SubsequentProgram
Prior to September 30, 2017 and through October 31, 2017,February 10, 2023, we made no sales under our Series A and Series B Preferred ATM Programs.
Series D Preferred Stock: In June 2016, we entered intohad an open market sales agreementAt-the-Market Equity Offering Sales Agreement (the “Series DE Preferred ATM Program”Stock Sales Agreement”) , with Cantor Fitzgerald,sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S. Bancorp Investments, Inc., pursuant to which we may,could, from time to time, offer to sell shares of our 7.00% Series D Cumulative RedeemableE Preferred (“Series D Preferred”), havingStock, in an aggregate offering price of up to $50.0 million, through Cantor Fitzgerald, acting as sales agent and/or principal. During the nine months ended September 30, 2017, we sold approximately 0.4 million$100.0 million. We did not sell any shares of our Series DE Preferred for net proceeds of $11.2 million. As of September 30, 2017, we had a remaining capacityStock pursuant to sell up to $22.3 million of Series D Preferred under the Series DE Preferred ATM Program. Subsequent to SeptemberStock Sales Agreement during the six months ended June 30, 2017 and through October 31, 2017, we made no sales under our2023. We terminated the Series DE Preferred ATM Program.Stock Sales Agreement effective as of February 10, 2023.
Amendment to Articles of IncorporationUniversal Shelf Registration Statements
On January 29, 2020, we filed the 2020 Registration Statement. The 2020 Registration Statement was declared effective on February 11, 2017,2020. The 2020 Registration Statement allowed us to issue up to $800.0 million of securities. Of the $800.0 million of available capacity under our 2020 Registration Statement, approximately $636.5 million was reserved for the sale of our Series F Preferred Stock, and $63.0 million was reserved for our Prior Common Stock ATM Program. The 2020 Registration Statement expired on February 11, 2023.
On November 23, 2022, we filed an automatic registration statement on Form S-3 (File No. 333-268549) (the “2022 Registration Statement”). There is no limit on the aggregate amount of the securities that we may offer pursuant to the 2022 Registration Statement.
Series F Preferred Stock Continuous Offering
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 our authorized and unissued shares of common stock as shares of Series F Preferred Stock. The reclassification decreased the remaining 160,000 authorized but unissuednumber 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 188,919 shares of our Series CF Preferred Stock, as authorized but unissued sharesraising $4.3 million in net proceeds during the six months ended June 30, 2023.
Non-controlling Interest in Operating Partnership
As of our common stock,June 30, 2023 and made a corresponding amendment toDecember 31, 2022, we owned approximately 99.0% and 99.0%, respectively, of the partnership agreement of ouroutstanding operating partnership Gladstone Commercial Limitedunits in the Operating Partnership which is a wholly owned subsidiary(“OP Units”).
As of ours, with regard to corresponding unitsJune 30, 2023 and December 31, 2022, there were 391,468 and 391,468 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.
Diversity of Our Portfolio
Our AdviserGladstone 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 ninesix months ended SeptemberJune 30, 2017,2023, our largest tenant comprised only 5.3%4.2% of total rental income.lease revenue. The table below reflects the breakdown of our total rental incomelease revenue by tenant industry classification for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Industry Classification | | Lease Revenue | | Percentage of Lease Revenue | | Lease Revenue | | Percentage of Lease Revenue | | Lease Revenue | | Percentage of Lease Revenue | | Lease Revenue | | Percentage of Lease Revenue |
Telecommunications | | $ | 7,281 | | | 18.9 | % | | $ | 5,747 | | | 15.8 | % | | $ | 12,223 | | | 16.5 | % | | $ | 11,356 | | | 15.8 | % |
Automotive | | 5,220 | | | 13.5 | | | 4,640 | | | 12.7 | | | 10,349 | | | 13.8 | | | 9,089 | | | 12.6 | |
Diversified/Conglomerate Services | | 4,660 | | | 12.1 | | | 4,551 | | | 12.5 | | | 9,191 | | | 12.2 | | | 8,059 | | | 11.2 | |
Diversified/Conglomerate Manufacturing | | 2,762 | | | 7.1 | | | 2,795 | | | 7.7 | | | 5,398 | | | 7.2 | | | 5,218 | | | 7.3 | |
Healthcare | | 2,608 | | | 6.7 | | | 4,075 | | | 11.2 | | | 5,955 | | | 7.9 | | | 9,275 | | | 12.9 | |
Personal, Food & Miscellaneous Services | | 2,345 | | | 6.1 | | | 1,550 | | | 4.3 | | | 4,692 | | | 6.2 | | | 3,097 | | | 4.3 | |
Buildings and Real Estate | | 2,313 | | | 6.0 | | | 2,315 | | | 6.4 | | | 4,621 | | | 6.1 | | | 5,419 | | | 7.5 | |
Banking | | 2,272 | | | 5.9 | | | 2,610 | | | 7.2 | | | 4,610 | | | 6.1 | | | 4,657 | | | 6.5 | |
Personal & Non-Durable Consumer Products | | 1,886 | | | 4.9 | | | 1,104 | | | 3.0 | | | 3,769 | | | 5.0 | | | 1,963 | | | 2.7 | |
Machinery | | 1,448 | | | 3.7 | | | 975 | | | 2.7 | | | 2,817 | | | 3.7 | | | 1,948 | | | 2.7 | |
Beverage, Food & Tobacco | | 1,431 | | | 3.7 | | | 1,407 | | | 3.9 | | | 2,833 | | | 3.8 | | | 2,155 | | | 3.0 | |
Chemicals, Plastics & Rubber | | 1,317 | | | 3.4 | | | 1,206 | | | 3.3 | | | 2,681 | | | 3.6 | | | 2,787 | | | 3.9 | |
Containers, Packaging & Glass | | 980 | | | 2.5 | | | 1,009 | | | 2.8 | | | 1,962 | | | 2.6 | | | 1,879 | | | 2.6 | |
Information Technology | | 717 | | | 1.9 | | | 1,109 | | | 3.0 | | | 1,290 | | | 1.7 | | | 2,411 | | | 3.4 | |
Childcare | | 573 | | | 1.5 | | | 573 | | | 1.6 | | | 1,146 | | | 1.5 | | | 1,145 | | | 1.6 | |
Electronics | | 287 | | | 0.7 | | | 179 | | | 0.5 | | | 560 | | | 0.7 | | | 406 | | | 0.6 | |
Printing & Publishing | | 229 | | | 0.6 | | | 229 | | | 0.6 | | | 459 | | | 0.6 | | | 459 | | | 0.6 | |
Education | | 206 | | | 0.5 | | | 202 | | | 0.6 | | | 410 | | | 0.5 | | | 361 | | | 0.5 | |
Home & Office Furnishings | | 123 | | | 0.3 | | | 123 | | | 0.2 | | | 246 | | | 0.3 | | | 246 | | | 0.3 | |
Total | | $ | 38,658 | | | 100.0 | % | | $ | 36,399 | | | 100.0 | % | | $ | 75,212 | | | 100.0 | % | | $ | 71,930 | | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
The tabletables below reflectsreflect the breakdown of total rental incomelease revenue by state for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
State | | Lease Revenue for the three months ended June 30, 2023 | | Percentage of Lease Revenue | | Number of Leases for the three months ended June 30, 2023 | | Lease Revenue for the three months ended June 30, 2022 | | Percentage of Lease Revenue | | Number of Leases for the three months ended June 30, 2022 |
Florida | | $ | 6,763 | | | 17.5 | % | | 9 | | | $ | 4,230 | | | 11.6 | % | | 9 | |
Texas | | 4,332 | | | 11.2 | | | 12 | | | 5,359 | | | 14.7 | | | 14 | |
Pennsylvania | | 3,721 | | | 9.6 | | | 10 | | | 3,704 | | | 10.2 | | | 10 | |
Ohio | | 3,449 | | | 8.9 | | | 16 | | | 3,550 | | | 9.8 | | | 16 | |
Georgia | | 2,973 | | | 7.7 | | | 11 | | | 2,945 | | | 8.1 | | | 10 | |
North Carolina | | 2,306 | | | 6.0 | | | 10 | | | 2,146 | | | 5.9 | | | 10 | |
Alabama | | 2,248 | | | 5.8 | | | 6 | | | 1,763 | | | 4.8 | | | 6 | |
Colorado | | 1,869 | | | 4.8 | | | 4 | | | 850 | | | 2.3 | | | 3 | |
Michigan | | 1,612 | | | 4.2 | | | 6 | | | 1,608 | | | 4.4 | | | 6 | |
Minnesota | | 1,045 | | | 2.7 | | | 7 | | | 1,013 | | | 2.8 | | | 7 | |
All Other States | | 8,340 | | | 21.6 | | | 46 | | | 9,231 | | | 25.4 | | | 45 | |
Total | | $ | 38,658 | | | 100.0 | % | | 137 | | | $ | 36,399 | | | 100.0 | % | | 136 | |
|
| | | | | | | | | | | | | | | | | | | | |
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 | | Lease Revenue for the six months ended June 30, 2023 | | Percentage of Lease Revenue | | Number of Leases for the six months ended June 30, 2023 | | Lease Revenue for the six months ended June 30, 2022 | | Percentage of Lease Revenue | | Number of Leases for the six months ended June 30, 2022 |
Florida | | $ | 10,881 | | | 14.5 | % | | 9 | | | $ | 8,467 | | | 11.8 | % | | 9 | |
Texas | | 9,102 | | | 12.1 | | | 12 | | | 10,524 | | | 14.6 | | | 14 | |
Pennsylvania | | 7,457 | | | 9.9 | | | 10 | | | 7,437 | | | 10.3 | | | 10 | |
Ohio | | 7,111 | | | 9.5 | | | 16 | | | 7,137 | | | 9.9 | | | 16 | |
Georgia | | 5,899 | | | 7.8 | | | 11 | | | 5,853 | | | 8.1 | | | 10 | |
North Carolina | | 4,609 | | | 6.1 | | | 10 | | | 4,033 | | | 5.6 | | | 10 | |
Alabama | | 4,486 | | | 6.0 | | | 6 | | | 3,319 | | | 4.6 | | | 6 | |
Colorado | | 3,739 | | | 5.0 | | | 4 | | | 1,699 | | | 2.4 | | | 3 | |
Michigan | | 3,212 | | | 4.3 | | | 6 | | | 3,215 | | | 4.5 | | | 6 | |
Minnesota | | 2,216 | | | 2.9 | | | 7 | | | 2,019 | | | 2.8 | | | 7 | |
All Other States | | 16,500 | | | 21.9 | | | 46 | | | 18,227 | | | 25.4 | | | 45 | |
Total | | $ | 75,212 | | | 100.0 | % | | 137 | | | $ | 71,930 | | | 100.0 | % | | 136 | |
|
| | | | | | | | | | | | | | | | | | | | |
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 AdministratorGladstone 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. Mr. Robert Cutlip, our president, is also an executive managing directorAdministrator and assistant secretary of our Adviser. Gladstone Administration, LLC, orMr. Arthur “Buzz” Cooper, our president, also serves as executive vice president of commercial and industrial real estate of our Adviser. 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.
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,Gary Gerson, our chief financial officer, Mr. Jay Beckhorn, our treasurer, and Mr. Robert Cutlip, our president,Cooper, 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,Messrs. Cooper and Mr. Sodo,Gerson, all of our executive officers and all of our directors, serve as either directors or executive officers, or both, of Gladstone Land Corporation. Mr. CutlipMessrs. Cooper and Mr. Sodo spend 100% of their time focused on Gladstone Commercial Corporation, andGerson 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, serves as our Administrator’s president, general counsel and secretary. We have entered into an advisory agreement with our Adviser, or the Advisory Agreement,as amended from time to time (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 wasamendment 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, duringDuring its July 20172023 meeting, theour Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2018.2024.
As a result ofBase Management Fee
On July 14, 2020, we amended and restated the July 2015 amendment,previous Advisory Agreement by entering into the calculation ofSixth Amended and Restated Investment Advisory Agreement between us and the annual base management fee equals 1.5% of our adjusted total stockholders’ equity, which is our total stockholders’ 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 itemsAdviser (the later to occur for a given quarter only upon the approval of our Compensation Committee)“Sixth Amended Advisory Agreement”). The fee is calculated and accrued quarterly as 0.375% per quarter of such adjusted total stockholders’ equity figure. As a result ofSixth Amended Advisory Agreement replaced the July 2016 amendment, the definition of adjusted total stockholders’ equity in theprevious calculation of the base management fee with a calculation based on Gross Tangible Real Estate. The revised base management fee will be payable quarterly in arrears and calculated at an annual rate of 0.425% (0.10625% per quarter) of the incentive fee (described below) includes total mezzanine equity. prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Sixth Amended Advisory Agreement as the current gross value of our property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculations of the other fees in the Amended Agreement remain unchanged.
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% 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).
Incentive Fee
As a result ofPursuant to the 2015 amendment,Advisory Agreement, the calculation of the incentive fee was revised to rewardrewards 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 (loss) income (loss)(attributable) 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 (loss) income (loss)(attributable) available to common stockholders for the period, and one-time events pursuant to changes in GAAP.
On January 10, 2023, we amended and restated the Sixth Amended Advisory Agreement by entering into the Seventh Amended Advisory Agreement, as approved unanimously by our Board of Directors, including specifically, our independent directors. The Seventh Amended Advisory Agreement contractually eliminated the payment of the incentive fee prior tofor the quarters ended March 31, 2023 and June 30, 2023. The calculation of the other fees remains unchanged.
On July 2015 amendment rewarded11, 2023, the Adviser in circumstances whereCompany amended and restated the Seventh Amended Advisory Agreement by entering into the Eighth Amended and Restate Investment Advisory Agreement between the Company and the Advisory (the “Eighth Amended Advisory Agreement”), as approved unanimously by our quarterly funds from operations, or FFO, before giving effect to anyBoard of Directors, including specifically, our independent directors. The Eight Amended Advisory Agreement contractually eliminated the payment of the incentive fee or pre-incentive fee FFO, exceeded 1.75%, or 7.0% annualized, orfor the hurdle rate, of common stockholders’ equity. FFO includedquarters ending September 30, 2023 and December 31, 2023. In addition, the Eight Amended Advisory Agreement also clarifies that for 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 receivedfuture quarter whereby an incentive fee would exceed by greater than 15% the average quarterly incentive fee paid, the
measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the amount of our pre-incentive fee FFO that exceeded 2.1875% of common stockholders’ equity.other fees remains unchanged.
Capital Gain Fee
Under the Advisory Agreement, as amended in July 2015, we will pay to the Adviser a capital gains-basedgain-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 ninesix months ended SeptemberJune 30, 20172023 or 2016.2022.
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 clause 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 (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, ourOur allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the approximateappropriate 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 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.
CriticalSignificant 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 2016Annual Report on Form 10-K.10-K for the year ended December 31, 2022, filed by us with the U.S. Securities and Exchange Commission (the “SEC”) on February 22, 2023 (our “2022 Form 10-K”). There were no material changes to our critical accounting policies or estimates during the ninesix months ended SeptemberJune 30, 2017.2023.
Results of Operations
The weighted average yield on our total portfolio, which was 8.6%7.9% and 7.6% as of both SeptemberJune 30, 20172023 and 2016,2022, respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as rental incomelease 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.
A comparison of our operating results for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 is below (dollars in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, |
| | 2023 | | 2022 | | $ Change | | % Change |
Operating revenues | | | | | | | | |
Lease revenue | | $ | 38,658 | | | $ | 36,399 | | | $ | 2,259 | | | 6.2 | % |
Total operating revenues | | $ | 38,658 | | | $ | 36,399 | | | $ | 2,259 | | | 6.2 | % |
Operating expenses | | | | | | | | |
Depreciation and amortization | | $ | 16,936 | | | $ | 15,167 | | | $ | 1,769 | | | 11.7 | % |
Property operating expenses | | 6,738 | | | 6,959 | | | (221) | | | (3.2) | % |
Base management fee | | 1,605 | | | 1,577 | | | 28 | | | 1.8 | % |
Incentive fee | | — | | | 1,339 | | | (1,339) | | | (100.0) | % |
Administration fee | | 546 | | | 399 | | | 147 | | | 36.8 | % |
General and administrative | | 1,068 | | | 958 | | | 110 | | | 11.5 | % |
Impairment charge | | 6,823 | | | 1,374 | | | 5,449 | | | 396.6 | % |
| | | | | | | | |
| | | | | | | | |
Total operating expenses | | $ | 33,716 | | | $ | 27,773 | | | $ | 5,943 | | | 21.4 | % |
Other (expense) income | | | | | | | | |
Interest expense | | $ | (9,081) | | | $ | (7,121) | | | $ | (1,960) | | | 27.5 | % |
Loss on sale of real estate, net | | (451) | | | — | | | (451) | | | 100.0 | % |
Other income | | 2 | | | 119 | | | (117) | | | (98.3) | % |
Total other expense, net | | $ | (9,530) | | | $ | (7,002) | | | $ | (2,528) | | | 36.1 | % |
Net (loss) income | | $ | (4,588) | | | $ | 1,624 | | | $ | (6,212) | | | (382.5) | % |
Distributions attributable to Series E, F, and G preferred stock | | (3,058) | | | (2,967) | | | (91) | | | 3.1 | % |
| | | | | | | | |
Distributions attributable to senior common stock | | (106) | | | (114) | | | 8 | | | (7.0) | % |
Loss on extinguishment of Series F preferred stock | | (6) | | | — | | | (6) | | | 100.0 | % |
| | | | | | | | |
Net loss attributable to common stockholders and Non-controlling OP Unitholders | | $ | (7,758) | | | $ | (1,457) | | | $ | (6,301) | | | 432.5 | % |
Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted | | $ | (0.19) | | | $ | (0.04) | | | $ | (0.15) | | | 375.0 | % |
FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) | | $ | 16,452 | | | $ | 15,084 | | | $ | 1,368 | | | 9.1 | % |
FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) | | $ | 16,558 | | | $ | 15,198 | | | $ | 1,360 | | | 8.9 | % |
| | | | | | | | |
FFO per weighted average share of common stock and Non-controlling OP Units - basic (1) | | $ | 0.41 | | | $ | 0.39 | | | $ | 0.02 | | | 5.1 | % |
FFO per weighted average share of common stock and Non-controlling OP Units - diluted (1) | | $ | 0.41 | | | $ | 0.39 | |
| $ | 0.02 | | | 5.1 | % |
| | | | | | | | |
(1)Refer to the “Funds from Operations” section below within the Management’s Discussion and Analysis section for the definition of FFO.
| | | | For the three months ended September 30, | | For the six months ended June 30, |
| | 2017 | | 2016 | | $ Change | | % Change | | 2023 | | 2022 | | $ 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 | | $ | 75,212 | | | $ | 71,930 | | | $ | 3,282 | | | 4.6 | % |
Total operating revenues | | 24,365 |
| | 21,589 |
| | 2,776 |
| | 12.9 | % | Total operating revenues | | $ | 75,212 | | | $ | 71,930 | | | $ | 3,282 | | | 4.6 | % |
Operating expenses | | | | | | | | | Operating expenses | | | | | | | | |
Depreciation and amortization | | 10,829 |
| | 9,459 |
| | 1,370 |
| | 14.5 | % | Depreciation and amortization | | $ | 31,640 | | | $ | 29,804 | | | $ | 1,836 | | | 6.2 | % |
Property operating expenses | | 2,178 |
| | 1,410 |
| | 768 |
| | 54.5 | % | Property operating expenses | | 13,465 | | | 13,582 | | | (117) | | | (0.9) | % |
Base management fee | | 1,277 |
| | 1,072 |
| | 205 |
| | 19.1 | % | Base management fee | | 3,210 | | | 3,124 | | | 86 | | | 2.8 | % |
Incentive fee | | 640 |
| | 564 |
| | 76 |
| | 13.5 | % | Incentive fee | | — | | | 2,679 | | | (2,679) | | | (100.0) | % |
Administration fee | | 293 |
| | 311 |
| | (18 | ) | | (5.8 | )% | Administration fee | | 1,110 | | | 861 | | | 249 | | | 28.9 | % |
General and administrative | | 650 |
| | 570 |
| | 80 |
| | 14.0 | % | General and administrative | | 2,131 | | | 1,955 | | | 176 | | | 9.0 | % |
Impairment charge | | — |
| | 1,786 |
| | (1,786 | ) | | (100.0 | )% | Impairment charge | | 6,823 | | | 1,374 | | | 5,449 | | | 396.6 | % |
| Total operating expenses | | 15,867 |
| | 15,172 |
| | 695 |
| | 4.6 | % | Total operating expenses | | $ | 58,379 | | | $ | 53,379 | | | $ | 5,000 | | | 9.4 | % |
Other (expense) income | | | | | | | | | Other (expense) income | |
Interest expense | | (6,119 | ) | | (6,338 | ) | | 219 |
| | (3.5 | )% | Interest expense | | $ | (17,909) | | | $ | (13,706) | | | $ | (4,203) | | | 30.7 | % |
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 | )% | |
Loss on sale of real estate, net | | Loss on sale of real estate, net | | (451) | | | — | | | (451) | | | 100.0 | % |
Other income | | 3 |
| | 3 |
| | — |
| | — | % | Other income | | 107 | | | 223 | | | (116) | | | (52.0) | % |
Total other expense, net | | (6,115 | ) | | (6,490 | ) | | 375 |
| | (5.8 | )% | Total other expense, net | | $ | (18,253) | | | $ | (13,483) | | | $ | (4,770) | | | 35.4 | % |
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 (loss) income | | Net (loss) income | | $ | (1,420) | | | $ | 5,068 | | | $ | (6,488) | | | (128.0) | % |
Distributions attributable to Series E, F, and G preferred stock | | Distributions attributable to Series E, F, and G preferred stock | | (6,080) | | | (5,913) | | | (167) | | | 2.8 | % |
| Distributions attributable to senior common stock | | (247 | ) | | (254 | ) | | 7 |
| | (2.8 | )% | Distributions attributable to senior common stock | | (215) | | | (230) | | | 15 | | | (6.5) | % |
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 |
|
| $ | — |
| | — | % | |
Loss on extinguishment of Series F preferred stock | | Loss on extinguishment of Series F preferred stock | | (11) | | | (5) | | | (6) | | | 120.0 | % |
Gain on repurchase of Series G preferred stock | | Gain on repurchase of Series G preferred stock | | 3 | | | — | | | 3 | | | 100%00 |
Net loss attributable to common stockholders and Non-controlling OP Unitholders | | Net loss attributable to common stockholders and Non-controlling OP Unitholders | | $ | (7,723) | | | $ | (1,080) | | | $ | (6,643) | | | 615.1 | % |
Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted | | Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted | | $ | (0.19) | | | $ | (0.03) | | | $ | (0.16) | | | 533.3 | % |
FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) | | FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) | | $ | 31,191 | | | $ | 30,098 | | | $ | 1,093 | | | 3.6 | % |
FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) | | FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1) | | $ | 31,406 | | | $ | 30,328 | | | $ | 1,078 | | | 3.6 | % |
| 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) | | $ | 0.77 | | | $ | 0.78 | | | $ | (0.01) | | | (1.3) | % |
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) | | $ | 0.77 | | | $ | 0.78 | |
| $ | (0.01) | | | (1.3) | % |
|
| |
(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, 2016,2022, 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, 2015.2021. 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, 2015.2022.
Operating Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, |
| | (Dollars in Thousands) |
Lease Revenues | | 2023 | | 2022 | | $ Change | | % Change |
Same Store Properties | | $ | 31,809 | | | $ | 28,148 | | | $ | 3,661 | | | 13.0 | % |
Acquired & Disposed Properties | | 3,054 | | | 5,001 | | | (1,947) | | | (38.9) | % |
Properties with Vacancy | | 3,795 | | | 3,250 | | | 545 | | | 16.8 | % |
| | | | | | | | |
| | $ | 38,658 | | | $ | 36,399 | | | $ | 2,259 | | | 6.2 | % |
|
| | | | | | | | | | | | | | | |
| | For the three months ended September 30, |
| | (Dollars in Thousands) |
Rental Revenues | | 2017 | | 2016 | | $ Change | | % Change |
Same Store Properties | | $ | 18,791 |
| | $ | 18,766 |
| | $ | 25 |
| | 0.1 | % |
Acquired & Disposed Properties | | 3,541 |
| | 1,257 |
| | 2,284 |
| | 181.7 | % |
Properties with Vacancy | | 954 |
| | 889 |
| | 65 |
| | 7.3 | % |
Expanded Properties | | 529 |
| | 293 |
| | 236 |
| | 80.5 | % |
| | $ | 23,815 |
| | $ | 21,205 |
| | $ | 2,610 |
| | 12.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, |
| | (Dollars in Thousands) |
Lease Revenues | | 2023 | | 2022 | | $ Change | | % Change |
Same Store Properties | | $ | 61,290 | | | $ | 55,993 | | | $ | 5,297 | | | 9.5 | % |
Acquired & Disposed Properties | | 6,471 | | | 9,187 | | | (2,716) | | | (29.6) | % |
Properties with Vacancy | | 7,451 | | | 6,750 | | | 701 | | | 10.4 | % |
| | | | | | | | |
| | $ | 75,212 | | | $ | 71,930 | | | $ | 3,282 | | | 4.6 | % |
|
| | | | | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | (Dollars in Thousands) |
Rental Revenues | | 2017 | | 2016 | | $ Change | | % Change |
Same Store Properties | | $ | 56,290 |
| | $ | 56,311 |
| | $ | (21 | ) | | — | % |
Acquired & Disposed Properties | | 7,689 |
| | 3,064 |
| | 4,625 |
| | 150.9 | % |
Properties with Vacancy | | 3,001 |
| | 2,497 |
| | 504 |
| | 20.2 | % |
Expanded Properties | | 1,273 |
| | 880 |
| | 393 |
| | 44.7 | % |
| | $ | 68,253 |
| | $ | 62,752 |
| | $ | 5,501 |
| | 8.8 | % |
Rental revenueLease revenues consist of rental income and operating expense recoveries earned from our tenants. Lease revenues from same store properties increased slightly for the three and six months ended SeptemberJune 30, 2017 from the comparable 2016 period, primarily2023, due to an increase in rental charges relatedvariable lease payments due to lease extensions executed during the three months ended September 30, 2017, coupled with additional rental income receivedan increase in property operating expenses, and a corresponding increase in recovery revenue from leases subject to consumer price indexes, partially offset by reductions in rental chargesproperty operating expenses, accelerated rent from a lease modification executed during the three months ended September 30, 2017. Rental revenuetermination, and income recognized from same store propertiestenant funded improvement projects which were determined to be lessor assets, where our tenants used their capital to improve our properties. Lease revenues decreased slightly for the nine months ended September 30, 2017 from the comparable 2016 period, primarily due to a decrease in rental charges related to lease extensions executed during and subsequent to the nine months ended September 30, 2016, partially offset by additional rental income received from leases subject to consumer price indexes. Rental revenue increased significantly for acquired and disposed of properties for the three and ninesix months ended SeptemberJune 30, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016, because we acquired seven2022, primarily due to loss of lease revenue including variable lease payments caused by a decrease in property operating expenses from vacancy at properties during and subsequent to September 30, 2016,held for sale, partially offset by a loss of rental revenueslease revenue from the seven properties we sold during andacquired subsequent to the three and nine months ended SeptemberJune 30, 2016. Rental revenue2022. Lease revenues increased for our properties with vacancy for the three and ninesix months ended SeptemberJune 30, 2017 because we leased approximately 120,000 square feet of vacant space2023 due to an increase in properties with partial vacancies during the threerental revenue and nine months ended September 30, 2016. Rental revenuevariable lease payments due to an increase in property operating expenses, from partially leasing space.
Operating Expenses
Depreciation and amortization expense increased for our expanded properties because 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.
|
| | | | | | | | | | | | | | | |
| | For the three months ended September 30, |
| | (Dollars in Thousands) |
Tenant Recovery Revenue | | 2017 | | 2016 | | $ Change | | % Change |
Same Store Properties | | $ | 348 |
| | $ | 372 |
| | $ | (24 | ) | | (6.5 | )% |
Acquired & Disposed Properties | | 197 |
| | 5 |
| | 192 |
| | 3,840.0 | % |
Properties with Vacancy | | 2 |
| | 5 |
| | (3 | ) | | (60.0 | )% |
Expanded Properties | | 3 |
| | 2 |
| | 1 |
| | 50.0 | % |
| | $ | 550 |
| | $ | 384 |
| | $ | 166 |
| | 43.2 | % |
|
| | | | | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | (Dollars in Thousands) |
Tenant Recovery Revenue | | 2017 | | 2016 | | $ Change | | % Change |
Same Store Properties | | $ | 974 |
| | $ | 1,151 |
| | $ | (177 | ) | | (15.4 | )% |
Acquired & Disposed Properties | | 276 |
| | 53 |
| | 223 |
| | 420.8 | % |
Properties with Vacancy | | 37 |
| | 15 |
| | 22 |
| | 146.7 | % |
Expanded Properties | | 7 |
| | 7 |
| | — |
| | — | % |
| | $ | 1,294 |
| | $ | 1,226 |
| | $ | 68 |
| | 5.5 | % |
The decrease in same store tenant recovery revenues for the three and ninesix months ended SeptemberJune 30, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016, is a result of decreased recoveries from leases with base year expense stops at certain of our properties, as these properties had lower property operating expenses during the three and nine months ended September 30, 2017. The increase in tenant recovery revenues on acquired and disposed of properties for the three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016, is2022, due to an increase in recoveries fromdepreciation and amortization expense on the seven properties acquired subsequent to SeptemberJune 30, 2016 with base year leases.
Interest income from mortgage notes receivable decreased2022 and lease-related assets for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, because the previously outstanding mortgage notelease that was repaid in full in January 2016, and we have not issued any new mortgage notes receivable subsequent to September 30, 2016. No interest income from mortgage notes receivable was recognizedterminated during the three months ended September 30, 2017 or 2016.period. This was partially offset by the depreciation error corrected during the period, as outlined in Note 1 and Note 9.
Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, |
| | (Dollars in Thousands) |
Property Operating Expenses | | 2023 | | 2022 | | $ Change | | % Change |
Same Store Properties | | $ | 4,230 | | | $ | 4,053 | | | $ | 177 | | | 4.4 | % |
Acquired & Disposed Properties | | 555 | | | 1,118 | | | (563) | | | (50.4) | % |
Properties with Vacancy | | 1,953 | | | 1,788 | | | 165 | | | 9.2 | % |
| | | | | | | | |
| | $ | 6,738 | | | $ | 6,959 | | | $ | (221) | | | (3.2) | % |
Depreciation and amortization increased for the three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016, due to depreciation on capital projects completed subsequent to September 30, 2016, depreciation on the three properties acquired subsequent to September 30, 2016, and amortization on leasing commissions for renewed leases with 2016 and 2017 expirations. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, |
| | (Dollars in Thousands) |
Property Operating Expenses | | 2023 | | 2022 | | $ Change | | % Change |
Same Store Properties | | $ | 8,430 | | | $ | 7,864 | | | $ | 566 | | | 7.2 | % |
Acquired & Disposed Properties | | 1,365 | | | 2,197 | | | (832) | | | (37.9) | % |
Properties with Vacancy | | 3,670 | | | 3,521 | | | 149 | | | 4.2 | % |
| | | | | | | | |
| | $ | 13,465 | | | $ | 13,582 | | | $ | (117) | | | (0.9) | % |
|
| | | | | | | | | | | | | | | |
| | For the three months ended September 30, |
| | (Dollars in Thousands) |
Property Operating Expenses | | 2017 | | 2016 | | $ Change | | % Change |
Same Store Properties | | $ | 1,210 |
| | $ | 1,215 |
| | $ | (5 | ) | | (0.4 | )% |
Acquired & Disposed Properties | | 716 |
| | 51 |
| | 665 |
| | 1,303.9 | % |
Properties with Vacancy | | 248 |
| | 134 |
| | 114 |
| | 85.1 | % |
Expanded Properties | | 4 |
| | 10 |
| | (6 | ) | | (60.0 | )% |
| | $ | 2,178 |
| | $ | 1,410 |
| | $ | 768 |
| | 54.5 | % |
|
| | | | | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | (Dollars in Thousands) |
Property Operating Expenses | | 2017 | | 2016 | | $ Change | | % Change |
Same Store Properties | | $ | 3,580 |
| | $ | 3,693 |
| | $ | (113 | ) | | (3.1 | )% |
Acquired & Disposed Properties | | 943 |
| | 276 |
| | 667 |
| | 241.7 | % |
Properties with Vacancy | | 523 |
| | 472 |
| | 51 |
| | 10.8 | % |
Expanded Properties | | 16 |
| | 14 |
| | 2 |
| | 14.3 | % |
| | $ | 5,062 |
| | $ | 4,455 |
| | $ | 607 |
| | 13.6 | % |
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 decreaseincrease in property operating expenses for
same store properties for the three and ninesix months ended SeptemberJune 30, 2017,2023, from the comparable 2022 period, was a result of tenants requiring more employees to return on site as comparedwell as general cost increases due to the inflationary environment during the three and ninesix months ended SeptemberJune 30, 2016, is a result of an overall decrease in 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.2023. 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 ninesix months ended SeptemberJune 30, 2017, as compared2023, from the comparable 2022 period, is a result of a decrease in property operating expenses in relation to two properties held for sale during the three and ninesix months ended SeptemberJune 30, 2016, is primarily a result of increased property operating expenses from properties acquired subsequent2023 that are fully vacant, requiring less costs to September 30, 2016, as a majority of these properties are subject to base year leases, partially offset by an elimination of operating expenses from properties sold subsequent to September 30, 2016.operate the empty buildings. The increase in property operating expenses for properties with vacancy duringfor the three and ninesix months ended SeptemberJune 30, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016,2022, is a result of general cost increases due to 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 vacancythe inflationary environment during the three and nine months ended September 30, 2017.same period coupled with increased expenses due to partially leasing space.
The base management fee paid to the Adviser increased for the three and ninesix months ended SeptemberJune 30, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016, because of the2022, due to an increase in total adjusted stockholders’ equityGross Tangible Real Estate over the three and six months ended June 30, 2023 as compared to a smaller increase in Gross Tangible Real Estate during the past 12 months.three and six months ended June 30, 2022. 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 months ended September 30, 2017 as compared to the three months ended September 30, 2016, because pre-incentive fee FFO increased faster than the hurdle rate, resulting in a higher incentive fee. The increase in FFO is a result of an increase in total operating revenues coupled with a decrease in interest expense, offset by an increase in total operating expenses. The incentive fee paid to the Adviser decreased for the ninethree and six months ended SeptemberJune 30, 2017,2023, as compared to the ninethree and six months ended SeptemberJune 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,2022, due to the commonpayment of the incentive fee being contractually eliminated for the quarters ended March 31, 2023 and preferred shares issued subsequent to SeptemberJune 30, 2016.2023, as outlined in the Seventh Amended Advisory Agreement. The calculation of the incentive fee is described in detail above in “Advisory and Administration Agreements.”
The administration fee paid to the Administrator decreasedincreased for the three and ninesix months ended SeptemberJune 30, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016,2022, due to using a lower shareour Administrator incurring greater costs that are allocated to us. The calculation of our administrator’s resources during the threeadministration fee is described in detail above in “Advisory and nine months ended September 30, 2017.Administration Agreements.”
General and administrative expenses increased for the three and six months ended SeptemberJune 30, 2017,2023, as compared to the three and six months ended SeptemberJune 30, 2016,2022, 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 for potential acquisition targets that resulted from two asset acquisitions treated as business combinationswere not 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 decreasedincreased for the three and ninesix months ended SeptemberJune 30, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016.2022. This decreaseincrease was primarily a result of our refinancing of mortgages at lowerincreased interest costs on variable rate debt, as global interest rates have increased to counteract growing inflation.
We sold two non-core office properties during the three and de-leveraging activity, whereby we repaid mortgage notes payable upon maturity using equitysix months ended June 30, 2023, and funds from our Revolver, offset by new mortgage debtas a result, incurred a loss on properties acquired subsequent to Septembersale of real estate, net. We did not have any property sales during the three and six months ended June 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.2022.
Distributions attributable to our 7.125% Series C Cumulative Term Preferred Stock (“Term Preferred Stock”), par value $0.001 per share,Other income decreased for the three and ninesix months ended SeptemberJune 30, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016, because we redeemed all outstanding shares of our Term Preferred Stock2022, due to nonrecurring income items that occurred in August 2016.
Gain on sale of real estate, net for the three months ended SeptemberJune 30, 2017 is attributable2022.
Net (Loss) Income (Attributable) Available to one non-core industrial asset sold during the period. Gain on sale of real estate, net for the nine months ended September 30, 2017 is attributableCommon Stockholders and Non-controlling OP Unitholders
Net (loss) income (attributable) available to our four non-core officecommon stockholders and industrial assets sold during the period. Loss on sale of real estate, netNon-controlling OP Unitholders decreased for the three and six months ended SeptemberJune 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, 2017,2023, as compared to the three and ninesix months ended SeptemberJune 30, 2016,2022, as revised, primarily because of thedue to an increase in totalinterest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion and impairment charges recorded on three properties. This was partially offset by an increase in operating revenues due to asset acquisition activity coupled with decreased interest expenses dueduring and subsequent to our refinancing and de-levering activity,June 30, 2022 as well as capital gains recognized on four property sales, partially offset by an increase in property operating expenses, depreciation and amortization expenses, and base management and incentive fees.leasing vacant space subsequent to June 30, 2022.
Liquidity and Capital Resources
Overview
Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our RevolverCredit Facility and issuing additional equity securities. Our available liquidity as of SeptemberJune 30, 2017,2023 was $38.3$86.8 million, consisting of $4.3approximately $16.5 million in cash and cash equivalents and an available borrowing capacity of $34.0$70.3 million under our Revolver.Credit Facility. Our available borrowing capacity under the Revolver hasCredit Facility decreased to $29.4$36.5 million as of October 31, 2017.August 8, 2023.
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.
Equity Capital
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 ninesix months ended SeptemberJune 30, 2017,2023, we raised net proceeds of (i) $30.8$4.0 million of common equity under our Prior Common Stock ATM Program with Cantor Fitzgerald at a grossnet 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.$17.10. We used these proceeds to fund acquisitions, pay down outstanding debt and for other general corporate purposes. We did not sell any shares of our Series AE Preferred or Series B Preferred pursuant toStock under our Series A and BE Preferred ATM ProgramStock Sales Agreement during the ninesix months ended SeptemberJune 30, 2017.
Subsequent to September 30, 2017 through October 31, 2017, we2023, which was terminated effective as of February 10, 2023. We raised net proceeds of $0.2$4.3 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 SeptemberStock during the six months ended June 30, 2017 through October 31, 2017.2023.
As of October 31, 2017, we haveAugust 8, 2023, there is no limit on the ability to raise up to $312.5 million of additional equity capital through the sale and issuanceaggregate amount of securities that are registered under our universal shelf registration statement on Form S-3 (File No. 333-208953), orwe may offer pursuant to the Universal Shelf, in one or more future public offerings. Of the $312.5 million of available capacity under our Universal Shelf, approximately $100.9 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 million is reserved for additional sales under our Series D Preferred ATM Program as of October 31, 2017. We expect to continue to use our ATM programs as a source of liquidity for the remainder of 2017.2022 Registration Statement.
Debt Capital
As of SeptemberJune 30, 2017,2023, we had 4543 mortgage notes payable in the aggregate principal amount of $455.4$350.7 million, collateralized by a total of 6749 properties with a remaining weighted average maturity of 6.73.9 years. The weighted-average interest rate on the mortgage notes payable as of SeptemberJune 30, 20172023 was 4.52%4.23%.
We continue to see banks and other non-bank lenders willing to issue mortgages.make mortgage loans. Consequently, we areremain focused on obtaining mortgages through regional banks, non-bank lenders and, to a lesser extent, the CMBScommercial mortgage backed securities market.
We haveAs of June 30, 2023, we had mortgage debt in the aggregate principal amount of $10.4$50.2 million payable during the remainder of 20172023 and $47.8$28.6 million payable during 2018.2024. The 20172023 principal amountsamount payable includeincludes both amortizing principal payments and onethree balloon principal paymentpayments due in Decemberduring the remaining six months of 2017.2023. We anticipate being able to refinance our mortgages that come due during the remainder of 20172023 and 20182024 with a combination of new mortgage debt, availability under our Credit Facility and the issuance of additional equity securities. In addition, we have raised substantial equity under our ATMat-the-market programs and plan to continue to use these programs.
Operating Activities
Net cash provided by operating activities during the ninesix months ended SeptemberJune 30, 2017,2023, was $34.8$30.7 million, as compared to net cash provided by operating activities of $29.8$34.6 million for the ninesix months ended SeptemberJune 30, 2016.2022. This increasechange was primarily a result of an increase in rental receipts from acquisitions completed subsequent to September 30, 2016, a decrease in interest expense from refinanced and repaid mortgages during the previous 12 months, and a decrease in general and administrative fees from reducing our professional fees. These increases aredue to higher interest rates on variable rate debt, partially offset by an increase in operating revenues from the base management fee, an increase in net property operating expenses, and a reduction in income earned dueseven properties acquired subsequent to the repayment of a mortgage interest receivable held through January 2016.June 30, 2022. The majority of cash from operating activities is generated from the rental payments and operating expense recoverieslease 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 ninesix months ended SeptemberJune 30, 2017,2023, was $63.4$6.9 million, which primarily consisted of fiveone property acquisitions,acquisition, 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.one property sale. Net cash used in investing activities during the ninesix months ended SeptemberJune 30, 2016,2022, was $35.2$57.8 million, which primarily consisted of twoseven property acquisitions, coupled with capital improvements performed at certain of our properties, offset by the collection of a $5.9 million mortgage note receivable.properties.
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, was $28.2 million, which primarily consisted of the issuance of $69.9 million of equity and mezzanine equity, coupled with the issuance of $51.2 million of new mortgage debt in connection with property acquisitions, partially offset by the repayment of $57.2 million of mortgage principal, coupled with distributions paid to common, senior common and preferred shareholders. Net cash used in financing activities forduring the ninesix months ended SeptemberJune 30, 2016,2023, was $9.0$19.2 million, which primarily consisted of the repayment of $67.1$11.3 million of mortgage principal coupled withrepayments, and distributions paid to common, senior common and preferred shareholders, partially offset by $56.0the issuance of $8.8 million of newequity and net borrowings on our credit facility. Net cash provided by financing activities for the six months ended June 30, 2022, was $25.3 million, which primarily consisted of the issuance of $35.3 million of common and preferred equity, partially offset by the repayment $22.0 million of outstanding mortgage debt, in connection with certain acquisitions.and distributions paid to common, senior common and preferred shareholders.
Credit Facility
InOn August 2013,18, 2022, we procuredamended, extended and upsized our Credit Facility, increasing our Revolver with KeyBank (serving as a revolving lender, a letterfrom $100.0 million to $120.0 million (and its term to August 2026), adding the new $140.0 million Term Loan C, decreasing the principal balance of credit issuer and an administrative agent). In October 2015, we expanded our RevolverTerm Loan B to $85.0$60.0 million and entered into aextending the maturity date of Term Loan whereby we added a $25.0 million, five-yearA to August 2027. 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 repay the Term Loan in full, or in part, at any time without penalty or premium prior to the maturity date. In October 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 LoanC has a new five-year term, with a maturity date of OctoberFebruary 18, 2028 and a SOFR spread ranging from 125 to 195 basis points, depending on our leverage. On September 27, 2022 we further increased the Revolver to $125.0 million and the Revolver has a new four-year term, with a maturity dateTerm Loan C to $150.0 million, as permitted under the terms of October 27, 2021. The interest rate for the Credit Facility was reduced by 25 basis points at each of the leverage tiers.Facility. We entered into multiple interest rate capswap agreements on the amended Term Loan C, which cap LIBOR at 2.75%. We usedswap the net proceeds of the amended Credit Facilityinterest rate to repay all previously existing borrowings under the Revolver.fixed rates from 3.15% to 3.75%. We incurred fees of approximately $0.9$4.2 million in connection with extending and upsizing our Credit Facility. As of June 30, 2023, there was $150.0 million outstanding under Term Loan C, and we used all net proceeds to repay all outstanding borrowings on the Revolver, pay off mortgage debt, and fund acquisitions. The Credit Facility amendment. TheFacility’s current bank syndicate is now comprised of KeyBank, Fifth Third Bank, USThe Huntington National Bank, Bank of America, Synovus Bank, United Bank, First Financial Bank, and HuntingtonS&T Bank.
As of SeptemberJune 30, 2017,2023, there was $69.2$408.5 million outstanding under our Credit Facility at a weighted average interest rate of approximately 3.22%6.54% and $1.0$14.4 million outstanding under letters of credit at a weighted average interest rate of 2.00%1.50%. As of October 31, 2017,August 8, 2023, the maximum additional amount we could draw under the Revolver and Term LoanCredit Facility was $29.4$36.5 million. We were in compliance with all covenants under the Credit Facility as of SeptemberJune 30, 2017.2023.
Contractual Obligations
The following table reflects our material contractual obligations as of SeptemberJune 30, 20172023 (in thousands):
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| | Payments Due by Period |
Contractual Obligations | | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Debt Obligations (1) | | $ | 759,182 | | | $ | 66,884 | | | $ | 128,775 | | | $ | 475,081 | | | $ | 88,442 | |
Interest on Debt Obligations (2) | | 158,734 | | | 39,668 | | | 72,807 | | | 40,511 | | | 5,748 | |
Operating Lease Obligations (3) | | 8,538 | | | 492 | | | 988 | | | 1,012 | | | 6,046 | |
Purchase Obligations (4) | | 9,281 | | | 3,432 | | | 5,056 | | | 793 | | | — | |
| | $ | 935,735 | | | $ | 110,476 | | | $ | 207,626 | | | $ | 517,397 | | | $ | 100,236 | |
(1)Debt obligations represent borrowings under our Revolver, which represents $38.5 million of the debt obligation due in 2026, our Term Loan A, which represents $160.0 million of the debt obligation due in 2027, our Term Loan B, which represents $60.0 million of the debt obligation due in 2026, our Term Loan C, which represents $150.0 million of the debt obligation due in 2028 and mortgage notes payable that were outstanding as of June 30, 2023. This figure does not include $(0.1) million of premiums and (discounts), net and $5.4 million of deferred financing costs, net, which are reflected in mortgage notes payable, 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, Term Loan A, Term Loan B and Term Loan C is variable; thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of June 30, 2023.
(3)Operating lease obligations represent the ground lease payments due on four of our properties.
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| | Payments Due by Period |
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 |
|
Interest on Debt Obligations (2) | | 109,884 |
| | 21,498 |
| | 35,746 |
| | 28,110 |
| | 24,530 |
|
Operating Lease Obligations (3) | | 6,460 |
| | 470 |
| | 926 |
| | 747 |
| | 4,317 |
|
Purchase Obligations (4) | | 1,526 |
| | 777 |
| | 749 |
| | — |
| | — |
|
| | $ | 642,460 |
| | $ | 118,780 |
| | $ | 129,727 |
| | $ | 124,063 |
| | $ | 269,890 |
|
(4)Purchase obligations consist of tenant and capital improvements at eight of our properties.
| |
(1) | Debt obligations represent borrowings under our Revolver, which represents $44.2 million of the debt obligation due in 2018, our Term Loan, which represents $25.0 million of the debt obligation due in 2020, and mortgage notes payable that were outstanding as of September 30, 2017. This figure does not include $0.3 million of premiums and discounts, net and $5.5 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 sheet. |
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(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. |
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(3) | Operating lease obligations represent the ground lease payments due on our four of our properties. |
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(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. |
Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements as of SeptemberJune 30, 2017.2023.
Funds from Operations
The National Association of Real Estate Investment Trusts or NAREIT,(“NAREIT”) developed FFOFunds 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 ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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 June 30, | | For the six months ended June 30, |
| | (Dollars in Thousands, Except for Per Share Amounts) | | (Dollars in Thousands, Except for Per Share Amounts) |
| | 2023 | | 2022 | | 2023 | | 2022 |
Calculation of basic FFO per share of common stock and Non-controlling OP Unit | | | | | | | | |
Net (loss) income | | $ | (4,588) | | | $ | 1,624 | | | $ | (1,420) | | | $ | 5,068 | |
Less: Distributions attributable to preferred and senior common stock | | (3,164) | | | (3,081) | | | (6,295) | | | (6,143) | |
| | | | | | | | |
Less: Loss on extinguishment of Series F preferred stock | | (6) | | | — | | | (11) | | | (5) | |
Add: Gain on repurchase of Series G preferred stock | | — | | | — | | | 3 | | | — | |
Net loss attributable to common stockholders and Non-controlling OP Unitholders | | $ | (7,758) | | | $ | (1,457) | | | $ | (7,723) | | | $ | (1,080) | |
Adjustments: | | | | | | | | |
Add: Real estate depreciation and amortization | | $ | 16,936 | | | $ | 15,167 | | | $ | 31,640 | | | $ | 29,804 | |
Add: Impairment charge | | 6,823 | | | 1,374 | | | 6,823 | | | 1,374 | |
Add: Loss on sale of real estate, net | | 451 | | | — | | | 451 | | | — | |
| | | | | | | | |
FFO available to common stockholders and Non-controlling OP Unitholders - basic (1) | | $ | 16,452 | | | $ | 15,084 | | | $ | 31,191 | | | $ | 30,098 | |
Weighted average common shares outstanding - basic | | 39,978,674 | | | 38,745,751 | | | 39,950,672 | | | 38,326,531 | |
Weighted average Non-controlling OP Units outstanding | | 391,468 | | | 256,994 | | | 391,468 | | | 256,994 | |
Weighted average common shares and Non-controlling OP Units | | 40,370,142 | | | 39,002,745 | | | 40,342,140 | | | 38,583,525 | |
Basic FFO per weighted average share of common stock and Non-controlling OP Unit (1) | | $ | 0.41 | | | $ | 0.39 | | | $ | 0.77 | | | $ | 0.78 | |
Calculation of diluted FFO per share of common stock and Non-controlling OP Unit | | | | | | | | |
Net (loss) income | | $ | (4,588) | | | $ | 1,624 | | | $ | (1,420) | | | $ | 5,068 | |
Less: Distributions attributable to preferred and senior common stock | | (3,164) | | | (3,081) | | | (6,295) | | | (6,143) | |
| | | | | | | | |
Less: Loss on extinguishment of Series F preferred stock | | (6) | | | — | | | (11) | | | (5) | |
Add: Gain on repurchase of Series G preferred stock | | — | | | — | | | 3 | | | — | |
Net loss attributable to common stockholders and Non-controlling OP Unitholders | | $ | (7,758) | | | $ | (1,457) | | | $ | (7,723) | | | $ | (1,080) | |
Adjustments: | | | | | | | | |
Add: Real estate depreciation and amortization | | $ | 16,936 | | | $ | 15,167 | | | $ | 31,640 | | | $ | 29,804 | |
Add: Impairment charge | | 6,823 | | | 1,374 | | | 6,823 | | | 1,374 | |
Add: Income impact of assumed conversion of senior common stock | | 106 | | | 114 | | | 215 | | | 230 | |
Add: Loss on sale of real estate, net | | 451 | | | — | | | 451 | | | — | |
| | | | | | | | |
FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions (1) | | $ | 16,558 | | | $ | 15,198 | | | $ | 31,406 | | | $ | 30,328 | |
Weighted average common shares outstanding - basic | | 39,978,674 | | | 38,745,751 | | | 39,950,672 | | | 38,326,531 | |
Weighted average Non-controlling OP Units outstanding | | 391,468 | | | 256,994 | | | 391,468 | | | 256,994 | |
Effect of convertible senior common stock | | 345,132 | | | 363,246 | | | 345,132 | | | 363,246 | |
Weighted average common shares and Non-controlling OP Units outstanding - diluted | | 40,715,274 | | | 39,365,991 | | | 40,687,272 | | | 38,946,771 | |
Diluted FFO per weighted average share of common stock and Non-controlling OP Unit (1) | | $ | 0.41 | | | $ | 0.39 | | | $ | 0.77 | | | $ | 0.78 | |
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| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1)These amounts were unchanged by the revisions described in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies” and Note 9, “Revision of Previously Issued Financial Statements”.
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| | | | | | | | | | | | | | | | |
|
| 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 |
|
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
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 anentered into interest rate swapswaps whereby we pay a fixed interest rate of 1.80% to our respective counterparty, and receive one month LIBORSOFR in return. For details regarding our rate cap agreements and our interest rate swap agreementagreements 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 ninesix months ended SeptemberJune 30, 2017,2023, we have performed the following analysis, which assumes that our condensed consolidated balance sheet remainssheets 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, and a 1%, 2% and 3% decrease in the one month LIBORSOFR as of SeptemberJune 30, 2017.2023. As of SeptemberJune 30, 2017,2023, our effective average LIBORSOFR was 1.24%; thus, a 1%, 2% or 3% decrease could not occur5.09%. The impact of these fluctuations is presented below (dollars in thousands).
| | | | | | | | | | | | | | |
Interest Rate Change | | (Decrease) increase to Interest Expense | | Net increase (decrease) to Net Income |
3% Decrease to SOFR | | $ | (1,173) | | | $ | 1,173 | |
2% Decrease to SOFR | | (782) | | | 782 | |
1% Decrease to SOFR | | (391) | | | 391 | |
1% Increase to SOFR | | 391 | | | (391) | |
2% Increase to SOFR | | 782 | | | (782) | |
3% Increase to SOFR | | 1,173 | | | (1,173) | |
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| | | | | | | | |
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 SeptemberJune 30, 2017,2023, the fair value of our mortgage debt outstanding was $461.8$323.2 million. Interest rate fluctuations may affect the fair value of our debt instruments. If interest rates on our debt instruments, using rates at SeptemberJune 30, 2017,2023, 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$9.7 million and $21.2$10.4 million, respectively.
The amount outstanding under the Credit Facility approximates fair value as of SeptemberJune 30, 2017.2023.
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 one month SOFR, 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.
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Item 4. | Controls and Procedures. |
a) Evaluation of Disclosure Controls and Procedures
As of SeptemberJune 30, 2017,2023, 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 SeptemberJune 30, 20172023 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 SeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
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Item 1. | Legal Proceedings. |
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 the U.S. Securities and Exchange Commission on February 15, 2017.2022. There are no material changes to risks associated with our business or investment in our securities from those previously set forth in the reportsreport described above.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The following table provides information about repurchases we made of shares of our common stock during the three months ended June 30, 2023.
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| | Total Number of Shares Repurchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Program | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Program |
April 2023 | | — | | | $ | — | | | — | | | $ | — | |
May 2023 | | — | | | — | | | — | | | — | |
June 2023 | | 80,780 | | | 12.34 | | | 80,780 | | | 996,628.85 | |
| | 80,780 | | | $ | 12.34 | | | 80,780 | | | $ | 996,628.85 | |
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Item 3. | Defaults Upon Senior Securities |
None.
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Item 4. | Mine Safety Disclosures |
Not applicable.
None. Without limiting the generality of the foregoing, during the three months ended June 30, 2023, no officer or director of the Company adopted or terminated any “Rule 10b5-1 trading agreement” or any “non-Rule 10b5-1 trading arrangement,” as each item is defined in Item 408 of Regulation S-K.
Exhibit Index
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Exhibit Number | | Exhibit Description |
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Item 3.3.1 | Defaults Upon Senior Securities |
None.
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Item 4. | Mine Safety Disclosures |
Not applicable.
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:
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
Extend the revolving credit facility maturity date to October 2021 and the term loan maturity date to October 2022.
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.
Exhibit Index
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Exhibit
Number
| | Exhibit Description |
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3.1 | | |
3.2 | |
3.2 | | |
3.3 | |
3.3 | | |
3.4 | |
3.4 | | |
3.5 | | |
4.13.6 | | |
3.7 | | |
3.8 | | |
3.9 | | |
3.10 | | |
3.11 | | |
4.1 | | |
4.2 | |
4.2 | | |
4.3 | |
4.3 | | |
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4.4 | | |
4.4 | | |
10.14.5 | | |
10.1* | | Eighth Amended and Restated CreditInvestment Advisory Agreement, dated as of October 27, 2017,July 11, 2023, by and amongbetween the Registrant and Gladstone Commercial Limited Partnership, as borrower, Gladstone Commercial Corporation and certain of its wholly owned subsidiaries, as guarantors, each of the financial institutions initially a signatory thereto together with their successors and assignees, as lenders, and KeyBank National Association, as lender and agent.Management Corporation. |
31.1* | | |
11 | | |
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12 | | |
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31.1 | | |
31.2* | | |
31.2 | | |
32.1** | | |
32.1 | | |
32.2** | | |
32.2 | | |
99.1* | | |
101.INS*** | | XBRLiXBRL Instance Document |
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101.SCH*** | | XBRLiXBRL Taxonomy Extension Schema Document |
101.CAL*** | | iXBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB*** | | iXBRL Taxonomy Extension Label Linkbase Document |
101.PRE*** | | iXBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF*** | | iXBRL Definition Linkbase |
104 | | Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101) |
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101.CAL*** | | XBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith |
** | | Furnished herewith |
101.LAB*** | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE*** | | XBRL Taxonomy Extension Presentation Linkbase Document |
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101.DEF*** | | XBRL Definition Linkbase |
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*** | Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRLiXBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172023 and December 31, 2016,2022, (ii) the Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, (iii) the Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 and (iv) the Notes to Condensed Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | Gladstone Commercial Corporation |
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Date: | October 31, 2017August 8, 2023 | | By: | | /s/ Mike SodoGary Gerson |
| | | | | Mike SodoGary Gerson |
| | | | | Chief Financial Officer |
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Date: | October 31, 2017August 8, 2023 | | By: | | /s/ David Gladstone |
| | | | | David Gladstone |
| | | | | Chief Executive Officer and Chairman of the Board of Directors
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