good-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021


☐			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)


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

1521 Westbranch Drive,	Suite 100	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

Nasdaq Global Select Market

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

GOODM

Nasdaq Global Select Market

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

GOODN

Nasdaq Global Select Market

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

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

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 ☒

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of May 10, 2021 was 36,394,406.

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GLADSTONE COMMERCIAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

March 31, 2021

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		PAGE
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	4

	Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2021 and 2020	5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	42

SIGNATURES		44

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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)


	March 31, 2021		December 31, 2020
ASSETS
Real estate, at cost	$	1,143,960	$	1,128,683
Less: accumulated depreciation	240,351		228,468
Total real estate, net	903,609		900,215
Lease intangibles, net	114,057		117,379
Real estate and related assets held for sale	—		8,498
Cash and cash equivalents	9,871		11,016
Restricted cash	4,734		5,060
Funds held in escrow	7,936		9,145
Right-of-use assets from operating leases	5,528		5,582
Deferred rent receivable, net	36,823		36,555
Other assets	5,785		4,458
TOTAL ASSETS	$	1,088,343	$	1,097,908
LIABILITIES, MEZZANINE EQUITY AND EQUITY
LIABILITIES
Mortgage notes payable, net (1)	$	454,353	$	456,177
Borrowings under Revolver, net	—		53,312
Borrowings under Term Loan, net	208,790		159,203
Deferred rent liability, net	20,126		20,633
Operating lease liabilities	5,646		5,687
Asset retirement obligation	3,113		3,086
Accounts payable and accrued expenses	5,448		4,459

Due to Adviser and Administrator (1)	3,225		2,960
Other liabilities	15,193		17,068
TOTAL LIABILITIES	$	715,894	$	722,585
Commitments and contingencies (2)
MEZZANINE EQUITY
Series D and E redeemable preferred stock, net, par value $0.001 per share; $25 per share liquidation preference; 12,760,000 shares authorized, and 6,571,003 and 6,571,003 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively (3)	$	159,286	$	159,286
TOTAL MEZZANINE EQUITY	$	159,286	$	159,286
EQUITY
Senior common stock, par value $0.001 per share; 950,000 shares authorized; and 706,152 and 750,372 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively (3)	$	1	$	1
Common stock, par value $0.001 per share, 60,290,000 shares authorized and 36,224,499 and 35,331,970 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively (3)	36		35
Series F redeemable preferred stock, par value $0.001 per share; $25 per share liquidation preference; 26,000,000 shares authorized and 118,174 and 116,674 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively (3)	—		—
Additional paid in capital	639,053		626,533
Accumulated other comprehensive income	(1,921)		(4,345)
Distributions in excess of accumulated earnings	(425,422)		(409,041)
TOTAL STOCKHOLDERS' EQUITY	$	211,747	$	213,183
OP Units held by Non-controlling OP Unitholders (3)	1,416		2,854
TOTAL EQUITY	$	213,163	$	216,037
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	1,088,343	$	1,097,908

(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.

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Gladstone Commercial Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income

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

(Unaudited)


	For the three months ended March 31,
	2021		2020
Operating revenues
Lease revenue	$	34,677	$	33,619
Total operating revenues	$	34,677	$	33,619
Operating expenses
Depreciation and amortization	$	16,710	$	14,096
Property operating expenses	6,561		6,213
Base management fee (1)	1,444		1,412
Incentive fee (1)	1,236		1,055
Administration fee (1)	297		438
General and administrative	656		878

Total operating expenses	$	26,904	$	24,092
Other (expense) income
Interest expense	$	(7,164)	$	(7,252)
Loss on sale of real estate, net	(882)		(12)
Other income (expense)	311		(5)
Total other expense, net	$	(7,735)	$	(7,269)
Net income	$	38	$	2,258
Net loss attributable to OP Units held by Non-controlling OP Unitholders	41		9
Net income attributable to the Company	$	79	$	2,267
Distributions attributable to Series D, E, and F preferred stock	(2,847)		(2,678)
Distributions attributable to senior common stock	(187)		(208)
Net loss attributable to common stockholders	$	(2,955)	$	(619)
Loss per weighted average share of common stock - basic & diluted
Loss attributable to common shareholders	$	(0.08)	$	(0.02)
Weighted average shares of common stock outstanding
Basic and Diluted	35,714,107		33,634,946
Earnings per weighted average share of senior common stock	$	0.26	$	0.26
Weighted average shares of senior common stock outstanding - basic	723,841		793,429
Comprehensive income
Change in unrealized gain (loss) related to interest rate hedging instruments, net	$	2,424	$	(2,528)
Other Comprehensive gain (loss)	2,424		(2,528)
Net income	$	38	$	2,258
Comprehensive income (loss)	$	2,462	$	(270)
Comprehensive loss attributable to OP Units held by Non-controlling OP Unitholders	41		9
Total comprehensive income (loss) available to the Company	$	2,503	$	(261)

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

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

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Gladstone Commercial Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)


	For the three months ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	38	$	2,258
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,710		14,096


Loss on sale of real estate, net	882		12
Amortization of deferred financing costs	394		374
Amortization of deferred rent asset and liability, net	(1,395)		(462)
Amortization of discount and premium on assumed debt, net	14		15
Asset retirement obligation expense	27		26
Amortization of right-of-use asset from operating leases and operating lease liabilities, net	13		13
Operating changes in assets and liabilities
Decrease in other assets	224		1,412
Increase in deferred rent receivable	(355)		(214)
Increase in accounts payable and accrued expenses	1,063		2,143
Increase in amount due to Adviser and Administrator	265		248


(Decrease) increase in other liabilities	(446)		1,124

Leasing commissions paid	(555)		(715)
Net cash provided by operating activities	$	16,879	$	20,330
Cash flows from investing activities:
Acquisition of real estate and related intangible assets	$	(10,846)	$	(69,922)
Improvements of existing real estate	(1,669)		(2,031)
Proceeds from sale of real estate	5,106		3,947
Receipts from lenders for funds held in escrow	1,768		21
Payments to lenders for funds held in escrow	(559)		(766)
Receipts from tenants for reserves	1,215		435
Payments to tenants from reserves	(1,541)		(429)


Net cash used in investing activities	$	(6,526)	$	(68,745)
Cash flows from financing activities:
Proceeds from issuance of equity	$	11,465	$	28,296
Offering costs paid	(153)		(323)


Borrowings under mortgage notes payable	5,500		35,855
Payments for deferred financing costs	(584)		(382)
Principal repayments on mortgage notes payable	(7,497)		(3,162)
Borrowings from revolving credit facility	13,000		36,900
Repayments on revolving credit facility	(66,900)		(67,700)
Borrowings on term loan	50,000		37,700
(Decrease) increase in security deposits	(6)		12
Distributions paid for common, senior common, preferred stock and Non-controlling OP Unitholders	(16,649)		(15,738)
Net cash (used in) provided by financing activities	$	(11,824)	$	51,458
Net (decrease) increase in cash, cash equivalents, and restricted cash	$	(1,471)	$	3,043
Cash, cash equivalents, and restricted cash at beginning of period	$	16,076	$	11,488
Cash, cash equivalents, and restricted cash at end of period	$	14,605	$	14,531
SUPPLEMENTAL AND NON-CASH INFORMATION
Tenant funded fixed asset improvements included in deferred rent liability, net	$	1,102	$	353
Acquisition of real estate and related intangible assets	$	300	$	1,541



Unrealized gain (loss) related to interest rate hedging instruments, net	$	2,424	$	(2,528)


Capital improvements and leasing commissions included in accounts payable and accrued expenses	$	788	$	85

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Non-controlling OP Units issued in connection with acquisition						$	—					$	502

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 three months ended March 31,
	2021		2020
Cash and cash equivalents	$	9,871	$	9,853
Restricted cash	4,734		4,678
Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows	$	14,605	$	14,531

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

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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. Subject to certain restrictions and limitations, our business is managed by Gladstone Management Corporation, a Delaware corporation (the “Adviser”), and administrative services are provided by Gladstone Administration, LLC, a Delaware limited liability company (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 (the “Operating Partnership”).

All references herein to “we,” “our,” “us” and 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”) 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, 2020, as filed with the U.S. Securities and Exchange Commission on February 16, 2021. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

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, including the impact of extraordinary events such as the novel coronavirus (“COVID-19”) pandemic, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Significant Accounting Policies

The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature 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, “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, 2020. There were no material changes to our critical accounting policies during the three months ended March 31, 2021.

Recently Issued Accounting Pronouncements

In April 2020, the FASB issued a staff question-and-answer document, Topic 842 and Topic 840: Accounting for Lease Concessions related to the Effects of the COVID-19 Pandemic (“COVID-19 Q&A”), to address frequently asked questions pertaining to lease concessions arising from the effects of the COVID-19 pandemic. Existing lease guidance requires entities to determine if a lease concession was a result of a new arrangement reached with the tenant, which would be addressed under the lease modification accounting framework, or if a lease concession was under the enforceable rights and obligations within the existing lease agreement, which would not fall under the lease modification accounting framework. The COVID-19 Q&A clarifies that entities may elect to not evaluate whether lease-related relief granted in light of the effects of COVID-19 is a lease

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modification, as long as the concession does not result in a substantial increase in rights of the lessor or obligations of the lessee. This election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than the total payments required by the original contract.

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, is the executive vice 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, 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 (the “Advisory Agreement”), and an administration agreement with our Administrator (the “Administration Agreement”). The services and fees under the Advisory Agreement and Administration Agreement are described below. As of March 31, 2021 and December 31, 2020, $3.2 million and $3.0 million, respectively, were collectively due to our Adviser and Administrator. Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreements with our Adviser and Administrator each July. During their July 2020 meeting, our Board of Directors amended and restated the Advisory Agreement and reviewed and renewed the Administration Agreement for an additional year, through August 31, 2021.

Base Management Fee

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

On July 14, 2020, the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Sixth Amended Advisory Agreement”), which replaced the previous 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 prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Sixth Amended Advisory Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Advisory Agreement remain unchanged. The revised base management fee calculation began with the fee calculations for the quarter ended September 30, 2020.

For the three months ended March 31, 2021 and 2020, we recorded a base management fee of $1.4 million and $1.4 million, respectively.

Incentive Fee

Pursuant to the Advisory Agreement, the calculation of the incentive fee rewards the Adviser in circumstances where our quarterly Core FFO (defined at the end of this paragraph), before giving effect to any incentive fee, or pre-incentive fee Core FFO, exceeds 2.0% quarterly, or 8.0% annualized, of adjusted total stockholders’ equity (after giving effect to the base management fee but before giving effect to the incentive fee). We refer to this as the hurdle rate. The Adviser will receive 15.0% of the amount of our pre-incentive fee Core FFO that exceeds the 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

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net income (loss) available to common stockholders, excluding the incentive fee, depreciation and amortization, any realized and unrealized gains, losses or other non-cash items recorded in net income (loss) available to common stockholders for the period, and one-time events pursuant to changes in GAAP.

For the three months ended March 31, 2021 and 2020, we recorded an incentive fee of $1.2 million and $1.1 million, respectively. The Adviser did not waive any portion of the incentive fee for the three months ended March 31, 2021 or 2020.

Capital Gain Fee

Under the Advisory Agreement, we will pay to the Adviser a capital gain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property (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 months ended March 31, 2021 or 2020.

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 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 interim 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’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 months ended March 31, 2021 and 2020, we recorded an administration fee of $0.3 million and $0.4 million, respectively.

Gladstone Securities

Gladstone Securities, LLC (“Gladstone 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 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,

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generally ranging from 0.15% to a maximum of 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-party brokers and market conditions. We paid financing fees to Gladstone Securities of $14,000 during the three months ended March 31, 2021, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.25% of the mortgage principal secured. We paid financing fees to Gladstone Securities of $89,637 during the three months ended March 31, 2020, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.25% of the mortgage principal secured. Our Board of Directors renewed the agreement for an additional year, through August 31, 2021, at its July 2020 meeting.

Dealer Manager Agreement

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

Under the Dealer Manager Agreement, Gladstone Securities, as dealer manager, will provide certain sales, promotional and marketing services to the Company in connection with the Offering, and the Company will 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 shall be paid with respect to Shares sold pursuant to the DRIP. Gladstone Securities may, in its sole discretion, reallow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $3,375 to Gladstone Securities during the three months ended March 31, 2021 in connection with the Offering.

3. Loss Per Share of Common Stock

The following tables set forth the computation of basic and diluted loss per share of common stock for the three months ended March 31, 2021 and 2020. The OP Units held by Non-controlling OP Unitholders (which may be redeemed for shares of common stock) have been excluded from the diluted loss 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 months ended March 31, 2021 and 2020 using the weighted average number of shares outstanding during the respective periods. Diluted loss per share for the three months ended March 31, 2021 and 2020 reflects additional shares of common stock related to our convertible senior common stock (the “Senior Common Stock”), if the effect would be dilutive, that would have been outstanding if dilutive potential shares of common stock had been issued, as well as an adjustment to net loss attributable to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts).

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	For the three months ended March 31,
	2021		2020
Calculation of basic loss per share of common stock:
Net loss attributable to common stockholders	$	(2,955)	$	(619)
Denominator for basic weighted average shares of common stock (1)	35,714,107		33,634,946
Basic loss per share of common stock	$	(0.08)	$	(0.02)
Calculation of diluted loss per share of common stock:
Net loss attributable to common stockholders	$	(2,955)	$	(619)

Net loss attributable to common stockholders plus assumed conversions (2)	$	(2,955)	$	(619)
Denominator for basic weighted average shares of common stock (1)	35,714,107		33,634,946
Effect of convertible Senior Common Stock (2)	—		—
Denominator for diluted weighted average shares of common stock (2)	35,714,107		33,634,946
Diluted loss per share of common stock	$	(0.08)	$	(0.02)

(1)The weighted average number of OP Units held by Non-controlling OP Unitholders was 500,299 and 501,233 for the three months ended March 31, 2021 and 2020, respectively.

(2)We excluded convertible shares of Senior Common Stock of 592,156 and 654,942 from the calculation of diluted loss per share for the three months ended March 31, 2021 and 2020, 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 March 31, 2021 and December 31, 2020, excluding real estate held for sale as of December 31, 2020 (dollars in thousands):


	March 31, 2021		December 31, 2020
Real estate:
Land (1)	$	143,559	$	142,853
Building and improvements	930,480		916,601
Tenant improvements	69,921		69,229
Accumulated depreciation	(240,351)		(228,468)
Real estate, net	$	903,609	$	900,215

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

Real estate depreciation expense on building and tenant improvements was $10.7 million and $9.0 million for the three months ended March 31, 2021 and 2020, respectively.

Acquisitions

We acquired one property during the three months ended March 31, 2021, and five properties during the three months ended March 31, 2020. The acquisitions are summarized below (dollars in thousands):


Three Months Ended		Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Aggregate Capitalized Acquisition Costs
March 31, 2021	(1)	180,152	14.2 years	$	11,146	$	146	(3)
March 31, 2020	(2)	890,038	14.8 years	$	71,965	$	255	(3)

(1)On January 22, 2021, we acquired a 180,152 square foot property in Findlay, Ohio for $11.1 million. The property is fully leased to one tenant for 14.2 years.

(2)On January 8, 2020, we acquired a 64,800 square foot property in Indianapolis, Indiana for $5.3 million. The property is leased to three tenants, with a weighted average lease term of 7.2 years. On January 27, 2020, we acquired a 320,838

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square foot, three-property portfolio in Houston, Texas, Charlotte, North Carolina, and St. Charles, Missouri for $34.7 million. The portfolio has a weighted average lease term of 20.0 years. On March 9, 2020, we acquired a 504,400 square foot property in Crandall, Georgia, for $32.0 million. This property is fully leased to one tenant for 10.5 years.

(3)During the three months ended March 31, 2021 and 2020, we capitalized $0.1 million and $0.3 million, respectively, of acquisition costs.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the three months ended March 31, 2021 and 2020, respectively, as follows (dollars in thousands):


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Acquired assets and liabilities	Purchase price		Purchase price
Land	$	258	$	7,296	(1)
Building	8,759		54,000
Tenant Improvements	88		1,285
In-place Leases	817		4,442
Leasing Costs	803		4,261
Customer Relationships	294		2,223
Above Market Leases	127		210		(2)
Below Market Leases	—		(1,752)		(3)


Total Purchase Price	$	11,146	$	71,965

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

(2)This amount includes $53 of loans receivable included in Other assets on the condensed consolidated balance sheets.

(3)This amount includes $62 of prepaid rent included in Other liabilities on the condensed consolidated balance sheets.

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the nine months ending December 31, 2021 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Tenant Lease Payments
Nine Months Ending 2021	$	84,350
2022	106,492
2023	99,927
2024	91,890
2025	85,229
2026	76,057
Thereafter	261,017
	$	804,962

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.

Lease Revenue Reconciliation

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the three months ended March 31, 2021 and 2020, respectively (dollars in thousands):

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	For the three months ended March 31,
	(Dollars in Thousands)
Lease revenue reconciliation	2021		2020		$ Change		% Change
Fixed lease payments	$	30,757	$	29,479	$	1,278	4.3	%
Variable lease payments	3,920		4,140		(220)		(5.3)	%
	$	34,677	$	33,619	$	1,058	3.1	%

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 March 31, 2021 and December 31, 2020, excluding real estate held for sale as of December 31, 2020 (dollars in thousands):


	March 31, 2021				December 31, 2020
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	100,470	$	(56,983)	$	99,254	$	(54,168)
Leasing costs	75,310		(39,751)		73,707		(37,801)
Customer relationships	68,851		(33,840)		68,268		(31,881)
	$	244,631	$	(130,574)	$	241,229	$	(123,850)

	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	15,203	$	(10,883)	$	15,076	$	(10,670)
Below market leases and deferred revenue	(39,421)		19,295		(38,319)		17,686

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $6.0 million and $5.1 million for the three months ended March 31, 2021 and 2020, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income.

Total amortization related to above-market lease values was $0.2 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $1.6 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income.

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the three months ended March 31, 2021 and 2020, respectively, were as follows:


Intangible Assets & Liabilities	2021	2020
In-place leases	14.2	16.3
Leasing costs	14.2	16.3
Customer relationships	19.2	19.5
Above market leases	14.2	18.0
Below market leases	0.0	14.2
All intangible assets & liabilities	15.4	16.9

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

Real Estate Dispositions

During the three months ended March 31, 2021, we continued to execute our capital recycling program, whereby we sold 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

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properties as reasonable disposition opportunities become available. During the three months ended March 31, 2021, we sold two non-core properties, located in Rancho Cordova, California and Champaign, Illinois, 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
81,758	$	5,473	$	367	$	(882)

Our dispositions during the three months ended March 31, 2021 were not classified as discontinued operations because they did not represent a strategic shift in operations, nor will such dispositions have a major effect on our operations and financial results. Accordingly, the operating results of these properties are included within continuing operations for all periods reported.

The table below summarizes the components of operating income from the real estate and related assets disposed of during the three months ended March 31, 2021, and 2020 (dollars in thousands):


	For the three months ended March 31,
	2021			2020
Operating revenue	$	233		$	227
Operating expense	113			188
Other expense, net	(1,622)		(1)	(59)
Loss from real estate and related assets sold	$	(1,502)		$	(20)

(1)Includes a $0.9 million loss on sale of real estate, net, on two property sales.

Real Estate Held for Sale

As of March 31, 2021, we did not have any properties classified as held for sale. At December 31, 2020, we had three properties classified as held for sale, located in Boston Heights, Ohio, Rancho Cordova, California, and Champaign, Illinois. Two of the properties were sold during the three months ended March 31, 2021. Our Boston Heights, Ohio property is classified as held and used as of March 31, 2021, as this property no longer meets the held for sale criteria.

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


	December 31, 2020
Assets Held for Sale


Total real estate held for sale	$	8,114
Lease intangibles, net	384


Total Assets Held for Sale	$	8,498

Impairment Charges

We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the three months ended March 31, 2021 and did not recognize an impairment charge. We did not recognize an impairment charge during the three months ended March 31, 2020 after we evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired.

We continue to evaluate our properties on a quarterly basis for changes that could create the need to record impairment. Future impairment losses may result, and could be significant, should market conditions deteriorate in the markets in which we hold our assets or should we be unable to secure leases at terms that are favorable to us, which could impact the estimated cash flow of our properties over the period in which we plan to hold our properties. Additionally, changes in management’s decisions to either own and lease long-term or sell a particular asset will have an impact on this analysis.

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6. Mortgage Notes Payable and Credit Facility

Our $100.0 million unsecured revolving credit facility (“Revolver”), $160.0 million term loan facility (“Term Loan A”), and $65.0 million new term loan facility (“Term Loan B”), are collectively referred to herein as the Credit Facility.

Our mortgage notes payable and Credit Facility as of March 31, 2021 and December 31, 2020 are summarized below (dollars in thousands):


	Encumbered properties at		Carrying Value at				Stated Interest Rates at	Scheduled Maturity Dates at
	March 31, 2021		March 31, 2021		December 31, 2020		March 31, 2021	March 31, 2021
Mortgage and other secured loans:
Fixed rate mortgage loans	61		$	433,262	$	435,029	(1)	(2)
Variable rate mortgage loans	7		24,578		24,809		(3)	(2)
Premiums and discounts, net	-		(168)		(182)		N/A	N/A
Deferred financing costs, mortgage loans, net	-		(3,319)		(3,479)		N/A	N/A
Total mortgage notes payable, net	68		$	454,353	$	456,177	(4)
Variable rate revolving credit facility	49	(6)	$	—	$	53,900	LIBOR + 1.90%	7/2/2023

Total revolver	49		$	—	$	53,900
Variable rate term loan facility A	-	(6)	$	160,000	$	160,000	LIBOR + 1.85%	7/2/2024
Variable rate term loan facility B	-	(6)	50,000		—		LIBOR + 2.00%	2/11/2026
Deferred financing costs, term loan facility	-		(1,210)		(797)		N/A	N/A
Total term loan, net	N/A		$	208,790	$	159,203
Total mortgage notes payable and credit facility	117		$	663,143	$	669,280	(5)

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

(2)We have 53 mortgage notes payable with maturity dates ranging from 11/1/2021 through 8/1/2037.

(3)Interest rates on our variable rate mortgage notes payable vary from one month LIBOR + 2.35% to one month LIBOR + 2.75%. As of March 31, 2021, one month LIBOR was approximately 0.11%.

(4)The weighted average interest rate on the mortgage notes outstanding as of March 31, 2021 was approximately 4.22%.

(5)The weighted average interest rate on all debt outstanding as of March 31, 2021 was approximately 3.52%.

(6)The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 49 unencumbered properties as of March 31, 2021.

N/A - Not Applicable

Mortgage Notes Payable

As of March 31, 2021, we had 53 mortgage notes payable, collateralized by a total of 68 properties with a net book value of $685.4 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. As of March 31, 2021, we did not have any mortgages 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 three months ended March 31, 2021, we repaid one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):

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Fixed Rate Debt Repaid		Interest Rate on Fixed Rate Debt Repaid
$	4,470	4.90%

During the three months ended March 31, 2021, we issued one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):


Fixed Rate Debt Issued			Interest Rate on Fixed Rate Debt
$	5,500	(1)	3.24%

(1)On January 22, 2021, we issued $5.5 million of floating rate debt swapped to fixed debt of 3.24% in connection with one property acquisition.

We made payments of $0.6 million and $0.4 million for deferred financing costs during the three months ended March 31, 2021 and 2020, respectively.

Scheduled principal payments of mortgage notes payable for the nine months ending December 31, 2021, and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands):


Year	Scheduled Principal Payments
Nine Months Ending December 31, 2021	$	20,134
2022	105,766
2023	72,547
2024	45,574
2025	37,735
2026	43,048
Thereafter	133,036
Total	$	457,840	(1)

(1)This figure does not include $(0.2) million of premiums and (discounts), net, and $3.3 million of deferred financing costs, which are reflected in mortgage notes payable, net on the condensed consolidated balance sheets.

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 or entered into interest rate swap agreements in which we hedged our exposure to variable interest rates by agreeing to pay fixed interest rates to our respective counterparty. We have adopted the fair value measurement provisions for our financial instruments recorded at fair value. The fair value guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Generally, we will estimate the fair value of our interest rate caps and interest rate 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 March 31, 2021 and December 31, 2020, our interest rate cap agreements and interest rate swaps were valued using Level 2 inputs.

The fair value of the interest rate cap agreements is recorded in other assets on our accompanying condensed consolidated balance sheets. We record changes in the fair value of the interest rate cap agreements quarterly based on the current market valuations at quarter end. 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 in our condensed consolidated statements of operations and comprehensive 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

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interest expense in our consolidated statements of operations and comprehensive income. The following table summarizes the interest rate caps at March 31, 2021 and December 31, 2020 (dollars in thousands):


			March 31, 2021				December 31, 2020
Aggregate Cost			Aggregate Notional Amount		Aggregate Fair Value		Aggregate Notional Amount		Aggregate Fair Value
$	1,322	(1)	$	226,920	$	155	$	177,060	$	9

(1)We have entered into various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 1.50% to 2.75%.

We have assumed or entered into interest rate swap agreements in connection with certain of our mortgage financings, whereby we will pay our counterparty a fixed rate interest rate on a monthly basis, and receive payments from our counterparty equivalent to the stipulated floating rate. The fair value of our interest rate swap agreements are recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate swaps as cash flow 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 sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. The following table summarizes our interest rate swaps at March 31, 2021 and December 31, 2020 (dollars in thousands):


March 31, 2021						December 31, 2020
Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability		Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability
$	74,060	$	1,272	$	(1,959)	$	68,829	$	—	$	(3,055)

The following tables present the impact of our derivative instruments in the condensed consolidated financial statements (dollars in thousands):


	Amount of gain (loss) recognized in Comprehensive Income
	Three Months Ended March 31,
	2021		2020
Derivatives in cash flow hedging relationships
Interest rate caps	$	55	$	(163)
Interest rate swaps	2,369		(2,365)
Total	$	2,424	$	(2,528)

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


		Asset (Liability) Derivatives Fair Value at
Derivatives Designated as Hedging Instruments	Balance Sheet Location	March 31, 2021		December 31, 2020
Interest rate caps	Other assets	$	155	$	9
Interest rate swaps	Other assets	1,272		—
Interest rate swaps	Other liabilities	(1,959)		(3,055)
Total derivative liabilities, net		$	(532)	$	(3,046)

The fair value of all mortgage notes payable outstanding as of March 31, 2021 was $466.0 million, as compared to the carrying value stated above of $454.4 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

On July 2, 2019, we amended, extended and upsized our Credit Facility, expanding Term Loan A from $75.0 million to $160.0 million, and increasing our Revolver from $85.0 million to $100.0 million. Term Loan A has a maturity date of July 2, 2024, and the Revolver has a maturity date of July 2, 2023. The interest rate for the Credit Facility is equal to LIBOR plus a spread

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ranging from 125 to 215 basis points, depending on our leverage. We entered into multiple interest rate cap agreements on Term Loan A, which cap LIBOR ranging from 2.50% to 2.75%, to hedge our exposure to variable interest rates. The bank syndicate is comprised of KeyBank, Fifth Third Bank, U.S. Bank National Association, The Huntington National Bank, Goldman Sachs Bank USA, and Wells Fargo Bank, National Association.

On February 11, 2021, we added a new $65.0 million Term Loan B, inclusive of a $15.0 million delayed funding component. Term Loan B has a maturity date of February 11, 2026 and a LIBOR floor of 25 basis points, plus a spread ranging from 140 to 225 basis points, depending on our leverage. We entered into multiple interest rate cap agreements on Term Loan B, which cap LIBOR at 1.50%. We incurred fees of approximately $0.5 million in connection with issuing Term Loan B. As of March 31, 2021, there was $50.0 million outstanding under Term Loan B, and we used all net proceeds to repay all outstanding borrowings on the Revolver.

As of March 31, 2021, there was $210.0 million outstanding under our Credit Facility, at a weighted average interest rate of approximately 2.00%, and $18.8 million outstanding under letters of credit, at a weighted average interest rate of 1.90%. As of March 31, 2021, the maximum additional amount we could draw under the Credit Facility was $18.3 million. We were in compliance with all covenants under the Credit Facility as of March 31, 2021.

The amount outstanding under the Credit Facility approximates fair value as of March 31, 2021.

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 for the nine months ending December 31, 2021 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Future Lease Payments Due Under Operating Leases
Nine Months Ending December 31, 2021	$	360
2022	489
2023	492
2024	493
2025	494
2026	498
Thereafter	6,807
Total anticipated lease payments	$	9,633
Less: amount representing interest	(3,987)
Present value of lease payments	$	5,646

Rental expense incurred for properties with ground lease obligations during the three months ended March 31, 2021 and 2020 was $0.1 million and $0.1 million, respectively. Our ground leases are treated as operating leases and rental expenses are reflected in property operating expenses on the condensed consolidated statements of operations and comprehensive income. Our ground leases have a weighted average remaining lease term of 19.9 years and a weighted average discount rate of 5.32%.

Letters of Credit

As of March 31, 2021, there was $18.8 million outstanding under letters of credit. These letters of credit are not reflected on our condensed consolidated balance sheets.

8. Equity and Mezzanine Equity

Stockholders’ Equity

The following table summarizes the changes in our equity for the three months ended March 31, 2021 and 2020 (in thousands):

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	Three Months Ended March 31,
	2021		2020




Senior Common Stock
Balance, beginning of period	$	1	$	1
Issuance of senior common stock, net	—		—
Balance, end of period	$	1	$	1
Common Stock
Balance, beginning of period	$	35	$	32
Issuance of common stock, net	1		2
Balance, end of period	$	36	$	34
Series F Preferred Stock (1)
Balance, beginning of period	$	—	$	—
Issuance of Series F Preferred Stock, net	—		—
Balance, end of period	$	—	$	—
Additional Paid in Capital
Balance, beginning of period	$	626,533	$	571,205
Issuance of common stock and Series F Preferred Stock, net (1)	11,312		27,930
Redemption of OP Units	4,812		—
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	(3,604)		97
Balance, end of period	$	639,053	$	599,232
Accumulated Other Comprehensive Income
Balance, beginning of period	$	(4,345)	$	(2,126)
Comprehensive income	2,424		(2,528)
Balance, end of period	$	(1,921)	$	(4,654)
Distributions in Excess of Accumulated Earnings