good-20220930

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 SEPTEMBER 30, 2022


☐			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

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 ☒ 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 November 7, 2022 was 39,607,009.

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GLADSTONE COMMERCIAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

September 30, 2022

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		PAGE
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	4

	Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2022 and 2021	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	45

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	46

SIGNATURES		49

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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)


	September 30, 2022		December 31, 2021
ASSETS
Real estate, at cost	$	1,279,455	$	1,225,258
Less: accumulated depreciation	284,802		266,672
Total real estate, net	994,653		958,586
Lease intangibles, net	112,993		114,494
Real estate and related assets held for sale	11,434		—
Cash and cash equivalents	13,540		7,956
Restricted cash	4,146		5,222
Funds held in escrow	9,464		7,304
Right-of-use assets from operating leases	5,189		5,361
Deferred rent receivable, net	38,935		39,066
Other assets	19,314		5,363
TOTAL ASSETS	$	1,209,668	$	1,143,352
LIABILITIES, MEZZANINE EQUITY AND EQUITY
LIABILITIES
Mortgage notes payable, net (1)	$	367,618	$	449,944
Borrowings under Revolver	7,750		33,550
Borrowings under Term Loan A, Term Loan B and Term Loan C, net	366,395		224,032
Deferred rent liability, net	40,701		26,770
Operating lease liabilities	5,360		5,509
Asset retirement obligation	4,501		3,769
Accounts payable and accrued expenses	10,904		6,736
Liabilities related to assets held for sale	16		—
Due to Adviser and Administrator (1)	3,704		3,431
Other liabilities	15,072		16,788
TOTAL LIABILITIES	$	822,021	$	770,529
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; 10,760,000 shares authorized; and 7,061,448 and 7,061,448 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	$	170,261	$	170,261
TOTAL MEZZANINE EQUITY	$	170,261	$	170,261
EQUITY
Senior common stock, par value $0.001 per share; 950,000 shares authorized; and 431,064 and 600,061 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	$	1	$	1
Common stock, par value $0.001 per share, 62,292,200 and 62,290,000 shares authorized; and 39,607,009 and 37,473,587 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	39		37
Series F redeemable preferred stock, par value $0.001 per share; $25 per share liquidation preference; 25,997,800 and 26,000,000 shares authorized and 597,616 and 422,920 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	1		—
Additional paid in capital	717,098		671,134
Accumulated other comprehensive income	12,366		(1,346)
Distributions in excess of accumulated earnings	(514,057)		(468,523)
TOTAL STOCKHOLDERS' EQUITY	$	215,448	$	201,303
OP Units held by Non-controlling OP Unitholders (3)	1,938		1,259
TOTAL EQUITY	$	217,386	$	202,562
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	1,209,668	$	1,143,352

(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 September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Operating revenues
Lease revenue	$	39,834	$	34,334	$	111,764	$	102,381
Total operating revenues	$	39,834	$	34,334	$	111,764	$	102,381
Operating expenses
Depreciation and amortization	$	15,764	$	14,760	$	45,672	$	45,661
Property operating expenses	6,536		6,807		20,118		20,278
Base management fee (1)	1,603		1,472		4,727		4,369
Incentive fee (1)	1,513		1,266		4,193		3,540
Administration fee (1)	481		382		1,342		1,016
General and administrative	833		811		2,788		2,540
Impairment charge	10,718		—		12,092		—
Total operating expense before incentive fee waiver	$	37,448	$	25,498	$	90,932	$	77,404
Incentive fee waiver (1)	—		—		—		(16)
Total operating expenses	$	37,448	$	25,498	$	90,932	$	77,388
Other income (expense)
Interest expense	$	(9,107)	$	(6,688)	$	(22,813)	$	(20,338)
Gain (loss) on sale of real estate, net	8,902		—		8,902		(882)
Other income	316		2,350		538		2,884
Total other income (expense), net	$	111	$	(4,338)	$	(13,373)	$	(18,336)
Net income	$	2,497	$	4,498	$	7,459	$	6,657
Net loss (income) attributable (available) to OP Units held by Non-controlling OP Unitholders	4		(21)		12		42
Net income attributable to the Company	$	2,501	$	4,477	$	7,471	$	6,699
Distributions attributable to Series D, E, F, and G preferred stock	(2,987)		(2,868)		(8,900)		(8,571)
Series D preferred stock offering costs write off	—		—		—		(2,141)
Distributions attributable to senior common stock	(114)		(170)		(344)		(534)
Loss on extinguishment of Series F preferred stock	—		—		(5)		—
Net (loss) income (attributable) available to common stockholders	$	(600)	$	1,439	$	(1,778)	$	(4,547)
(Loss) income per weighted average share of common stock - basic & diluted
(Loss) income (attributable) available to common shareholders	$	(0.02)	$	0.04	$	(0.05)	$	(0.13)
Weighted average shares of common stock outstanding
Basic and Diluted	39,504,734		36,768,779		38,723,581		36,296,414
Earnings per weighted average share of senior common stock	$	0.26	$	0.26	$	0.78	$	0.78
Weighted average shares of senior common stock outstanding - basic	431,064		642,742		438,556		680,878
Comprehensive income
Change in unrealized gain related to interest rate hedging instruments, net	$	6,790	$	421	$	13,660	$	2,125
Other Comprehensive gain	6,790		421		13,660		2,125
Net income	$	2,497	$	4,498	$	7,459	$	6,657
Comprehensive income	$	9,287	$	4,919	$	21,119	$	8,782
Comprehensive loss (income) attributable (available) to OP Units held by Non-controlling OP Unitholders	4		(21)		12		42
Total comprehensive income available to the Company	$	9,291	$	4,898	$	21,131	$	8,824

(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 nine months ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	7,459	$	6,657
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	45,672		45,661
Impairment charge	12,092		—

(Gain) loss on sale of real estate, net	(8,902)		882
Amortization of deferred financing costs	3,066		1,175
Amortization of deferred rent asset and liability, net	(2,483)		(2,702)
Amortization of discount and premium on assumed debt, net	36		40
Asset retirement obligation expense	68		78
Amortization of right-of-use asset from operating leases and operating lease liabilities, net	23		34
Operating changes in assets and liabilities
(Increase) decrease in other assets	(1,476)		114
Decrease in deferred rent receivable	(1,192)		(1,907)
Increase in accounts payable and accrued expenses	3,388		4,071
Increase in amount due to Adviser and Administrator	273		228


Increase in other liabilities	598		1,016
Tenant inducement payments	—		(20)
Leasing commissions paid	(1,724)		(1,634)
Net cash provided by operating activities	$	56,898	$	53,693
Cash flows from investing activities:
Acquisition of real estate and related intangible assets	$	(95,882)	$	(45,879)
Improvements of existing real estate	(2,490)		(4,752)
Proceeds from sale of real estate	26,847		5,106
Receipts from lenders for funds held in escrow	3,529		1,948
Payments to lenders for funds held in escrow	(5,689)		(1,691)
Receipts from tenants for reserves	1,513		3,035
Payments to tenants from reserves	(3,106)		(3,223)
Deposits on future acquisitions	(258)		(500)

Net cash used in investing activities	$	(75,536)	$	(45,956)
Cash flows from financing activities:
Proceeds from issuance of equity	$	45,232	$	129,992
Offering costs paid	(895)		(4,304)
Redemption of Series F preferred stock	(55)		—
Redemption of Series D perpetual preferred stock	—		(87,739)
Borrowings under mortgage notes payable	56,313		5,500
Payments for deferred financing costs	(5,202)		(614)
Principal repayments on mortgage notes payable	(138,889)		(14,336)

Borrowings from revolving credit facility	87,250		19,100
Repayments on revolving credit facility	(113,050)		(70,900)
Borrowings on term loan	150,000		65,000
Repayments on term loan	(5,000)		—
Increase (decrease) in security deposits	464		83
Distributions paid for common, senior common, preferred stock and Non-controlling OP Unitholders	(53,022)		(50,393)
Net cash provided by (used in) financing activities	$	23,146	$	(8,611)
Net increase in cash, cash equivalents, and restricted cash	$	4,508	$	(874)
Cash, cash equivalents, and restricted cash at beginning of period	$	13,178	$	16,076
Cash, cash equivalents, and restricted cash at end of period	$	17,686	$	15,202

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SUPPLEMENTAL AND NON-CASH INFORMATION
Tenant funded fixed asset improvements included in deferred rent liability, net	$	16,668	$	4,905
Acquisition of real estate and related intangible assets	$	—	$	300



Unrealized gain related to interest rate hedging instruments, net	$	13,660	$	2,125


Capital improvements and leasing commissions included in accounts payable and accrued expenses	$	1,142	$	539
Increase in asset retirement obligation assumed in acquisition	$	718	$	—
Non-controlling OP Units issued in connection with acquisition	$	2,393	$	—
Series D Preferred Stock offering cost write off	$	—	$	2,141
Dividends paid on Series F Preferred Stock via additional share issuances	$	284	$	—

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 nine months ended September 30,
	2022		2021
Cash and cash equivalents	$	13,540	$	10,230
Restricted cash	4,146		4,972
Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows	$	17,686	$	15,202

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, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2022. The results of operations for the three and nine months ended September 30, 2022 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 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, 2021. There were no material changes to our critical accounting policies during the three and nine months ended September 30, 2022.

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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. Arthur “Buzz” Cooper, is also 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 September 30, 2022 and December 31, 2021, $3.7 million and $3.4 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 2022 meeting, our Board of Directors reviewed and renewed each of the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2023.

Base Management Fee

On July 14, 2020, we amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between us 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 is 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 our 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 remains unchanged.

For the three and nine months ended September 30, 2022, we recorded a base management fee of $1.6 million and $4.7 million, respectively. For the three and nine months ended September 30, 2021, we recorded a base management fee of $1.5 million and $4.4 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 net (loss) income (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 (attributable) available to common stockholders for the period, and one-time events pursuant to changes in GAAP. The Incentive Fee is used by the Adviser primarily for performance-based compensation related to certain of its employees.

For the three and nine months ended September 30, 2022, we recorded an incentive fee of $1.5 million and $4.2 million, respectively. For the three and nine months ended September 30, 2021, we recorded an incentive fee of $1.3 million and $3.5 million, respectively, partially offset by credits related to non-contractual, unconditional, and irrevocable waivers issued by the Advisor of $0 and $0.02 million, respectively. The Adviser did not waive any portion of the incentive fee for the three and nine months ended September 30, 2022.

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.

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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 and nine months ended September 30, 2022 or 2021.

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 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 and nine months ended September 30, 2022, we recorded an administration fee of $0.5 million and $1.3 million, respectively. For the three and nine months ended September 30, 2021, we recorded an administration fee of $0.4 million and $1.0 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, 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 $0.1 million and $0.3 million during the three and nine months ended September 30, 2022, respectively, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.29% and 0.32%, respectively, of the mortgage principal secured. We paid financing fees to Gladstone Securities of $14,000 during the nine months ended September 30, 2021, 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, 2023, at its July 2022 meeting.

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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, 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 us in connection with the Offering, and we 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, re-allow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $0.1 million and $0.4 million to Gladstone Securities during the three and nine months ended September 30, 2022, respectively, in connection with the Offering. We paid fees of $0.4 million and $0.5 million to Gladstone Securities during the three and nine months ended September 30, 2021, respectively, in connection with the Offering.

3. (Loss) Earnings Per Share of Common Stock

The following tables set forth the computation of basic and diluted (loss) earnings per share of common stock for the three and nine months ended September 30, 2022 and 2021. 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) earnings per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of (loss) earnings would also be added back to net (loss) income. Net (loss) income figures are presented net of such non-controlling interests in the (loss) earnings per share calculation.

We computed basic (loss) earnings per share for the three and nine months ended September 30, 2022 and 2021 using the weighted average number of shares outstanding during the respective periods. Diluted (loss) earnings per share for the three and nine months ended September 30, 2022 and 2021 reflects additional shares of common stock related to our convertible senior common stock (the “Senior Common Stock”), if the effect of conversion would be dilutive, that would have been outstanding if such dilutive potential shares of common stock had been issued, as well as an adjustment to net (loss) income (attributable) available to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts).


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Calculation of basic (loss) earnings per share of common stock:
Net (loss) income (attributable) available to common stockholders	$	(600)	$	1,439	$	(1,778)	$	(4,547)
Denominator for basic weighted average shares of common stock (1)	39,504,734		36,768,779		38,723,581		36,296,414
Basic (loss) earnings per share of common stock	$	(0.02)	$	0.04	$	(0.05)	$	(0.13)
Calculation of diluted (loss) earnings per share of common stock:
Net (loss) income (attributable) available to common stockholders	$	(600)	$	1,439	$	(1,778)	$	(4,547)

Net (loss) income (attributable) available to common stockholders plus assumed conversions (2)	$	(600)	$	1,439	$	(1,778)	$	(4,547)
Denominator for basic weighted average shares of common stock (1)	39,504,734		36,768,779		38,723,581		36,296,414
Effect of convertible Senior Common Stock (2)	—		—		—		—
Denominator for diluted weighted average shares of common stock (2)	39,504,734		36,768,779		38,723,581		36,296,414
Diluted (loss) earnings per share of common stock	$	(0.02)	$	0.04	$	(0.05)	$	(0.13)

(1)The weighted average number of OP Units held by Non-controlling OP Unitholders was 273,072 and 262,412 for the three and nine months ended September 30, 2022, respectively, and 256,994 and 337,205 for the three and nine months ended September 30, 2021, respectively.

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(2)We excluded convertible shares of Senior Common Stock of 363,246 and 532,785 from the calculation of diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, respectively, because they were anti-dilutive.

4. Real Estate and Intangible Assets

Real Estate

The following table sets forth the components of our investments in real estate as of September 30, 2022 and December 31, 2021, respectively, excluding real estate held for sale as of September 30, 2022 (dollars in thousands):


	September 30, 2022		December 31, 2021
Real estate:
Land (1)	$	147,706	$	149,773
Building and improvements	1,064,363		1,004,362
Tenant improvements	67,386		71,123
Accumulated depreciation	(284,802)		(266,672)
Real estate, net	$	994,653	$	958,586

(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 $11.0 million and $31.1 million for the three and nine months ended September 30, 2022, respectively. Real estate depreciation expense on building and tenant improvements was $9.8 million and $30.0 million for the three and nine months ended September 30, 2021, respectively.

Acquisitions

We acquired 11 industrial properties during the nine months ended September 30, 2022, and eight industrial properties during the nine months ended September 30, 2021. The acquisitions are summarized below (dollars in thousands):


Nine Months Ended		Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Aggregate Capitalized Acquisition Costs
September 30, 2022	(1)	1,105,006	13.8 years	$	98,276	$	776
September 30, 2021	(2)	367,716	15.5 years	$	46,225	$	370

(1)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. On August 5, 2022, we acquired a two-property, 246,000 square foot portfolio in Bridgeton, New Jersey and Vineland, New Jersey for $32.7 million. The properties are fully leased to one tenant and had 15.1 years of remaining lease term at the time we acquired the properties. On September 16, 2022, we acquired a 67,328 square foot property in Jacksonville, Florida for $8.1 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. On September 20, 2022, we acquired a 49,375 square foot property in Fort Payne, Alabama for $5.6 million. The property is fully leased to one tenant and had 14.8 years of remaining lease term at the time we acquired the property.

(2)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 and had 14.2 years of remaining lease term at the time we acquired the property. On June 17, 2021, we acquired a 25,200 square foot property in Baytown, Texas for $8.2 million. The property is fully leased to one tenant and had 12.6 years of remaining lease term at the time we acquired the property. On July 21, 2021, we acquired an 80,604 square foot, four-property portfolio in Pacific, Missouri for $22.1 million. These properties are fully leased to one tenant for 17.4 years at time we acquired the portfolio. On August 20, 2021, we acquired an 81,760 square foot, two-property portfolio in Peru, Illinois for $4.8 million. These properties are fully leased to one tenant for 15.0 years at time we acquired the portfolio.

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We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the nine months ended September 30, 2022 and 2021, respectively, as follows (dollars in thousands):


	Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021
Acquired assets and liabilities	Purchase price			Purchase price
Land	$	5,949		$	4,116
Building	77,903			33,113
Tenant Improvements	1,468			860
In-place Leases	4,907			3,336
Leasing Costs	5,387			3,198
Customer Relationships	2,937			1,458
Above Market Leases	328		(1)	410		(1)
Below Market Leases	(603)		(2)	(266)


Total Purchase Price	$	98,276		$	46,225

(1)This amount includes $9 and $46 of loans receivable included in Other assets on the condensed consolidated balance sheets, respectively.

(2)This amount includes $32 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 three months ending December 31, 2022 and each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of September 30, 2022 (dollars in thousands):


Year	Tenant Lease Payments
Three Months Ending 2022	$	30,721
2023	115,501
2024	110,495
2025	106,966
2026	99,570
2027	82,711
Thereafter	343,771

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 and nine months ended September 30, 2022 and 2021, respectively (dollars in thousands):


	For the three months ended September 30,
	(Dollars in Thousands)
Lease revenue reconciliation	2022		2021		$ Change		% Change
Fixed lease payments	$	35,752	$	30,230	$	5,522	18.3	%
Variable lease payments	4,082		4,104		(22)		(0.5)	%
	$	39,834	$	34,334	$	5,500	16.0	%

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	For the nine months ended September 30,
	(Dollars in Thousands)
Lease revenue reconciliation	2022		2021		$ Change		% Change
Fixed lease payments	$	98,961	$	90,331	$	8,630	9.6	%
Variable lease payments	12,803		12,050		753		6.2	%
	$	111,764	$	102,381	$	9,383	9.2	%

Intangible Assets

The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of September 30, 2022 and December 31, 2021, respectively, excluding real estate held for sale as of September 30, 2022 (dollars in thousands):


	September 30, 2022				December 31, 2021
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	105,827	$	(63,850)	$	105,891	$	(62,604)
Leasing costs	84,802		(45,430)		81,487		(43,982)
Customer relationships	71,090		(39,446)		71,922		(38,220)
	$	261,719	$	(148,726)	$	259,300	$	(144,806)

	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	15,371	$	(11,707)	$	15,538	$	(11,520)
Below market leases and deferred revenue	(64,907)		24,206		(48,241)		21,471

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $4.7 million and $14.5 million for the three and nine months ended September 30, 2022, respectively, and $5.0 million and $15.7 million for the three and nine months ended September 30, 2021, 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 $0.6 million for the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.6 million for the three and nine months ended September 30, 2021, 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 $1.5 million and $3.1 million for the three and nine months ended September 30, 2022, respectively, and $0.9 million and $3.3 million for the three and nine months ended September 30, 2021, 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 nine months ended September 30, 2022 and 2021, respectively, were as follows:


Intangible Assets & Liabilities	2022	2021
In-place leases	14.2	15.0
Leasing costs	14.2	15.0
Customer relationships	20.2	21.2
Above market leases	15.7	14.0
Below market leases	13.0	17.4
All intangible assets & liabilities	15.7	16.5

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

Real Estate Dispositions

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During the nine months ended September 30, 2022, 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 properties as reasonable 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 nine months ended September 30, 2022, we sold three non-core properties, located in Jupiter, Florida, Parsippany, New Jersey, and Boston Heights, Ohio.


Aggregate Square Footage Sold	Aggregate Sales Price		Aggregate Sales Costs		Aggregate Impairment Charge for the Nine Months Ended September 30, 2022		Aggregate Gain on Sale of Real Estate, net
145,111	$	28,000	$	1,153	$	1,374	$	8,902

Our dispositions during the nine months ended September 30, 2022 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 and nine months ended September 30, 2022 and 2021 (dollars in thousands):


	For the three months ended September 30,					For the nine months ended September 30,
	2022			2021		2022			2021
Operating revenue	$	3,505		$	730	$	4,961		$	2,442
Operating expense	51			442		2,215			1,506
Other income (expense), net	8,902		(1)	(36)		8,857		(1)	42
Income from real estate and related assets sold	$	12,356		$	252	$	11,603		$	978

(1)