good-20240930

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, 2024


☐			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 former 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 4, 2024 was 43,919,309.

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GLADSTONE COMMERCIAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

September 30, 2024

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		PAGE
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	4

	Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2024 and 2023	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	43

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	44

SIGNATURES		47

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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, 2024		December 31, 2023
ASSETS
Real estate, at cost	$	1,214,288	$	1,221,364
Less: accumulated depreciation	313,730		299,662
Total real estate, net	900,558		921,702
Lease intangibles, net	97,802		101,048
Real estate and related assets held for sale	16,964		28,787
Cash and cash equivalents	10,531		11,985
Restricted cash	3,999		4,150
Funds held in escrow	5,673		7,515
Right-of-use assets from operating leases	4,023		4,889
Deferred rent receivable, net	44,855		41,006
Other assets	11,910		12,389
TOTAL ASSETS	$	1,096,315	$	1,133,471
LIABILITIES, MEZZANINE EQUITY AND EQUITY
LIABILITIES
Mortgage notes payable, net	$	271,621	$	295,853
Borrowings under Revolver	53,250		75,750
Borrowings under Term Loan A, Term Loan B and Term Loan C, net	367,776		367,258
Deferred rent liability, net	23,599		29,324
Operating lease liabilities	4,123		5,093
Asset retirement obligation	5,027		4,928
Accounts payable and accrued expenses	15,666		13,588
Liabilities related to assets held for sale	169		676
Due to Adviser and Administrator (1)	3,063		2,556
Other liabilities	12,934		14,138
TOTAL LIABILITIES	$	757,228	$	809,164
Commitments and contingencies (2)
MEZZANINE EQUITY
Series E and G redeemable preferred stock, net, par value $0.001 per share; $25 per share liquidation preference; 10,750,886 and 10,750,886 shares authorized; and 7,052,334 and 7,052,334 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3)	$	170,041	$	170,041
TOTAL MEZZANINE EQUITY	$	170,041	$	170,041
EQUITY
Senior common stock, par value $0.001 per share; 950,000 shares authorized; and 399,483 and 406,425 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3)	$	1	$	1
Common stock, par value $0.001 per share, 62,384,569 and 62,326,818 shares authorized; and 43,728,098 and 40,000,596 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3)	43		40
Series F redeemable preferred stock, par value $0.001 per share; $25 per share liquidation preference; 25,914,545 and 25,972,296 shares authorized and 907,941 and 918,601 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (3)	1		1
Additional paid in capital	780,205		730,256
Accumulated other comprehensive income	3,365		7,758
Distributions in excess of accumulated earnings	(614,698)		(584,776)
TOTAL STOCKHOLDERS' EQUITY	$	168,917	$	153,280
OP Units held by Non-controlling OP Unitholders (3)	129		986
TOTAL EQUITY	$	169,046	$	154,266
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	1,096,315	$	1,133,471

(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,
	2024		2023		2024		2023
Operating revenues
Lease revenue	$	39,235	$	36,464	$	112,013	$	111,675
Total operating revenues	$	39,235	$	36,464	$	112,013	$	111,675
Operating expenses
Depreciation and amortization	$	13,343	$	12,485	$	42,683	$	44,125
Property operating expenses	6,681		6,821		18,373		20,286
Base management fee (1)	1,528		1,597		4,580		4,808
Incentive fee (1)	1,146		—		3,562		—
Administration fee (1)	725		624		1,950		1,734
General and administrative	970		1,306		3,064		3,437
Impairment charge	4,549		6,754		5,043		13,577
Total operating expense before incentive fee waiver	$	28,942	$	29,587	$	79,255	$	87,967
Incentive fee waiver (1)	(396)		—		(1,417)		—
Total operating expenses	$	28,546	$	29,587	$	77,838	$	87,967
Other income (expense)
Interest expense	$	(9,299)	$	(9,936)	$	(28,259)	$	(27,845)
Gain on sale of real estate, net	10,319		4,696		10,554		4,245
Gain on debt extinguishment, net	—		—		300		—
Other income	12		155		73		262
Total other income (expense), net	$	1,032	$	(5,085)	$	(17,332)	$	(23,338)
Net income	$	11,721	$	1,792	$	16,843	$	370
Net (income) loss (available) attributable to OP Units held by Non-controlling OP Unitholders	(44)		(3)		(35)		78
Net income available to the Company	$	11,677	$	1,789	$	16,808	$	448
Distributions attributable to Series E, F, and G preferred stock	(3,106)		(3,099)		(9,334)		(9,179)

Distributions attributable to senior common stock	(106)		(108)		(317)		(323)
Gain (loss) on extinguishment of Series F preferred stock, net	2		(1)		(4)		(12)
Gain on repurchase of Series G preferred stock	—		—		—		3
Net income (loss) available (attributable) to common stockholders	$	8,467	$	(1,419)	$	7,153	$	(9,063)
Income (loss) per weighted average share of common stock - basic & diluted
Income (loss) available (attributable) to common stockholders	$	0.20	$	(0.04)	$	0.17	$	(0.23)
Weighted average shares of common stock outstanding
Basic and Diluted	42,790,685		39,917,995		41,041,621		39,939,660
Earnings per weighted average share of senior common stock	$	0.27	$	0.27	$	0.79	$	0.79
Weighted average shares of senior common stock outstanding - basic	399,520		406,425		401,723		411,075
Comprehensive income
Change in unrealized (loss) gain related to interest rate hedging instruments, net	$	(10,456)	$	5,089	$	(4,568)	$	7,218
Other comprehensive (loss) income	(10,456)		5,089		(4,568)		7,218
Net income	$	11,721	$	1,792	$	16,843	$	370
Comprehensive income	$	1,265	$	6,881	$	12,275	$	7,588
Comprehensive (income) loss (available) attributable to OP Units held by Non-controlling OP Unitholders	(44)		(3)		(35)		78
Total comprehensive income available to the Company	$	1,221	$	6,878	$	12,240	$	7,666

(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,
	2024		2023
Cash flows from operating activities:
Net income	$	16,843	$	370
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	42,683		44,125
Impairment charge	5,043		13,577
Gain on debt extinguishment, net	(300)		—
Gain on sale of real estate, net	(10,554)		(4,245)
Amortization of deferred financing costs	1,235		1,248
Amortization of deferred rent asset and liability, net	(5,164)		(5,772)
Amortization of discount and premium on assumed debt, net	26		31
Asset retirement obligation expense	99		94
Amortization of right-of-use asset from operating leases and operating lease liabilities, net	5		20
Bad debt expense	64		—
Operating changes in assets and liabilities
(Increase) decrease in other assets	(5,641)		2,279
Decrease in deferred rent receivable	(4,612)		(2,524)
Increase in accounts payable and accrued expenses	1,372		2,320
Increase (decrease) in amount due to Adviser and Administrator	507		(804)


Decrease in other liabilities	(2,873)		(894)

Leasing commissions paid	(4,567)		(1,336)
Net cash provided by operating activities	$	34,166	$	48,489
Cash flows from investing activities:
Acquisition of real estate and related intangible assets	$	(22,122)	$	(17,539)
Improvements of existing real estate	(9,200)		(6,369)
Proceeds from sale of real estate	35,132		22,174
Receipts from lenders for funds held in escrow	2,513		3,662
Payments to lenders for funds held in escrow	(671)		(3,353)
Receipts from tenants for reserves	793		352
Payments to tenants from reserves	2,193		(2,165)
Deposits on future acquisitions	—		(350)

Net cash provided by (used in) investing activities	$	8,638	$	(3,588)
Cash flows from financing activities:
Proceeds from issuance of equity	$	50,902	$	9,775
Offering costs paid	(737)		(500)
Redemption of Series F preferred stock	(1,322)		(413)
Retirement of senior common stock	—		(55)
Repurchase of Series G preferred stock	—		(12)
Repurchase of common stock	—		(998)

Borrowings under mortgage notes payable	—		9,000
Payments for deferred financing costs	(43)		(375)
Principal repayments on mortgage notes payable	(24,394)		(57,637)

Borrowings from revolving credit facility	68,100		93,100
Repayments on revolving credit facility	(90,600)		(45,400)


Increase in security deposits	198		141
Distributions paid for common, senior common, preferred stock and Non-controlling OP Unitholders	(46,513)		(45,445)
Net cash used in financing activities	$	(44,409)	$	(38,819)
Net (decrease) increase in cash, cash equivalents, and restricted cash	$	(1,605)	$	6,082
Cash, cash equivalents, and restricted cash at beginning of period	$	16,135	$	15,992

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Cash, cash equivalents, and restricted cash at end of period	$	14,530	$	22,074
SUPPLEMENTAL AND NON-CASH INFORMATION
Tenant funded fixed asset improvements included in deferred rent liability, net	$	(479)	$	(1,312)




Unrealized gain related to interest rate hedging instruments, net	$	(4,568)	$	7,218
Right-of-use asset from operating leases	$	(686)	$	—
Operating lease liabilities	$	795	$	—
Capital improvements and leasing commissions included in accounts payable and accrued expenses	$	6,330	$	3,099



Dividends paid on Series F preferred stock via additional share issuances	$	385	$	355

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,
	2024		2023
Cash and cash equivalents	$	10,531	$	18,263
Restricted cash	3,999		3,811
Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows	$	14,530	$	22,074

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 industrial and office 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 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, 2023, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2024. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for other interim periods or for the full 2024 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, 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 and requires management 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, 2023. There were no material changes to our critical accounting policies during the three and nine months ended September 30, 2024.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures.” The new standard improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The standard requires expanded disclosures regarding significant segments expense categories and a measure of profit or loss for each reportable segment. ASU 2023-08 is effective for fiscal years beginning after December 15, 2023. We are currently evaluating the impact from adopting ASU 2023-07, but we anticipate adopting this standard will not have a material impact to our consolidated financial statements.

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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 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 chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Our president, Mr. Arthur “Buzz” Cooper, is also an 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, 2024 and December 31, 2023, $3.1 million and $2.6 million, respectively, was 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 (“Board of Directors”). Our Board of Directors reviews and considers renewing the agreements with our Adviser and Administrator annually, typically during the month of July. During its July 2024 meeting, our Board of Directors reviewed and renewed the Administration Agreement for an additional year, through August 31, 2025.

Base Management Fee

On July 14, 2020, we amended and restated the 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 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 was unchanged.

For the three and nine months ended September 30, 2024, we recorded a base management fee of $1.5 million and $4.6 million, respectively. For the three and nine months ended September 30, 2023, we recorded a base management fee of $1.6 million and $4.8 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.

On January 10, 2023, the Company amended and restated the Advisory Agreement by entering into the Seventh Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Seventh Amended Advisory Agreement”), as approved unanimously by our Board of Directors, including specifically, our independent directors. The Seventh Amended Advisory Agreement contractually eliminated the payment of the incentive fee for the quarters ended March 31, 2023 and June 30, 2023. The calculation of the other fees was unchanged.

On July 11, 2023, the Company amended and restated the Advisory Agreement by entering into the Eighth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Eighth Amended Advisory Agreement”), as approved unanimously by our Board of Directors, including specifically, our independent directors. The Eighth Amended Advisory Agreement contractually eliminated the payment of the incentive fee for the quarters ended September 30, 2023 and December 31, 2023. In addition, the Eighth Amended Advisory Agreement also clarified that for any future quarter whereby an incentive fee would exceed by greater than 15% the average quarterly incentive fee paid, the

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measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the other fees was unchanged.

For the three months ended September 30, 2024, we recorded an incentive fee of $1.1 million, partially offset by credits related to non-contractual, unconditional, and irrevocable waivers issued by the Adviser of $0.4 million. For the nine months ended September 30, 2024, we recorded an incentive fee of $3.6 million, partially offset by credits related to non-contractual, unconditional, and irrevocable waivers issued by the Adviser of $1.4 million. For the three and nine months ended September 30, 2023, the contractually eliminated incentive fee would have been $0.9 million and $3.4 million, respectively.

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 and nine months ended September 30, 2024 or 2023.

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 Advisory 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 for actual services performed. For the three and nine months ended September 30, 2024, we recorded an administration fee of $0.7 million and $2.0 million, respectively. For the three and nine months ended September 30, 2023, we recorded an administration fee of $0.6 million and $1.7 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 our owned properties. 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

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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 did not pay financing fees to Gladstone Securities during the three months ended September 30, 2024 and paid financing fees to Gladstone Securities of $0.01 million during the nine months ended September 30, 2024, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.13% of the mortgage principal secured. We paid financing fees to Gladstone Securities of $0.03 million and $0.1 million during the three and nine months ended September 30, 2023, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.38% and 0.29% of the mortgage principal secured. Our Board of Directors renewed the agreement for an additional year, through August 31, 2025, at its July 2024 meeting.

Dealer Manager Agreement

On February 20, 2020, we entered into a dealer manager agreement, as amended on February 9, 2023 (together, the “Dealer Manager Agreement”), whereby Gladstone Securities acts as the exclusive dealer manager in connection with our offering (the “Offering”) of up to (i) 20,000,000 shares of 6.00% Series F Cumulative Redeemable Preferred Stock, par value $0.001 per share (the “Series F Preferred Stock”), on a “reasonable best efforts” basis (the “Primary Offering”), and (ii) 6,000,000 shares of Series F Preferred Stock pursuant to our distribution reinvestment plan (the “DRIP”) to those holders of the Series F Preferred Stock who participate in such DRIP. Prior to the effectiveness of the Company’s Registration Statement on Form S-3 (File No. 333-277877) (the “2024 Registration Statement”), the Series F Preferred Stock was registered with the SEC pursuant to an automatic shelf registration statement on Form S-3 (File No. 333-268549), as was amended and supplemented (the “2022 Registration Statement”), under the Securities Act of 1933, as amended, and was offered and sold pursuant to a prospectus supplement, dated February 9, 2023, and a base prospectus dated November 23, 2022 relating to the 2022 Registration Statement. During the years ended December 31, 2020, 2021 and 2022, the Series F Preferred Stock was registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-236143) (the “2020 Registration Statement”), and offered and sold pursuant to a prospectus supplement, dated February 20, 2020, and a base prospectus dated February 11, 2020.

Under the Dealer Manager Agreement, Gladstone Securities, as dealer manager, provides certain sales, promotional and marketing services to us in connection with the Offering, and we pay Gladstone Securities (i) selling commissions of 6.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Selling Commissions”), and (ii) a dealer manager fee of 3.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Dealer Manager Fee”). No Selling Commissions or Dealer Manager Fee are paid with respect to shares sold pursuant to the DRIP. Gladstone Securities may, in its sole discretion, re-allow for payment of a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $0.01 million and $0.07 million to Gladstone Securities during the three and nine months ended September 30, 2024, respectively, in connection with the Offering. We paid fees of $0.1 million and $0.5 million to Gladstone Securities during the three and nine months ended September 30, 2023, respectively, in connection with the Offering.

3. Earnings (Loss) Per Share of Common Stock

The following tables set forth the computation of basic and diluted earnings (loss) per share of common stock for the three and nine months ended September 30, 2024 and 2023. 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 earnings (loss) per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of income (loss) would also be added back to net income (loss). Net income (loss) figures are presented net of such non-controlling interests in the income (loss) per share calculation.

We computed basic earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 using the weighted average number of shares outstanding during the respective periods. Diluted earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 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 income (loss) available (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 September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Calculation of basic earnings (loss) per share of common stock:
Net income (loss) available (attributable) to common stockholders	$	8,467	$	(1,419)	$	7,153	$	(9,063)
Denominator for basic weighted average shares of common stock (1)	42,790,685		39,917,995		41,041,621		39,939,660
Basic earnings (loss) per share of common stock	$	0.20	$	(0.04)	$	0.17	$	(0.23)
Calculation of diluted earnings (loss) per share of common stock:
Net income (loss) available (attributable) to common stockholders	$	8,467	$	(1,419)	$	7,153	$	(9,063)

Net income (loss) available (attributable) to common stockholders plus assumed conversions (2)	$	8,467	$	(1,419)	$	7,153	$	(9,063)
Denominator for basic weighted average shares of common stock (1)	42,790,685		39,917,995		41,041,621		39,939,660
Effect of convertible Senior Common Stock (2)	—		—		—		—
Denominator for diluted weighted average shares of common stock (2)	42,790,685		39,917,995		41,041,621		39,939,660
Diluted earnings (loss) per share of common stock	$	0.20	$	(0.04)	$	0.17	$	(0.23)

(1)The weighted average number of OP Units held by Non-controlling OP Unitholders was 39,474 and 196,675 for the three and nine months ended September 30, 2024, respectively, and 391,468 and 391,468 for the three and nine months ended September 30, 2023, respectively.

(2)We excluded convertible shares of Senior Common Stock of 339,299 and 345,132 from the calculation of diluted earnings per share for the three and nine months ended September 30, 2024 and 2023, 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, 2024 and December 31, 2023, respectively, excluding real estate held for sale (dollars in thousands):


	September 30, 2024		December 31, 2023
Real estate:
Land (1)	$	139,916	$	143,442
Building and improvements	1,019,056		1,020,661
Tenant improvements	55,316		57,261
Accumulated depreciation	(313,730)		(299,662)
Real estate, net	$	900,558	$	921,702

(1)This amount includes $2,711 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 $9.8 million and $29.8 million for the three and nine months ended September 30, 2024, respectively. Real estate depreciation expense on building and tenant improvements was $8.9 million and $31.2 million for the three and nine months ended September 30, 2023, respectively.

Acquisitions

We acquired six industrial properties during the nine months ended September 30, 2024, and acquired three industrial properties during the nine months ended September 30, 2023. The acquisitions are summarized below (dollars in thousands):


Nine Months Ended		Square Footage	Lease Term	Purchase Price		Capitalized Acquisition Expenses
September 30, 2024	(1)	192,227	21.0 years	$	22,122	$	435
September 30, 2023	(2)	183,803	18.7 years	$	17,539	$	349

(1)On May 7, 2024, we acquired a five-property, 142,125 square foot portfolio in Warfordsburg, Pennsylvania for $12.0 million. The property is fully leased to one tenant and had 25.1 years of remaining lease term at the time we acquired the property. On August 29, 2024, we acquired a 50,102 square foot property in Midland, Texas for $10.2 million. The property is fully leased to one tenant and had 15.0 years of remaining lease term at the time we acquired the property.

(2)On April 14, 2023, we acquired a 76,089 square foot property in Riverdale, Illinois for $5.4 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On July 10, 2023, we

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acquired a 7,714 square foot property in Dallas-Fort Worth, Texas for $3.0 million. The property is fully leased to one tenant and had 9.9 years of remaining lease term at the time we acquired the property. On July 28, 2023, we acquired a 100,000 square foot property in Dallas-Fort Worth, Texas for $9.2 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.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the nine months ended September 30, 2024 and 2023 as follows (dollars in thousands):


	Nine Months Ended September 30, 2024			Nine Months Ended September 30, 2023
Acquired assets and liabilities	Purchase price			Purchase price
Land	$	1,694		$	2,714
Building	15,665			11,423
Tenant Improvements	374			692
In-place Leases	1,616			1,001
Leasing Costs	2,265			1,270
Customer Relationships	418			439
Above Market Leases	90		(1)	—



Total Purchase Price	$	22,122		$	17,539

(1)This amount includes $90 of loans receivable included in Other assets 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, 2024 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Tenant Lease Payments
Three Months Ending December 31, 2024	$	29,904
2025	120,765
2026	116,612
2027	102,150
2028	89,696
2029	81,671
Thereafter	387,395

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, 2024 and 2023, respectively (dollars in thousands):


	For the three months ended September 30,
Lease revenue reconciliation	2024		2023		$ Change		% Change
Fixed lease payments	$	34,663	$	31,945	$	2,718	8.5	%
Variable lease payments	4,572		4,519		53		1.2	%
	$	39,235	$	36,464	$	2,771	7.6	%

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	For the nine months ended September 30,
Lease revenue reconciliation	2024		2023		$ Change		% Change
Fixed lease payments	$	99,536	$	98,465	$	1,071	1.1	%
Variable lease payments	12,477		13,210		(733)		(5.5)	%
	$	112,013	$	111,675	$	338	0.3	%

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, 2024 and December 31, 2023, respectively, excluding real estate held for sale (dollars in thousands):


	September 30, 2024				December 31, 2023
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	96,824	$	(64,278)	$	98,615	$	(63,269)
Leasing costs	89,565		(48,303)		84,844		(46,096)
Customer relationships	60,884		(36,890)		63,185		(36,231)
	$	247,273	$	(149,471)	$	246,644	$	(145,596)

	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	12,747	$	(10,488)	$	13,431	$	(10,675)
Below market leases and deferred revenue	(56,616)		33,017		(59,411)		30,087

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $3.6 million and $12.9 million for the three and nine months ended September 30, 2024, respectively, and $3.6 million and $12.9 million for the three and nine months ended September 30, 2023, 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 $0.1 million and $0.4 million for the three and nine months ended September 30, 2024, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2023, 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 $1.7 million and $5.5 million for the three and nine months ended September 30, 2024, respectively, and $1.8 million and $6.2 million for the three and nine months ended September 30, 2023, 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, 2024 and 2023, were as follows:


Intangible Assets & Liabilities	September 30, 2024	September 30, 2023
In-place leases	21.3	18.0
Leasing costs	21.3	18.0
Customer relationships	25.1	22.7
Above market leases	25.1	0.0

All intangible assets & liabilities	22.2	19.6

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

Real Estate Dispositions

We sold six properties during the nine months ended September 30, 2024 and five properties during the nine months ended September 30, 2023.

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During the nine months ended September 30, 2024, we continued to execute our capital recycling program, whereby we sold non-core properties. We expect to continue to execute our capital recycling program 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, 2024, we sold six non-core properties, located in Columbus, Ohio; Draper, Utah; Richardson, Texas; Egg Harbor, New Jersey; Cumming, Georgia; and Lawrenceville, Georgia, which are summarized in the table below (dollars in thousands):


Aggregate Square Footage Sold	Aggregate Sales Price		Aggregate Sales Costs		Aggregate Impairment Charge for the Nine Months Ended September 30, 2024		Aggregate Gain on Sale of Real Estate, net
412,767	$	36,325	$	1,193	$	493	$	10,554

Our dispositions during the nine months ended September 30, 2024 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 real estate and related assets disposed of during the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):


	For the three months ended September 30,						For the nine months ended September 30,
	2024			2023			2024			2023
Operating revenue	$	80		$	959		$	1,400		$	3,424
Operating expense	4			9,149		(2)	969		(3)	14,902		(5)
Other income (expense), net	10,319		(1)	(224)			10,636		(4)	(748)
Income (expense) from real estate and related assets sold	$	10,395		$	(8,414)		$	11,067		$	(12,226)

(1)Includes a $10.3 million gain on sale of real estate, net, on the sale of two properties.

(2)Includes a $6.8 million impairment charge on one property.

(3)Includes a $0.5 million impairment charge on one property.

(4)Includes a $10.6 million gain on sale of real estate, net, on the sale of six properties and a $0.3 million gain on debt extinguishment, net, on the sale of two of those properties.

(5)Includes a $10.0 million impairment charge on three properties.

Real Estate Held for Sale

At September 30, 2024, we had two properties classified as held for sale, located in Fridley, Minnesota and Tifton, Georgia. We consider these assets to be non-core to our long-term strategy. At December 31, 2023, we had three properties classified as held for sale, located in Richardson, Texas; Columbus, Ohio; and Tifton, Georgia.

The table below summarizes the components of the assets and liabilities held for sale at September 30, 2024 and December 31, 2023 reflected on the accompanying condensed consolidated balance sheets (dollars in thousands):


	September 30, 2024		December 31, 2023
Assets Held for Sale
Total real estate held for sale	$	16,528	$	27,496
Lease intangibles, net	436		1,284
Deferred rent receivable, net	—		7

Total Assets Held for Sale	$	16,964	$	28,787
Liabilities Held for Sale
Deferred rent liability, net	$	169	$	676



Total Liabilities Held for Sale	$	169	$	676

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Impairment Charges

We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the nine months ended September 30, 2024 and did not recognize an impairment charge. We recognized impairment charges of $5.0 million on two held for sale assets, located in Richardson, Texas and Fridley, Minnesota during the nine months ended September 30, 2024. In performing our held for sale assessments, the carrying value of these assets were above the fair value, less costs of sale. As a result, we impaired these properties to equal the fair market value less costs of sale. We recognized an impairment charge of $9.0 million during the nine months ended September 30, 2023 on two held and used assets, located in Columbus, Ohio and Draper, Utah, and recognized an impairment charge of $4.6 million on two held for sale assets, located in Richardson, Texas and Taylorsville, Utah. In performing our held for sale assessment, the carrying value of these assets were above the fair value, less costs of sale.

6. Mortgage Notes Payable and Credit Facility

Our $125.0 million unsecured revolving credit facility (“Revolver”), $160.0 million term loan facility (“Term Loan A”), $60.0 million term loan facility (“Term Loan B”), and $150.0 million term loan facility (“Term Loan C”), are collectively referred to herein as the “Credit Facility”.

Our mortgage notes payable and Credit Facility as of September 30, 2024 and December 31, 2023 are summarized below (dollars in thousands):


	Encumbered properties at		Carrying Value at				Stated Interest Rates at		Scheduled Maturity Dates at
	September 30, 2024		September 30, 2024		December 31, 2023		September 30, 2024		September 30, 2024
Mortgage and other secured loans:
Fixed rate mortgage loans	44		$	266,121	$	298,122	(1)		(2)
Variable rate mortgage loans	1		7,308		—		N/A		(2)
Premiums and discounts, net	—		(16)		(42)		N/A		N/A
Deferred financing costs, mortgage loans, net	—		(1,792)		(2,227)		N/A		N/A
Total mortgage notes payable, net	45		$	271,621	$	295,853	(3)
Variable rate revolving credit facility	87	(6)	$	53,250	$	75,750	SOFR + 1.35%	(4)	8/18/2026

Total revolver	87		$	53,250	$	75,750
Variable rate term loan facility A	—	(6)	$	160,000	$	160,000	SOFR + 1.30%	(4)	8/18/2027
Variable rate term loan facility B	—	(6)	60,000		60,000		SOFR + 1.30%	(4)	2/11/2026
Variable rate term loan facility C	—	(6)	150,000		150,000		SOFR + 1.30%	(4)	2/18/2028
Deferred financing costs, term loan facility	—		(2,224)		(2,742)		N/A		N/A
Total term loan, net	N/A		$	367,776	$	367,258
Total mortgage notes payable and credit facility	132		$	692,647	$	738,861	(5)

(1)As of September 30, 2024, interest rates on our fixed rate mortgage notes payable varied from 2.80% to 6.63%.

(2)As of September 30, 2024, we had 39 mortgage notes payable with maturity dates ranging from January 1, 2025 through August 1, 2037.

(3)The weighted average interest rate on the mortgage notes outstanding as of September 30, 2024 was approximately 4.23%.

(4)As of September 30, 2024, the Secured Overnight Financing Rate (“SOFR”) was approximately 4.96%.

(5)The weighted average interest rate on all debt outstanding as of September 30, 2024 was approximately 5.47%.

(6)The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 87 unencumbered properties as of September 30, 2024.

N/A - Not Applicable

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Mortgage Notes Payable

As of September 30, 2024, we had 39 mortgage notes payable, collateralized by a total of 45 properties with a net book value of $453.3 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 September 30, 2024, 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 nine months ended September 30, 2024, we repaid two mortgages, collateralized by two properties, which are summarized in the table below (dollars in thousands):


Fixed Rate Debt Repaid		Interest Rate on Fixed Rate Debt Repaid
$	17,674	5.05	%

During the nine months ended September 30, 2024, we extended the maturity date of one mortgage, collateralized by one property, which is summarized in the table below (dollars in thousands):

Variable Rate Debt Extended

Interest Rate on Variable Rate Debt Extended

Extension Term

7,386

SOFR +

2.25%

1.3 years

We did not make any payments for deferred financing costs during the three months ended September 30, 2024 and we made payments of $0.04 million for deferred financing costs during the nine months ended September 30, 2024. We made payments of $0.3 million and $0.4 million for deferred financing costs during the three and nine months ended September 30, 2023, respectively.

Scheduled principal payments of mortgage notes payable for the three months ending December 31, 2024, and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands):


Year	Scheduled Principal Payments
Three Months Ending December 31, 2024	$	2,383
2025	34,346
2026	35,069
2027	95,090
2028	37,108
2029	20,911
Thereafter	48,522
Total	$	273,429	(1)

(1)This figure does not include $(0.02) million of premiums and (discounts), net, and $1.8 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;

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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 September 30, 2024 and December 31, 2023, 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, then 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, then any change in the fair value is recognized in interest expense in our consolidated statements of operations and comprehensive income. During the next 12 months, we estimate that an additional $1.0 million will be reclassified out of accumulated other comprehensive income into interest expense in our condensed consolidated statements of operations and comprehensive income, as a reduction to interest expense. The following table summarizes the interest rate caps at September 30, 2024 and December 31, 2023 (dollars in thousands):


			September 30, 2024				December 31, 2023
Aggregate Cost			Aggregate Notional Amount		Aggregate Fair Value		Aggregate Notional Amount		Aggregate Fair Value
$	48	(1)	$	60,000	$	1	$	65,000	$	684

(1)We have entered into an interest rate cap agreement on variable rate debt with a SOFR cap of 5.50%.

We have assumed or entered into interest rate swap agreements in connection with certain of our mortgage financings and Credit Facility, whereby we will pay our counterparty a fixed 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 is 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 have designated our interest rate swaps as cash flow hedges, and we record changes in the fair value of the respective interest rate swap agreement to accumulated other comprehensive income on the 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 September 30, 2024 and December 31, 2023 (dollars in thousands):


September 30, 2024						December 31, 2023
Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability		Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability
$	360,787	$	3,860	$	(2,186)	$	361,676	$	6,222	$	(670)

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


	Amount of gain, net, recognized in Comprehensive Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Derivatives in cash flow hedging relationships
Interest rate caps	$	(62)	$	(654)	$	(690)	$	(2,429)
Interest rate swaps	(10,394)		5,743		(3,878)		9,647
Total	$	(10,456)	$	5,089	$	(4,568)	$	7,218

The following table presents the reclassifications of our derivative instruments out of accumulated other comprehensive income into interest expense in the condensed consolidated financial statements (dollars in thousands):

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	Amount reclassified out of Accumulated Other Comprehensive Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Interest rate caps	$	62	$	409	$	175	$	937
Total	$	62	$	409	$	175	$	937

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


		Asset (Liability) Derivatives Fair Value at
Derivatives Designated as Hedging Instruments	Balance Sheet Location	September 30, 2024		December 31, 2023
Interest rate caps	Other assets	$	1	$	684
Interest rate swaps	Other assets	3,860		6,222
Interest rate swaps	Other liabilities	(2,186)		(670)
Total derivative liabilities, net		$	1,675	$	6,236

The fair value of all mortgage notes payable outstanding as of September 30, 2024 was $247.5 million, as compared to the carrying value stated above of $271.6 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 August 18, 2022, we amended, extended and upsized our Credit Facility, increasing our Revolver from $100.0 million to $120.0 million (and its term to August 2026), adding the new $140.0 million Term Loan C, decreasing the principal balance of Term Loan B to $60.0 million and extending the maturity date of Term Loan A to August 2027. Term Loan C has a maturity date of February 18, 2028 and a SOFR spread ranging from 125 to 195 basis points, depending on our leverage. On September 27, 2022, we further increased the Revolver to $125.0 million and Term Loan C to $150.0 million, as permitted under the terms of the Credit Facility. We entered into multiple interest rate swap agreements on Term Loan C, which swap the interest rate to fixed rates from 3.15% to 3.75%. We incurred fees of approximately $4.2 million in connection with extending and upsizing our Credit Facility. The net proceeds of the transaction were used to repay the then-outstanding borrowings on the Revolver, pay off mortgage debt, and fund acquisitions. The Credit Facility’s current bank syndicate is comprised of KeyBank, Fifth Third Bank, The Huntington National Bank, Bank of America, Synovus Bank, United Bank, First Financial Bank, and S&T Bank.

As of September 30, 2024, there was $423.3 million outstanding under our Credit Facility, at a weighted average interest rate of approximately 6.27%, and no outstanding letters of credit. As of September 30, 2024, the maximum additional amount we could draw under the Credit Facility was $70.2 million. We were in compliance with all covenants under the Credit Facility as of September 30, 2024.

The amount outstanding under the Credit Facility approximates fair value as of September 30, 2024.

7. Commitments and Contingencies

Ground Leases

We are obligated as lessee under three ground leases. Future minimum rental payments due under the terms of these leases for the three months ending December 31, 2024 and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands):

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Year	Future Lease Payments Due Under Operating Leases
Three Months Ending December 31, 2024	$	115
2025	457
2026	460
2027	467
2028	470
2029	470
Thereafter	3,359
Total anticipated lease payments	$	5,798
Less: amount representing interest	(1,675)
Present value of lease payments	$	4,123

Rental expense incurred for properties with ground lease obligations during the three and nine months ended September 30, 2024 was $0.1 million and $0.2 million, respectively. Rental expense incurred for properties with ground lease obligations during the three and nine months ended September 30, 2023 was $0.1 million and $0.3 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 13.4 years and a weighted average discount rate of 5.30%.

Letters of Credit

As of September 30, 2024, there were no outstanding letters of credit.

8. Equity and Mezzanine Equity

Stockholders’ Equity

The following table summarizes the changes in our equity for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Senior Common Stock
Balance, beginning of period	$	1	$	1	$	1	$	1
Issuance of senior common stock, net	—		—		—		—
Balance, end of period	$	1	$	1	$	1	$	1
Common Stock
Balance, beginning of period	$	41	$	39	$	40	$	39
Issuance of common stock, net	2		—		3		1
Repurchase of common stock, net	—		—		—		(1)
Balance, end of period	$	43	$	39	$	43	$	39
Series F Preferred Stock
Balance, beginning of period	$	1	$	1	$	1	$	1
Issuance of Series F preferred stock, net	—		—		—		—
Redemption of Series F preferred stock, net	—		—		—		—
Balance, end of period	$	1	$	1	$	1	$	1
Additional Paid in Capital
Balance, beginning of period	$	742,114	$	728,580	$	730,256	$	721,327
Issuance of common stock and Series F preferred stock, net	37,066		690		47,911		6,725
Repurchase of common stock, net	—		—		—		998
Redemption of OP Units	—		—		3,865		—
Redemption of Series F preferred stock, net	1,008		183		1,318		401

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Retirement of senior common stock, net	—		—		—		52
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	17		(53)		(3,145)		(103)
Balance, end of period	$	780,205	$	729,400	$	780,205	$	729,400
Accumulated Other Comprehensive Income
Balance, beginning of period	$	13,759	$	14,297	$	7,758	$	11,640
Comprehensive income	(10,456)		5,089		(4,568)		7,218
Reclassification into interest expense	62		409		175		937
Balance, end of period	$	3,365	$	19,795	$	3,365	$	19,795
Distributions in Excess of Accumulated Earnings
Balance, beginning of period	$	(610,209)	$	(560,719)	$	(584,776)	$	(529,104)
Distributions declared to common, senior common, and preferred stockholders	(16,168)		(15,182)		(46,726)		(45,445)

Redemption of Series F preferred stock, net	2		(1)		(4)		(12)
Net income available to the Company	11,677		1,789		16,808		448
Balance, end of period	$	(614,698)	$	(574,113)	$	(614,698)	$	(574,113)
Total Stockholders' Equity
Balance, beginning of period	$	145,707	$	182,199	$	153,280	$	203,904
Issuance of common stock and Series F preferred stock, net	37,068		690		47,914		6,726
Repurchase of common stock, net	—		—		—		997
Redemption of OP Units	—		—		3,865		—

Redemption of Series F preferred stock, net	1,010		182		1,314		389
Retirement of senior common stock, net	—		—		—		52
Distributions declared to common, senior common, and preferred stockholders	(16,168)		(15,182)		(46,726)		(45,445)
Comprehensive income	(10,456)		5,089		(4,568)		7,218
Reclassification into interest expense	62		409		175		937
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	17		(53)		(3,145)		(103)
Net income available to the Company	11,677		1,789		16,808		448
Balance, end of period	$	168,917	$	175,123	$	168,917	$	175,123
Non-Controlling Interest
Balance, beginning of period	$	114	$	1,524	$	986	$	1,790
Distributions declared to Non-controlling OP Unit holders	(12)		(117)		(172)		(352)

Redemptions of OP Units	—		—		(3,865)		—