GLADSTONE COMMERCIAL CORP

Previous wording

•we owned 131 properties totaling 16.7 million square feet of rentable space, located in 27 states;

Current wording

•we owned 136 properties totaling 16.8 million square feet of rentable space, located in 27 states;

Previous wording

•the weighted average remaining term of our mortgage debt was 3.9 years and the weighted average interest rate was 4.16%; and

Current wording

•the weighted average remaining term of our mortgage debt was 3.7 years and the weighted average interest rate was 4.24%; and

Previous wording

•the average remaining lease term of the portfolio was 6.9 years.

Current wording

•the average remaining lease term of the portfolio was 7.1 years.

Previous wording

The commercial real estate sector continued to face uncertainty and volatility in the first quarter of 2024. Although the Federal Reserve hinted at potential rate cuts at the end of 2023, higher than expected CPI data, as reported by the U.S. Bureau of Labor Statistics for all urban consumers, during the first quarter of 2024 has led to a rise in long-term interest rates. This increase has slowed the mortgage market and consequently dampened acquisition activity. As a result, real estate transaction volumes have remained low, with tightened credit standards and rising capital costs preventing many investors from entering the market.

Current wording

The commercial real estate sector continued to face uncertainty in the first half of 2024 with more recent signs of decreased volatility. Although the Federal Reserve hinted at potential rate cuts at the end of 2023, higher than expected CPI data (as reported by the U.S. Bureau of Labor Statistics for all urban consumers) in the first quarter of 2024 followed by more progress towards the Federal Reserve’s 2% inflation rate target in the second quarter has resulted in a steady federal funds rate. The Federal Reserve in June voted to keep the federal funds rate unchanged at 5.25% - 5.50%. This prolonged higher interest rate environment has slowed the mortgage market and consequently dampened acquisition activity. As a result, real estate transaction volumes have remained low, with tightened credit standards and rising capital costs preventing many investors from entering the market.

Previous wording

Despite capital markets volatility, the industrial sector continues to demonstrate strong fundamentals, consistently outperforming other real estate categories. Cushman & Wakefield plc (“Cushman”) reported healthy leasing activity in the first quarter of 2024, with transactions amounting to 128.7 million square feet, a 3% increase over the 10-year pre-pandemic average (2010-2019). Net absorption fell quarter over quarter from 48 million square feet to 14 million square feet, but the four-quarter rolling average of 42 million square feet remains in Cushman’s range for 2024. Although new completions continue to exceed net absorption, leading to a rise in the overall vacancy rate, the vacancy rate of 5.8% in Q1 2024 remains below the historical average of 7.0% according to Cushman. Year-over-year, Cushman reports that industrial rents increased by 6%, compared to 10% in 2023 and 20% in 2022. Notably, Cushman reports that eight markets recorded net occupancy gains exceeding 1.0 million square feet in Q1 2024, with significant contributions from Houston (5.1 million square feet), Savannah (3.6 million square feet), Chicago (2.8 million square feet), and Austin (2.4 million square feet). Cushman further notes that the construction pipeline has decreased by 10% since the end of 2023 and is down 40% year-over-year as developers pull back, particularly in speculative builds, due to slowing demand for space and rising interest rates. According to Cushman, this represents the lowest level of future construction activity in three years.

Current wording

Despite capital markets volatility, the industrial sector continues to demonstrate strong fundamentals, consistently outperforming other real estate categories. Cushman & Wakefield plc (“Cushman”) reported healthy activity in the second quarter of 2024, with overall U.S. industrial net absorption more than doubling to 46.3 million square feet. Also, according to Cushman, new leasing activity measured 137.2 million square feet, which was down 2.8% compared to the first quarter of 2024 but 11.2% higher than the 10-year pre-pandemic average of 126.9 million square feet. Through June 2024, the U.S. recorded just over 278.0 million square feet of new transactions, with the market being on pace to surpass 500.0 million square feet for the 10th straight year. Year-over-year, Cushman reports that industrial asking rents increased by 3.7% in the second quarter of 2024. While this is the lowest growth rate since 2020, it is still above historical averages and rent growth in other asset classes. For comparison, industrial rent growth in 2022 and 2023 was 20.0% and 10.0%, respectively. Notably, Cushman reports that six markets recorded absorption gains exceeding 3.0 million square feet in the second quarter of 2024, with significant contributions from Dallas-Fort Worth (13.8 million square feet), Phoenix (7.4 million square feet), and Houston (4.3 million square feet).

Previous wording

Interest rates have been fluctuating due to ongoing concerns about inflation, with the future direction of Federal Reserve rate hikes remaining uncertain. The yield on the 10-year U.S. Treasury Note, which has risen steadily since the beginning of 2022, ended the first quarter of 2024 at 4.21%.

Current wording

Interest rates have been fluctuating due to ongoing concerns about inflation, with the future direction of Federal Reserve rate hikes remaining uncertain. The yield on the 10-year U.S. Treasury Note, which has risen steadily since the beginning of 2022, ended the second quarter of 2024 at 4.36%.

Previous wording

We collected 100% of all outstanding cash rents for the three months ended March 31, 2024. In the past, we have received rent modification requests from our tenants, and we may receive additional requests in the future. However, we are unable to quantify the outcomes of the negotiation of relief packages, the success of any tenant’s financial prospects or the amount of relief requests that we will ultimately receive or grant. We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in the retail, hospitality, airlines, and oil and gas industries. Additionally, our properties are located across 27 states, which we believe mitigates our exposure to economic issues, including regulations or laws implemented by state and local governments, in any one geographic market or area.

Current wording

We collected 100% of all outstanding cash rents for the six months ended June 30, 2024. In the past, we have received rent modification requests from our tenants, and we may receive additional requests in the future. However, we are unable to quantify the outcomes of the negotiation of relief packages, the success of any tenant’s financial prospects or the amount of relief requests that we will ultimately receive or grant. We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in the retail, hospitality, airlines, and oil and gas industries. Additionally, our properties are located across 27 states, which we believe mitigates our exposure to regional economic issues, including regulations or laws implemented by state and local governments, in any one geographic market or area.

Previous wording

The geopolitical landscape remains fractured due to recent world events. Many domestic manufacturing businesses seek to limit supply chain disruptions by bringing their operations back to the U.S. The COVID-19 pandemic is largely behind us, but a level of work-from-home trends appear to be here to stay. Industrial demand will be further buoyed by government investment in infrastructure and advanced manufacturing operations. The Federal Reserve recently indicated it does not expect additional rate increases, but the timing of an easing cycle remains unknown. These uncertain times create both risks and opportunities for us and our tenants, and we believe we are well-capitalized and positioned to take advantage.

Current wording

The geopolitical landscape remains fractured due to recent world events. Many domestic manufacturing businesses seek to limit supply chain disruptions by bringing their operations back to the U.S. The COVID-19 pandemic is largely behind us, but a level of work-from-home trends appear to be here to stay. Industrial demand will be further buoyed by government investment in infrastructure and advanced manufacturing operations. The Federal Reserve recently indicated it does not expect additional rate increases and has indicated possible interest rate cuts, but the timing of those cuts has not been solidified. These uncertain times create both risks and opportunities for us and our tenants, and we believe we are well-capitalized and positioned to take advantage.

Previous wording

We continue to focus on re-leasing vacant space, renewing upcoming lease expirations, re-financing upcoming loan maturities, and acquiring additional properties with associated long-term leases. Currently, we have four partially vacant buildings and no fully vacant buildings. Our available vacant space at March 31, 2024 represents 1.1% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $1.8 million. We continue to actively seek new tenants for these properties.

Current wording

We continue to focus on re-leasing vacant space, renewing upcoming lease expirations, re-financing upcoming loan maturities, and acquiring additional properties with associated long-term leases. Currently, we have four partially vacant buildings and one fully vacant building. Our available vacant space at June 30, 2024 represents 1.5% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $1.6 million. We continue to actively seek new tenants for these properties.

Previous wording

We believe our lease expiration schedule for the remainder of 2024 is manageable, as it equates to 4.8% of our lease revenue at March 31, 2024. Property acquisitions since the beginning of 2020 have totaled $372.7 million and all but one transaction was industrial in nature, with a weighted average lease term of 13.6 years and a current weighted average lease term today of 10.7 years.

Current wording

We believe our lease expiration schedule for the remainder of 2024 is manageable, as it equates to 2.1% of our lease revenue at June 30, 2024. Property acquisitions since the beginning of 2020 have totaled $384.3 million and all but one transaction was industrial in nature, with a weighted average lease term of 14.0 years and a current weighted average lease term today of 10.9 years.

Previous wording

During the three months ended March 31, 2024, we continued to execute our capital recycling program, whereby we sold non-core properties. 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 three months ended March 31, 2024, we sold three non-core properties, located in Columbus, Ohio; Draper, Utah; and Richardson, Texas, which are summarized in the table below (dollars in thousands):

Current wording

During the six months ended June 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 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 six months ended June 30, 2024, we sold four non-core properties, located in Columbus, Ohio; Draper, Utah; Richardson, Texas; and Egg Harbor, New Jersey, which are summarized in the table below (dollars in thousands):

Previous wording

During and subsequent to the three months ended March 31, 2024, we executed three leases, which are summarized below (dollars in thousands):

Current wording

During and subsequent to the six months ended June 30, 2024, we executed seven leases, which are summarized below (dollars in thousands):

Previous wording

During the three months ended March 31, 2024, we repaid two mortgages, collateralized by two properties, which are summarized in the table below (dollars in thousands):

Current wording

During the six months ended June 30, 2024, we repaid two mortgages, collateralized by two properties, which are summarized in the table below (dollars in thousands):

Previous wording

On March 3, 2023, we entered into an At-the-Market Equity Offering Sales Agreement (the “2023 Common Stock Sales Agreement”), with BofA Securities, Inc. (“BofA”), Goldman Sachs, Baird, KeyBanc Capital Markets Inc. (“KeyBanc”), and Fifth Third (collectively the “Common Stock Sales Agents”). In connection with the 2023 Common Stock Sales Agreement, we filed prospectus supplements dated March 3, 2023 and March 7, 2023, to the prospectus dated November 23, 2022, with the SEC, for the offer and sale of an aggregate offering amount of $250.0 million of common stock. During the three months ended March 31, 2024, we did not sell any shares of common stock under the 2023 Common Stock Sales Agreement.

Current wording

On March 3, 2023, we entered into an At-the-Market Equity Offering Sales Agreement (the “2023 Common Stock Sales Agreement”), with BofA Securities, Inc. (“BofA”), Goldman Sachs, Baird, KeyBanc Capital Markets Inc. (“KeyBanc”), and Fifth Third (collectively the “Common Stock Sales Agents”). In connection with the 2023 Common Stock Sales Agreement, we filed prospectus supplements with the SEC dated March 3, 2023 and March 7, 2023, to the prospectus dated November 23, 2022, for the offer and sale of an aggregate offering amount of $250.0 million of common stock. During the six months ended June 30, 2024, we did not sell any shares of common stock under the 2023 Common Stock Sales Agreement.

Previous wording

On March 26, 2024, we entered into Amendment No. 1 to the 2023 Common Stock Sales Agreement (the “2024 Common Stock Sales Agreement”). The amendment permitted shares of common stock to be issued pursuant to the 2024 Common Stock Sales Agreement under the Company’s Registration Statement on Form S-3 (File No. 333-277877) (the “2024 Registration Statement”), and future registration statements on Form S-3. In connection with the 2024 Common Stock Sales Agreement, we filed a prospectus supplement dated March 26, 2024, to the prospectus dated March 21, 2024, with the SEC, for the offer and sale of an aggregate offering amount of $250.0 million of common stock. During the three months ended March 31, 2024, we did not sell any shares of common stock under the 2024 Common Stock Sales Agreement.

Current wording

On March 26, 2024, we entered into Amendment No. 1 to the 2023 Common Stock Sales Agreement (the “2024 Common Stock Sales Agreement”). The amendment permitted shares of common stock to be issued pursuant to the 2024 Common Stock Sales Agreement under the Company’s Registration Statement on Form S-3 (File No. 333-277877) (the “2024 Registration Statement”), and future registration statements on Form S-3. In connection with the 2024 Common Stock Sales Agreement, we filed a prospectus supplement with the SEC dated March 26, 2024, to the prospectus dated March 21, 2024, for the offer and sale of an aggregate offering amount of $250.0 million of common stock. During the six months ended June 30, 2024, we sold 756,214 shares of common stock, raising approximately $10.6 million in net proceeds under the 2024 Common Stock Sales Agreement.

Previous wording

On February 20, 2020, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of our authorized and unissued shares of common stock as shares of Series F Preferred Stock. The reclassification decreased the number of shares classified as common stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification. We sold 7,580 shares of our Series F Preferred Stock, raising $0.2 million in net proceeds, during the three months ended March 31, 2024.

Current wording

On February 20, 2020, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of our authorized and unissued shares of common stock as shares of Series F Preferred Stock. The reclassification decreased the number of shares classified as common stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification. We sold 25,780 shares of our Series F Preferred Stock, raising $0.6 million in net proceeds, during the six months ended June 30, 2024.

Previous wording

As of March 31, 2024 and December 31, 2023, we owned approximately 99.2% and 99.2%, respectively, of the outstanding operating partnership units in the Operating Partnership (“OP Units”).

Current wording

As of June 30, 2024 and December 31, 2023, we owned approximately 99.9% and 99.2%, respectively, of the outstanding operating partnership units in the Operating Partnership (“OP Units”). During thesix months ended June 30, 2024, we redeemed 271,169 OP Units for an equivalent amount of common stock.

Previous wording

As of March 31, 2024 and December 31, 2023, there were 310,643 and 310,643 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.

Current wording

As of June 30, 2024 and December 31, 2023, there were 39,474 and 310,643 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.

Previous wording

Gladstone Management Corporation, a Delaware corporation (our “Adviser”), seeks to diversify our portfolio to avoid dependence on any one particular tenant, industry or geographic market. By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic market. For the three months ended March 31, 2024, our largest tenant comprised only 4.3% of total lease revenue. The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Current wording

Gladstone Management Corporation, a Delaware corporation (our “Adviser”), seeks to diversify our portfolio to avoid dependence on any one particular tenant, industry or geographic market. By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic market. For the six months ended June 30, 2024, our largest tenant comprised only 4.4% of total lease revenue. The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

Previous wording

The tables below reflect the breakdown of total lease revenue by state for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Current wording

The tables below reflect the breakdown of total lease revenue by state for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

Previous wording

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

Current wording

Our Adviser and Administrator also provide investment advisory and administrative services, respectively, to certain of our affiliates, including, but not limited to, Gladstone Capital Corporation and Gladstone Investment Corporation, both publicly-traded business development companies, as well as Gladstone Land Corporation, a publicly-traded REIT that primarily invests in farmland. With the exception of Mr. Gary Gerson, our chief financial officer, Mr. Jay Beckhorn, our treasurer, and Mr. Cooper, all of our executive officers and all of our directors serve as either directors or executive officers, or both, of Gladstone Capital Corporation and Gladstone Investment Corporation. In addition, with the exception of Messrs. Cooper and Gerson, all of our executive officers and all of our directors, serve as either directors or executive officers, or both, of Gladstone

Previous wording

Under the Advisory Agreement, we will pay to the Adviser a capital gain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property (equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements) of the disposed property. At the end of the fiscal year, if this number is positive, then the capital gain fee payable for such time period shall equal 15.0% of such amount. No capital gain fee was recognized during the three months ended March 31, 2024 or 2023.

Current wording

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 six months ended June 30, 2024 or 2023.

Previous wording

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 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023, filed by us with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2024 (our “2023 Form 10-K”). There were no material changes to our critical accounting policies or estimates during the three months ended March 31, 2024.

Current wording

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 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023, filed by us with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2024 (our “2023 Form 10-K”). There were no material changes to our critical accounting policies or estimates during the six months ended June 30, 2024.

Previous wording

The weighted average yield on our total portfolio, which was 8.5% and 7.9% as of March 31, 2024 and 2023, respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as lease revenue on our condensed consolidated statements of operations and other comprehensive income, less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements. The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties.

Current wording

The weighted average yield on our total portfolio, which was 8.6% and 7.9% as of June 30, 2024 and 2023, respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as lease revenue on our condensed consolidated statements of operations and other comprehensive income, less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements. The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties.

Previous wording

A comparison of our operating results for the three months ended March 31, 2024 and 2023 is below (dollars in thousands, except per share amounts):

Current wording

A comparison of our operating results for the three and six months ended June 30, 2024 and 2023 is below (dollars in thousands, except per share amounts):

Previous wording

Lease revenues consist of rental income and operating expense recoveries earned from our tenants. Lease revenues from same store properties increased for the three months ended March 31, 2024, due to an increase in rental rates from the leasing activity subsequent to the three months ended March 31, 2023. Lease revenues decreased for acquired and disposed of properties for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to loss of lease revenue including variable lease payments from the 10 property sales subsequent to March 31, 2023, and partially offset by lease revenue from the five properties acquired subsequent to March 31, 2023. Lease revenues increased for our properties with vacancy for the three months ended March 31, 2024 due to an increase in rental revenue from partially leasing vacant space and variable lease payments due to an increase in property operating expenses.

Current wording

Lease revenues consist of rental income and operating expense recoveries earned from our tenants. Lease revenues from same store properties decreased for the three and six months ended June 30, 2024, due to accelerated rent attributable to a lease termination during the three and six months ended June 30, 2023. Lease revenues increased for acquired and disposed of properties for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to accelerated rent attributable to a lease termination on a property that was sold during the current period. Lease revenues decreased for acquired and disposed of properties for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to loss of variable lease payments from the nine property sales subsequent to June 30, 2023, partially offset by lease revenue from the nine properties acquired subsequent to June 30, 2023 and accelerated rent attributable to a lease termination on a property that was sold during the current period. Lease revenues increased for our properties with vacancy for the three and six months ended June 30, 2024 due to an increase in rental revenue from partially leasing vacant space and variable lease payments due to an increase in property operating expenses.

Previous wording

Depreciation and amortization expense decreased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to the depreciation errors corrected, as outlined in Note 1 and Note 9, coupled with the reduced depreciation and amortization expense from the 10 property sales subsequent to March 31, 2023, partially offset by an increase in depreciation and amortization expense on the five properties acquired subsequent to March 31, 2023.

Current wording

Depreciation and amortization expense decreased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, due to the reduced depreciation and amortization expense from the nine property sales subsequent to June 30, 2023, partially offset by an increase in depreciation and amortization expense on the nine properties acquired subsequent to June 30, 2023.

Previous wording

Property operating expenses consist of franchise taxes, property management fees, insurance, ground lease payments, property maintenance and repair expenses paid on behalf of certain of our properties. The decrease in property operating expenses for same store properties for the three months ended March 31, 2024, from the comparable 2023 period, was a result of a decrease in franchise taxes, partially offset by general cost increases due to the inflationary environment during the three months ended March 31, 2024. The decrease in property operating expenses for acquired and disposed of properties for the three months ended March 31, 2024, from the comparable 2023 period, is a result of a decrease in property operating expenses from the 10 property sales subsequent to March 31, 2023, minimally offset by the property operating expense from the five properties acquired subsequent to March 31, 2023. The increase in property operating expenses for properties with vacancy for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, is a result of general cost increases due to the inflationary environment during the same period.

Current wording

Property operating expenses consist of franchise taxes, property management fees, insurance, ground lease payments, property maintenance and repair expenses paid on behalf of certain of our properties. The increase in property operating expenses for same store properties for the three and six months ended June 30, 2024, from the comparable 2023 period, was a result of general cost increases due to the inflationary environment during the three and six months ended June 30, 2024. The decrease in property operating expenses for acquired and disposed of properties for the three and six months ended June 30, 2024, from the comparable 2023 period, is a result of a decrease in property operating expenses from the nine property sales subsequent to June 30, 2023, minimally offset by the property operating expense from the nine properties acquired subsequent to June 30, 2023. The decrease in property operating expenses for properties with vacancy for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, is a result of a reduction in real estate taxes due to successful appeals.

Previous wording

The base management fee paid to the Adviser decreased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to a decrease in Gross Tangible Real Estate over the three months ended March 31, 2024 from property sales as compared to Gross Tangible Real Estate during the three months ended March 31, 2023. The calculation of the base management fee is described in detail above in “Advisory and Administration Agreements.”

Current wording

The base management fee paid to the Adviser decreased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, due to a decrease in Gross Tangible Real Estate over the three and six months ended June 30, 2024 from property sales as compared to Gross Tangible Real Estate during the three and six months ended June 30, 2023. The calculation of the base management fee is described in detail above in subheading “Advisory and Administration Agreements.”

Previous wording

The incentive fee paid to the Adviser increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to the payment of the incentive fee being contractually eliminated for the quarter ended March 31, 2023, as outlined in the Seventh Amended Advisory Agreement. We recorded an incentive fee, which was partially waived, during the three months ended March 31, 2024. The calculation of the incentive fee is described in detail above in “Advisory and Administration Agreements.”

Current wording

The incentive fee paid to the Adviser increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, due to the payment of the incentive fee being contractually eliminated for the quarters ended March 31, 2023 and June 30, 2023, as outlined in the Seventh Amended Advisory Agreement and Eighth Amended Advisory Agreement. We recorded an incentive fee, which was partially waived, during the three and six months ended June 30, 2024. The calculation of the incentive fee is described in detail above in subheading “Advisory and Administration Agreements.”

Previous wording

The administration fee paid to the Administrator increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to our Administrator incurring greater costs that are allocated to us. The calculation of the administration fee is described in detail above in“Advisory and Administration Agreements.”

Current wording

The administration fee paid to the Administrator increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, due to our Administrator incurring greater costs that are allocated to us. The calculation of the administration fee is described in detail above in subheading“Advisory and Administration Agreements.”

Previous wording

General and administrative expenses remained consistent for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

Current wording

General and administrative expenses remained consistent for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023.

Previous wording

Interest expense increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. This increase was primarily a result of increased interest costs on variable rate debt, as global interest rates have increased in reaction to growing inflation, coupled with costs associated with the maturity of several interest rate caps.

Current wording

Interest expense increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023. This increase was primarily a result of increased interest costs on variable rate debt, as global interest rates have increased in reaction to growing inflation, coupled with costs associated with the maturity of several interest rate caps.

Previous wording

We sold three non-core office properties during the three months ended March 31, 2024, and as a result, incurred a gain on sale of real estate, net, and a gain on debt extinguishment, net. There were no property sales during the three months ended March 31, 2023.

Current wording

We sold four non-core office properties during the three and six months ended June 30, 2024, and as a result, incurred a gain on sale of real estate, net, and a gain on debt extinguishment, net. We sold two non-core office properties during the three and six months ended June 30, 2023, and as a result, incurred a loss on sale of real estate, net.

Previous wording

Other income decreased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to nonrecurring income items that occurred in the three months ended March 31, 2023.

Current wording

Other income increased for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, due to nonrecurring income items that occurred in the three months ended June 30, 2024. Other income decreased for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, due to nonrecurring income items that occurred in the six months ended June 30, 2023.

Previous wording

Net Income Available to Common Stockholders and Non-controlling OP Unitholders

Current wording

Net Income (Loss) Available (Attributable) to Common Stockholders and Non-controlling OP Unitholders

Previous wording

Net income available to common stockholders and Non-controlling OP Unitholders increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, as revised, primarily due a decrease in depreciation and amortization from the 10 property sales subsequent to March 31, 2023 and gains on sale, net, and debt extinguishment, net. This was partially offset by depreciation and amortization from the five properties acquired subsequent to March 31, 2023, impairment charges in the current period, an increase in interest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion, and the Incentive Fee in the current period, which was contractually eliminated in the prior period.

Current wording

Net income (loss) available (attributable) to common stockholders and Non-controlling OP Unitholders increased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, primarily due to a decrease in depreciation and amortization from the nine property sales subsequent to June 30, 2023, impairment charges in the prior period, and a gain on sale, net, and gain on debt extinguishment, net, during the current period. This was partially offset by depreciation and amortization from the nine properties acquired subsequent to June 30, 2023, decrease in operating revenues due to lease termination fees in the prior period, an increase in interest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion, and the Incentive Fee accrued in the current period, which was contractually eliminated in the prior period.

Previous wording

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our Credit Facility and issuing additional equity securities. Our available liquidity as of March 31, 2024 was $57.8 million, consisting of approximately $10.5 million in cash and cash equivalents and available borrowing capacity of $47.3 million under our Credit Facility. Our available borrowing capacity under the Credit Facility increased to $49.1 million as of May 6, 2024.

Current wording

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our Credit Facility and issuing additional equity securities. Our available liquidity as of June 30, 2024 was $52.5 million, consisting of approximately $10.4 million in cash and cash equivalents and available borrowing capacity of $42.1 million under our Credit Facility. Our available borrowing capacity under the Credit Facility increased to $60.3 million as of August 6, 2024.

Previous wording

During the three months ended March 31, 2024, we did not sell any common equity under either the 2023 Common Stock Sales Agreement or 2024 Common Stock Sales Agreement. We raised net proceeds of $0.2 million from sales of our Series F Preferred Stock during the three months ended March 31, 2024.

Current wording

During the six months ended June 30, 2024, we raised net proceeds of $10.6 million of common equity under the 2024 Common Stock Sales Agreement. We raised net proceeds of $0.6 million from sales of our Series F Preferred Stock during the six months ended June 30, 2024.

Previous wording

As of March 31, 2024, we had 39 mortgage notes payable in the aggregate principal amount of $278.0 million, collateralized by a total of 45 properties with a remaining weighted average maturity of 4.0 years. The weighted-average interest rate on the mortgage notes payable as of March 31, 2024 was 4.16%.

Current wording

As of June 30, 2024, we had 39 mortgage notes payable in the aggregate principal amount of $275.7 million, collateralized by a total of 45 properties with a remaining weighted average maturity of 3.8 years. The weighted-average interest rate on the mortgage notes payable as of June 30, 2024 was 4.24%.