GLADSTONE COMMERCIAL CORP

Previous wording

•we owned 134 properties totaling 16.9 million square feet of rentable space, located in 27 states;

Current wording

•we owned 135 properties totaling 16.9 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 4.19%; and

Current wording

•the weighted average remaining term of our mortgage debt was 3.4 years and the weighted average interest rate was 4.29%; and

Previous wording

•the average remaining lease term of the portfolio was 6.8 years.

Current wording

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

Previous wording

We collected 100% of all outstanding base rent for calendar year 2023. This is a testament to the strength of our credit underwriting and asset management teams. We believe that we have a diverse tenant base, and specifically, we do not have significant exposure to tenants in cyclical retail, hospitality, airlines, or oil & gas industries. Additionally, our 135 properties are located across 27 states, which we believe mitigates our exposure to economic issues, including regulations or laws implemented by state and local governments in any one geographic market or area. We also have a cap on industry sector concentration to further diversify our portfolio and mitigate risk.

Current wording

We collected 100% of all outstanding base rent for calendar year 2024. This is a testament to the strength of our credit underwriting and asset management teams. 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 135 properties are located across 27 states, which we believe mitigates our exposure to regional economic and weather-related issues, including regulations or laws implemented by state and local governments in any one geographic market or area. In the past, we have received rent modification requests from certain of our tenants, and it is possible we may receive additional requests in the future.

Previous wording

We believe we have adequate liquidity in the near term, and we believe the availability on our Credit Facility is sufficient to cover all near-term debt obligations and operating expenses and to continue our industrial growth strategy. As of December 31, 2023, we had $56.5 million in available liquidity via our revolving credit facility and cash on hand and were in compliance with all of our debt covenants. We amended our Credit Facility in 2019 to increase our borrowing capacity and extend its maturity date. In addition, on August 18, 2022, we added a new $150.0 million term loan component. We have numerous ongoing conversations with lenders, and credit continues to be available for well capitalized borrowers.

Current wording

We believe we currently have adequate liquidity in the near term, and we believe that our cash on hand combined with the availability on our Credit Facility is sufficient to cover all near term debt obligations and operating expenses and to continue our industrial growth strategy. As of December 31, 2024, we had $101.7 million in available liquidity via our revolving credit facility and cash on hand and were in compliance with all of our debt covenants. We amended our Credit Facility in 2019 to increase our borrowing capacity and extend its maturity date. In addition, on August 18, 2022, we added a new $150.0 million term loan component. Based on market observations and conversations we routinely have with lenders, we believe that credit continues to be available for well-capitalized borrowers, as demonstrated by our Operating Partnership’s issuance, on December 18, 2024, of $75.0 million of senior unsecured notes in a private placement. We continue to monitor our portfolio and intend to maintain a reasonably conservative liquidity position for the foreseeable future.

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 United States. A level of work-from-home trends appear to be here to stay, but many employees are returning to the office, particularly following the presidential transition. We expect that industrial demand will be further buoyed by government investment in infrastructure and advanced manufacturing operations. The Federal Reserve’s interest rate cuts introduced more volatility to the market, and timing of future cuts, if any, remains uncertain.

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. At December 31, 2023, we had four partially vacant buildings and three fully vacant buildings.

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. At December 31, 2024, we had four partially vacant buildings and one fully vacant building.

Previous wording

Our ability to make new investments is highly dependent upon our ability to procure financing. Our principal sources of financing generally include the issuance of equity securities, long-term mortgage loans secured by properties, borrowings under our $125.0 million senior unsecured revolving credit facility (“Revolver”), with KeyBank, which matures in August 2026, our $160.0 million term loan facility (“Term Loan A”), which matures in August 2027, our $60.0 million term loan facility (“Term Loan B”), which matures in February 2026, and our $150.0 million term loan facility (“Term Loan C”), which matures in February 2028. We refer to the Revolver, Term Loan A, Term Loan B, and Term Loan C, collectively, herein as the Credit Facility. While lenders’ credit standards have tightened, we continue to look to national and regional banks, insurance companies and non-bank lenders, in addition to the collateralized mortgage backed securities market (“CMBS”), to issue mortgages to finance our real estate activities.

Current wording

Our ability to make new investments is highly dependent upon our ability to procure financing. Our principal sources of financing generally include the issuance of equity securities, long-term unsecured notes in the private placement market, long-term mortgage loans secured by properties, borrowings under our $125.0 million Revolver, with KeyBank, which matures in August 2026, our $160.0 million Term Loan A, which matures in August 2027, our $60.0 million Term Loan B, which matures in February 2026, our $150.0 million Term Loan C, which matures in February 2028, and our Operating Partnership’s $75.0 million senior unsecured notes, which mature in December 2029. We refer to the Revolver, Term Loan A, Term Loan B, and Term Loan C, collectively, herein as the Credit Facility. While lenders’ credit standards have tightened, we continue to look to private credit institutions, national and regional banks, insurance companies and non-bank lenders to finance our real estate activities.

Previous wording

During the year ended December 31, 2023, we continued to execute our capital recycling program, whereby we sold non-core properties and redeployed proceeds to fund property acquisitions in our target secondary growth markets, as well as repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available. During the year ended December 31, 2023, we sold seven non-core properties, located in Baytown, Texas; Birmingham, Alabama; Pittsburgh, Pennsylvania; Eatontown, New Jersey; Taylorsville, Utah; Columbia, South Carolina; and Blaine, Minnesota, which are summarized in the table below (dollars in thousands):

Current wording

During the year ended December 31, 2024, we continued to execute our capital recycling program, whereby we sold non-core properties and reinvested the proceeds into new real estate assets. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available, and we intend to use the sale proceeds to acquire properties in our target, secondary growth markets or pay down outstanding debt. During the year ended December 31, 2024, we sold seven non-core properties, located in Columbus, Ohio; Draper, Utah; Richardson, Texas; Egg Harbor, New Jersey; Cumming, Georgia; Lawrenceville, Georgia; and Fridley, Minnesota, which are summarized in the table below (dollars in thousands):

Previous wording

During the year ended December 31, 2023, we executed 16 lease extensions and/or modifications, which are summarized below (dollars in thousands):

Current wording

During the year ended December 31, 2024, we executed 12 lease extensions and/or modifications, which are summarized below (dollars in thousands):

Previous wording

(1)Weighted average remaining lease term is weighted according to the annualized GAAP rent earned by each lease. Our leases have remaining terms ranging from 3.3 years to 18.7 years.

Current wording

(1)Weighted average remaining lease term is weighted according to the annualized GAAP rent earned by each lease. Our leases have remaining terms ranging from 1.0 year to 13.8 years.

Previous wording

During the year ended December 31, 2023, we had two lease terminations, which are aggregated below (dollars in thousands):

Current wording

During the year ended December 31, 2024, we had three lease terminations, which are aggregated below (dollars in thousands):

Previous wording

During the year ended December 31, 2023, we repaid six mortgages, collateralized by six properties, which are summarized below (dollars in thousands):

Current wording

During the year ended December 31, 2024, we repaid three mortgages, collateralized by four properties, which are summarized below (dollars in thousands):

Previous wording

During the year ended December 31, 2023, we issued three mortgages, collateralized by three properties, which are summarized below (dollars in thousands):

Current wording

During the year ended December 31, 2024, we issued two mortgages, collateralized by two properties, which are summarized below (dollars in thousands):

Previous wording

(1)We issued $9.0 million of fixed rate debt with an interest rate of 6.10% and a maturity date of September 1, 2028, in connection with three of our acquisitions during the year.

Current wording

(1)We issued $15.2 million of fixed rate debt with an interest rate of 5.6% and a maturity date of August 31, 2029.

Previous wording

On February 22, 2022, we entered into Amendment No. 1 to the At-the-Market Equity Offering Sales Agreement, dated December 3, 2019 (together, the “Prior Common Stock Sales Agreement”). The amendment permitted shares of common stock to be issued pursuant to the Prior Common Stock Sales Agreement under the 2020 Registration Statement, and future registration statements on Form S-3 (the “Prior Common Stock ATM Program”). During the year ended December 31, 2023, we sold 0.2 million shares of common stock, raising approximately $4.0 million in net proceeds under our At-the-Market Equity Offering Sales Agreement with sales agents Robert W. Baird & Co. Incorporated (“Baird”), Goldman Sachs & Co. LLC (“Goldman Sachs”), Stifel, Nicolaus & Company, Incorporated, (“Stifel”) BTIG, LLC, and Fifth Third Securities, Inc. (“Fifth Third”). We terminated the Common Stock Sales Agreement effective February 10, 2023 in connection with the expiration of our registration statement on Form S-3 (File No. 333-236143) (the “2020 Registration Statement”) on February 11, 2023.

Current wording

On February 22, 2022, we entered into Amendment No. 1 to the At-the-Market Equity Offering Sales Agreement with sales agents Baird, Goldman Sachs, Stifel, Nicolaus & Company, Incorporated, (“Stifel”) BTIG, LLC, and Fifth Third, dated December 3, 2019 (together, the “Prior Common Stock Sales Agreement”). We terminated the Prior Common Stock Sales Agreement effective February 10, 2023 in connection with the expiration of our registration statement on Form S-3 (File No. 333-236143) (the “2020 Registration Statement”) on February 11, 2023.

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 year ended December 31, 2023, we sold 1,776 shares of common stock, raising approximately $0.02 million in net proceeds under the 2023 Common Stock Sales Agreement.

Current wording

On March 3, 2023, we entered into the 2023 Common Stock Sales Agreement, with 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 year ended December 31, 2024, we did not sell any shares of common stock under the 2023 Common Stock Sales Agreement.

Previous wording

During the year ended December 31, 2023, we had an At-the-Market Equity Offering Sales Agreement (the “Series E Preferred Stock Sales Agreement”) with sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S. Bancorp Investments, Inc., pursuant to which we could, from time to time, offer to sell shares of our Series E Preferred Stock, in an aggregate offering price of up to $100.0 million (the “Series E Preferred ATM Program”). We did not sell any shares of our Series E Preferred

Current wording

We previously had an At-the-Market Equity Offering Sales Agreement (the “Series E Preferred Stock Sales Agreement”) with sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S. Bancorp Investments, Inc., pursuant to which we could, from time to time, offer to sell shares of our Series E Preferred Stock, in an aggregate offering price of up to $100.0 million (the “Series E Preferred ATM Program”). We did not sell any shares of our Series E Preferred Stock pursuant to the Series E Preferred Stock Sales Agreement during the year ended December 31, 2024, as we terminated the Series E Preferred Stock Sales Agreement effective February 10, 2023 in connection with the expiration of the 2020 Registration Statement on February 11, 2023.

Previous wording

On November 23, 2022, we filed an automatic registration statement on Form S-3 (File No. 333-268549) (the “2022 Registration Statement”). There is no limit on the aggregate amount of the securities that we may offer pursuant to the 2022 Registration Statement.

Current wording

On November 23, 2022, we filed the 2022 Registration Statement. There was no limit on the aggregate amount of the securities that we could offer pursuant to the 2022 Registration Statement.

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 the Company’s 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 246,775 shares of our Series F Preferred Stock, raising $5.6 million in net proceeds, during the year ended December 31, 2023.

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 the Company’s 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 47,328 shares of our Series F Preferred Stock, raising $1.1 million in net proceeds, pursuant to the 2024 Registration Statement, during the year ended December 31, 2024.

Previous wording

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

Current wording

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

Previous wording

On July 11, 2023, the Company entered into 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% of the average quarterly incentive fee paid, the measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the other fees remains unchanged.

Current wording

On July 11, 2023, the Company entered into 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% of the average quarterly incentive fee paid, the measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the other fees remained unchanged.

Previous wording

As of December 31, 2023 and 2022, we owned approximately 99.2% and 99.0%, respectively, of the outstanding OP Units. On September 20, 2022, we issued 134,474 OP Units as partial consideration to acquire our 49,375 square foot property located in Fort Payne, Alabama for $5.6 million. During the year ended December 31, 2023, we redeemed 80,825 OP units for an equivalent amount of common stock.

Current wording

As of December 31, 2024 and 2023, we owned approximately 99.9% and 99.2%, respectively, of the outstanding OP Units. During the years ended December 31, 2024 and 2023, we redeemed 271,169 and 80,825 OP units, respectively, for an equivalent amount of common stock.

Previous wording

As of December 31, 2023 and 2022, there were 310,643 and 391,468 outstanding OP Units held by Non-controlling OP Unitholders, respectively.

Current wording

As of December 31, 2024 and 2023, there were 39,474 and 310,643 outstanding OP Units held by Non-controlling OP Unitholders, respectively.

Previous wording

Gladstone Management Corporation, a Delaware corporation (our “Adviser”) is led by a management team with extensive experience purchasing real estate. Our Adviser and Gladstone Administration, LLC, a Delaware limited liability company (our “Administrator”) are controlled by Mr. Gladstone, who is also our chairman and chief executive officer. Mr. Gladstone also serves as the chairman and chief executive officer of both our Adviser and Administrator. Mr. Brubaker, our chief operating officer, is also the vice chairman and chief operating officer of our Adviser and Administrator. Mr. Cooper, our president, is also an executive managing director of our Adviser. Our Administrator employs our chief financial officer, treasurer, chief compliance officer, and general counsel and secretary (who also serves as our Administrator’s president, general counsel, and secretary) and their respective staffs.

Current wording

The Adviser is led by a management team with extensive experience purchasing real estate. Our Adviser and Administrator are controlled by Mr. Gladstone, who is also our chairman and chief executive officer. Mr. Gladstone also serves as the chairman and chief executive officer of both our Adviser and Administrator. Mr. Cooper, our president, also serves as executive vice president of commercial and industrial real estate of our Adviser. Our Administrator employs our chief financial officer, treasurer, chief compliance officer, and general counsel and secretary (who also serves as our Administrator’s president, general counsel, and secretary, as well as executive vice president of administration of our Adviser) and their respective staffs.

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 (“Gladstone Capital”) and Gladstone Investment Corporation (“Gladstone Investment”), both publicly-traded business development companies, as well as Gladstone Land Corporation (“Gladstone Land”), a publicly-traded REIT that primarily invests in farmland. With the exception of Mr. Gerson, our chief financial officer, Jay Beckhorn, our treasurer, and Mr. Cooper, our president, all of our executive officers and all of our directors serve as either directors or executive officers, or both, of Gladstone Capital and Gladstone Investment. 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. Messrs. Cooper and Gerson generally spend all of their time focused on the Company, and 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 and Gladstone Investment, both publicly-traded business development companies, Gladstone Land, a publicly-traded REIT that primarily invests in farmland, and Gladstone Alternative, a non-diversified, closed-end management investment company that operates as an “interval fund” that is also our affiliate. With the exception of Mr. Gerson, our chief financial officer, Jay Beckhorn, our treasurer, and Mr. Cooper, our president, all of our executive officers and all of our directors serve as either directors or executive officers, or both, of Gladstone Capital, Gladstone Investment, and Gladstone Alternative. 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. Messrs. Cooper and Gerson generally spend all of their time focused on the Company, and 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.

Previous wording

Under the terms of the Amended Advisory Agreement, we continue to be responsible for all expenses incurred for our direct benefit. Examples of these expenses include legal, accounting, interest, directors’ and officers’ insurance, stock transfer services, stockholder-related fees, consulting and related fees. In addition, we are also responsible for all fees charged by third parties that are directly related to our business, which include real estate brokerage fees, mortgage placement fees, lease-up fees and transaction structuring fees (although we may be able to pass some or all of such fees on to our tenants and borrowers). Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreement with our Adviser each July. During its July 2023 meeting, our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2024.

Current wording

Under the terms of the Eighth Amended Advisory Agreement, we continue to be responsible for all expenses incurred for our direct benefit. Examples of these expenses include legal, accounting, interest, directors’ and officers’ insurance, stock transfer services, stockholder-related fees, consulting and related fees. In addition, we are also responsible for all fees charged by third parties that are directly related to our business, which include real estate brokerage fees, mortgage placement fees, lease-up fees and transaction structuring fees (although we may be able to pass some or all of such fees on to our tenants and borrowers). Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreement with our Adviser annually, typically during the month of July. During its July 2024 meeting, our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2025.

Previous wording

On January 10, 2023, we amended and restated the Sixth Amended Advisory Agreement, by entering into the Seventh Amended Advisory Agreement, which was 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, as applicable, for the quarters ended March 31, 2023 and June 30, 2023. The calculation of the other fees remains unchanged.

Current wording

On January 10, 2023, we amended and restated the Sixth Amended Advisory Agreement, by entering into the Seventh Amended Advisory Agreement, which was 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, as applicable, for the quarters ended March 31, 2023 and June 30, 2023. The calculation of the other fees remained unchanged.

Previous wording

On July 11, 2023, we entered into 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% of the average quarterly incentive fee paid, the measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the other fees remains unchanged.

Current wording

On July 11, 2023, we entered into 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% of the average quarterly incentive fee paid, the measurement would be versus the last four quarters where an incentive fee was actually paid. The calculation of the other fees remained unchanged.

Previous wording

Under the Advisory Agreement, we will pay to the Adviser a capital gains-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 all-in acquisition cost 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 years ended December 31, 2023, 2022, and 2021.

Current wording

Under the Advisory Agreement, we will pay to the Adviser a capital gains-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 all-in acquisition cost 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 gains fee was recognized during the years ended December 31, 2024, 2023, and 2022.

Previous wording

We periodically review the carrying value of each property to determine if circumstances that indicate impairment in the carrying value of the investment exist or that depreciation periods should be modified. In determining if impairment exists, our Adviser considers such factors as our tenants’ payment histories, the financial condition of our tenants, including calculating the current leverage ratios of tenants, the likelihood of lease renewal, business conditions in the industries in which our tenants operate, whether the fair value of our real estate has decreased and whether our hold period has shortened. If any of the factors above indicate the possibility of impairment, we prepare a projection of the undiscounted future cash flows, without interest charges, of the specific property and determine if the carrying amount of such property is recoverable. In preparing the projection of undiscounted future cash flows, we estimate cap rates and market rental rates using information that we obtain from market comparability studies and other comparable sources, and apply the undiscounted cash flows against our expected holding period. If impairment were indicated, the carrying value of the property would be written down to its estimated fair value based on our best estimate of the property’s discounted future cash flows using market derived cap rates, discount rates and market rental rates applied against our expected hold period. Any material changes to the estimates and assumptions used in this analysis could have a significant impact on our results of operations, as the changes would impact our determination of whether impairment is deemed to have occurred and the amount of impairment loss that we would recognize.

Current wording

We periodically review the carrying value of each property to determine if circumstances that indicate impairment in the carrying value of the investment exist or that depreciation periods should be modified. In determining if impairment exists, our Adviser considers such factors as our tenants’ payment histories, the financial condition of our tenants, including calculating the current leverage ratios of tenants, the likelihood of lease renewal, business conditions in the industries in which our tenants operate, whether the fair value of our real estate has decreased and whether our hold period has shortened. If any of the factors above indicate the possibility of impairment, we prepare a projection of the undiscounted future cash flows, without interest charges, of the specific property and determine if the carrying amount of such property is recoverable. In preparing the projection of undiscounted future cash flows, we estimate cap rates, market rental rates, and tenant improvement allowances using information that we obtain from market comparability studies and other comparable sources, and apply the undiscounted cash flows against our expected holding period. If impairment were indicated, the carrying value of the property would be written down to its estimated fair value based on our best estimate of the property’s discounted future cash flows using market derived cap rates, discount rates and market rental rates applied against our expected hold period. Any material changes to the estimates and assumptions used in this analysis could have a significant impact on our results of operations, as the changes would impact our determination of whether impairment is deemed to have occurred and the amount of impairment loss that we would recognize.

Previous wording

The weighted average yield on our total portfolio, which was 8.2% and 7.7% at December 31, 2023 and 2022, respectively, is calculated by taking the annualized straight-line rents, reflected as lease revenue on our consolidated statements of operations, of each acquisition as a percentage of the acquisition cost. The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties or other types of existing indebtedness.

Current wording

The weighted average yield on our total portfolio, which was 8.6% and 8.2% at December 31, 2024 and 2023, respectively, is calculated by taking the annualized straight-line rents, reflected as lease revenue on our consolidated statements of operations, of each acquisition as a percentage of the acquisition cost. The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties or other types of existing indebtedness.

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 year ended December 31, 2023, due to an increase in recovery revenue from property operating expenses, accelerated rent from a tenant lease termination, and income recognized from tenant funded projects which were determined to be lessor assets. Lease revenues decreased for acquired and disposed of properties for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to accelerated rent from three lease terminations, all related to properties we sold or are currently held for sale. This was coupled with a decrease in lease revenues from the 12 properties sold during and subsequent to December 31, 2022 and one held for sale property that went vacant in early 2023. This was partially offset with our acquisition of five properties during the year ended December 31, 2023, and the inclusion of a full year of lease revenues recorded in 2023 for 13 properties acquired during the year ended December 31, 2022. Lease revenues increased for properties with vacancy for the year ended December 31, 2023 due to an increase in rental revenue from partially leasing vacant space and an increase in 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 increased for the year ended December 31, 2024, due to an increase in recovery revenue from property operating expenses and a settlement received at one of our properties related to deferred maintenance during the current period, partially offset by accelerated rent attributable to a lease termination in the prior period. Lease revenues decreased for acquired and disposed of properties for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to the loss of recovery revenue from the 14 properties sold during and subsequent to December 31, 2023. This was partially offset with our acquisition of seven properties during the year ended December 31, 2024, and the inclusion of a full year of lease revenues recorded in 2024 for five properties acquired during the year ended December 31, 2023. Lease revenues increased for properties with vacancy for the year ended December 31, 2024 due to an increase in variable lease payments due to an increase in property operating expenses.

Previous wording

Depreciation and amortization decreased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to reduced depreciation and amortization expense for the seven properties sold during the year ended December 31, 2023, coupled with the correction of certain errors in the calculation of the depreciation of certain tenant funded improvement assets, as outlined in Note 9. This was partially offset by a full year of depreciation and amortization for the 13 properties acquired during the year ended December 31, 2022, as well as increased depreciation and amortization expense from the five properties acquired during the year ended December 31, 2023.

Current wording

Depreciation and amortization decreased for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to reduced depreciation and amortization expense for the seven properties sold during the year ended December 31, 2024. This was partially offset by a full year of depreciation and amortization for the five properties acquired during the year ended December 31, 2023, as well as increased depreciation and amortization expense from the seven properties acquired during the year ended December 31, 2024.

Previous wording

Property operating expenses consist of franchise taxes, management fees, insurance, ground lease payments, property maintenance and repair expenses paid on behalf of tenants at certain of our properties. Property operating expenses increased for same store properties for the year ended December 31, 2023, as compared to the year ended December 31, 2022, as a result of tenants requiring more employees to return on site, as well as general cost increases due to the inflationary environment. The decrease in property operating expenses on acquired and disposed of properties for the year ended December 31, 2023, as compared to the year ended December 31, 2022, is a result of a decrease in property operating expenses in relation to properties held for sale or sold during the year that are or were fully vacant. The increase in property operating expenses for properties with vacancy for the year ended December 31, 2023, as compared to the year ended December 31, 2022, is a result of general cost increases due to the inflationary environment.

Current wording

Property operating expenses consist of franchise taxes, management fees, insurance, ground lease payments, property maintenance and repair expenses paid on behalf of tenants at certain of our properties. Property operating expenses increased for same store properties for the year ended December 31, 2024, as compared to the year ended December 31, 2023, as a result of general cost increases due to the inflationary environment. The decrease in property operating expenses on acquired and disposed of properties for the year ended December 31, 2024, as compared to the year ended December 31, 2023, is a result of a decrease in property operating expenses in relation to properties held for sale or sold during the year that were fully vacant. The increase in property operating expenses for properties with vacancy for the year ended December 31, 2024, as compared to the year ended December 31, 2023, is a result of general cost increases due to the inflationary environment.

Previous wording

The base management fee paid to the Adviser increased minimally for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to an increase in gross tangible real estate, the main component of the base management fee calculation under the Sixth Amended Advisory Agreement. The calculation of the base management fee is described in detail above within “Advisory and Administration Agreements.”

Current wording

The base management fee paid to the Adviser decreased for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to a decrease in gross tangible real estate, the main component of the base management fee calculation under the Sixth Amended Advisory Agreement, due to property sales. The calculation of the base management fee is described in detail above within “Advisory and Administration Agreements.”

Previous wording

The incentive fee paid to the Adviser decreased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, 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 for the quarters ended September 30, 2023 and December 31, 2023, as outlined in the Eighth Amended Advisory Agreement. The calculation of the incentive fee is described in detail above within “Advisory and Administration Agreements.”

Current wording

The incentive fee paid to the Adviser increased for the year ended December 31, 2024, as compared to the year ended December 31, 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 for the quarters ended September 30,

Previous wording

General and administrative expenses increased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily as a result of an increase in professional fees.

Current wording

General and administrative expenses decreased for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily as a result of a decrease in legal fee expenses.

Previous wording

We recorded an impairment charge during the year ended December 31, 2023 on five properties, as we had determined the carrying value of these properties was in excess of the fair market value and not recoverable. Accordingly, we impaired these properties to fair market value. We recorded an impairment charge on two properties during the year ended December 31, 2022.

Current wording

We recorded an impairment charge during the year ended December 31, 2024 on three properties, as we had determined the carrying value of these properties was in excess of the fair market value and not recoverable. Accordingly, we impaired these properties to fair market value. We recorded an impairment charge on five properties during the year ended December 31, 2023.

Previous wording

Interest expense increased for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase is primarily the result of increased interest costs on variable rate debt, as global interest rates have increased, coupled with the maturity of several interest rate caps that were replaced by swaps.

Current wording

Interest expense increased slightly for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This increase is primarily the result of increased interest costs on variable rate debt, as global interest rates increased through most of the period in reaction to growing inflation, partially offset by reduced interest expense on mortgage debt that was repaid during and subsequent to December 31, 2023.