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(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”

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

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Gladstone Commercial Corporation is a real estate investment trust (“REIT”) that was incorporated under the General Corporation Law of the State of Maryland on February 14, 2003. We focus on acquiring, owning and managing primarily office and industrial properties. On a selective basis, we may make long term industrial and office mortgage loans; however, we do not have any mortgage loans currently outstanding. Subject to certain restrictions and limitations, our business is managed by Gladstone Management Corporation, a Delaware corporation (the “Adviser”), and administrative services are provided by Gladstone Administration, LLC, a Delaware limited liability company (the “Administrator”), each pursuant to a contractual arrangement with us. Our Adviser and Administrator collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Gladstone Commercial Corporation conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership (the “Operating Partnership”).

All references herein to “we,” “our,” “us” and the “Company” mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where it is made clear that the term means only Gladstone Commercial Corporation.

Interim Financial Information

Our interim financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data presented herein was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period, have been included. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission on February 12, 2020. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events such as the novel coronavirus (“COVID-19”) pandemic, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Significant Accounting Policies

The preparation of our financial statements in accordance with GAAP, requires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates. A summary of all of our significant accounting policies is provided in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. On January 1, 2020, we completed the integration of the accounting records of certain of our triple net leased third-party asset managed properties into our accounting system and paid out of our operating bank accounts. For periods prior to January 1, 2020, we recorded property operating expenses and offsetting lease revenues for these certain triple net leased properties on a net basis. Beginning January 1, 2020, we are recording the property operating expenses and offsetting lease revenues for these triple net leased properties on a gross basis, as we have amended our process whereby we are paying operating expenses on behalf of our tenants and receiving reimbursement, whereas, previously these tenants were paying these expenses directly with limited insight provided to us. There were no other material changes to our critical accounting policies during the three and six months ended June 30, 2020.

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Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”). The new standard requires more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair market value through net income. The standard also requires that financial assets measured at amortized cost be presented at the net amounts anticipated to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. We are required to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. We adopted ASU 2016-13 beginning with the three months ended March 31, 2020. Adopting ASU 2016-13 has not resulted in a material impact to our consolidated financial statements, as we do not have any loans receivable outstanding.

In March 2020, the FASB issued Accounting Standards Update 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2020-04”). The main provisions of this update provide optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020. We adopted ASU 2020-04 beginning with the three months ended March 31, 2020. Adopting ASU 2020-04 has not resulted in a material impact to our consolidated statements, as ASU 2020-04 allows for prospective application of any changes in the effective interest rate for our LIBOR based debt, and allows for practical expedients that will allow us to treat our derivative instruments designated as cash flow hedges consistent with how they are currently accounted for.

Gladstone Management and Gladstone Administration

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. Two of our executive officers, Mr. Gladstone and Mr. Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Our president, Mr. Robert Cutlip, also serves as the executive vice president of commercial & 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 June 30, 2020 and December 31, 2019, $3.3 million and $2.9 million, respectively, were collectively due to our Adviser and Administrator. Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreements with our Adviser and Administrator each July. During their July 2020 meeting, our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2021.

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Base Management Fee

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

For the three and six months ended June 30, 2020, we recorded a base management fee of $1.4 million and $2.8 million, respectively. For the three and six months ended June 30, 2019, we recorded a base management fee of $1.3 million and $2.6 million, respectively.

On July 14, 2020, the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Amended Agreement”). The Company’s entrance into the Amended Agreement was approved by its board of directors, including, specifically, unanimously by its independent directors. The Amended Agreement revised and replaced the previous calculation of the Base Management Fee, which was based on Total Equity, with a calculation based on Gross Tangible Real Estate. The revised Base Management Fee will be payable quarterly in arrears and shall be 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 Amended Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Amended Agreement remain unchanged. The revised Base Management Fee calculation will begin with the fee calculations for the quarter ending September 30, 2020.

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

For the three and six months ended June 30, 2020, we recorded an incentive fee of $1.1 million and $2.2 million, respectively. For the three and six months ended June 30, 2019, we recorded an incentive fee of $0.9 million and $1.8 million, respectively. The Adviser did not waive any portion of the incentive fee for the three and six months ended June 30, 2020 or 2019, 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 six months ended June 30, 2020 or 2019.

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Termination Fee

The Advisory Agreement includes a termination fee whereby, in the event of our termination of the agreement without cause (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24-month period prior to such termination. A termination fee is also payable if the Adviser terminates the Advisory Agreement after we have defaulted and applicable cure periods have expired. The Advisory Agreement may also be terminated for cause by us (with 30 days’ prior written notice and the vote of at least two-thirds of our independent directors), with no termination fee payable. Cause is defined in the agreement to include if the Adviser breaches any material provisions thereof, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds.

Administration Agreement

Under the terms of the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary, Michael LiCalsi (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 this approach helps approximate fees paid by us to actual services performed by the Administrator for us. For the three and six months ended June 30, 2020, we recorded an administration fee of $0.4 million and $0.8 million, respectively. For the three and six months ended June 30, 2019, we recorded an administration fee of $0.4 million and $0.8 million, respectively.

Gladstone Securities

Gladstone Securities, LLC (“Gladstone Securities”), is a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities.

Mortgage Financing Arrangement Agreement

We entered into an agreement with Gladstone Securities, effective June 18, 2013, for it to act as our non-exclusive agent to assist us with arranging mortgage financing for properties we own. In connection with this engagement, Gladstone Securities will, from time to time, continue to solicit the interest of various commercial real estate lenders or recommend to us third party lenders offering credit products or packages that are responsive to our needs. We pay Gladstone Securities a financing fee in connection with the services it provides to us for securing mortgage financing on any of our properties. The amount of these financing fees, which are payable upon closing of the financing, are based on a percentage of the amount of the mortgage, generally ranging from 0.15% to a maximum of 1.0% 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 June 30, 2020, but we paid financing fees to Gladstone Securities of $0.09 million during the six months ended June 30, 2020, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.25%, of the mortgage principal secured and/or extended. We paid financing fess to Gladstone Securities of $0.08 million and $0.10 million during the three and six months ended June 30, 2019, respectively, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.21% and 0.20%, respectively, of the mortgage principal secured and/or extended. Our Board of Directors renewed the agreement for an additional year, through August 31, 2021, at its July 2020 meeting.

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Dealer Manager Agreement

On February 20, 2020 we entered into a dealer manager agreement (the “Dealer Manager Agreement”), with Gladstone Securities (the “Dealer Manager”), whereby the Dealer Manager will serve as our exclusive dealer manager in connection with our offering (the “Offering”) of up to (i) 20,000,000 shares of 6.00% Series F Cumulative Redeemable Preferred Stock of the Company, par value $0.001 per share (the “Series F Preferred Stock”), on a “reasonable best efforts” basis (the “Primary Offering”), and (ii) 6,000,000 shares of Series F Preferred Stock pursuant to our distribution reinvestment plan (the “DRIP”) to those holders of the Series F Preferred Stock who participate in such DRIP. The Series F Preferred Stock is registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-236143), as the same may be amended and/or supplemented (the “Registration Statement”), under the Securities Act of 1933, as amended, and will be offered and sold pursuant to a prospectus supplement, dated February 20, 2020, and a base prospectus dated February 11, 2020 relating to the Registration Statement (the “Prospectus”).

Under the Dealer Manager Agreement, the Dealer Manager will provide certain sales, promotional and marketing services to the Company in connection with the Offering, and the Company will pay the Dealer Manager (i) selling commissions of 6.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Selling Commissions”), and (ii) a dealer manager fee of 3.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Dealer Manager Fee”). No Selling Commissions or Dealer Manager Fee shall be paid with respect to Shares sold pursuant to the DRIP. The Dealer Manager may, in its sole discretion, reallow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering.

The following tables set forth the computation of basic and diluted (loss) earnings per share of common stock for the three and six months ended June 30, 2020 and 2019. The OP Units held by Non-controlling OP Unitholders (which may be redeemed for shares of common stock) have been excluded from the diluted (loss) earnings per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of (loss) income would also be added back to net (loss) income. Net (loss) income figures are presented net of such non-controlling interests in the (loss) earnings per share calculation.

We computed basic (loss) earnings per share for the three and six months ended June 30, 2020 and 2019 using the weighted average number of shares outstanding during the respective periods. Diluted (loss) earnings per share for the three and six months ended June 30, 2020 and 2019 reflects additional shares of common stock related to our convertible senior common stock (the “Senior Common Stock”), if the effect would be dilutive, that would have been outstanding if dilutive potential shares of common stock had been issued, as well as an adjustment to net (loss) income (attributable) available to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts).

		For the three months ended June 30,								For the six months ended June 30,
		2020				2019				2020				2019
Calculation of basic (loss) earnings per share of common stock:
Net (loss) income (attributable) available to common stockholders		$	(1,899	)		$	(616	)		$	(2,515	)		$	1,175
Denominator for basic weighted average shares of common stock (1)		33,939,826				30,449,739				33,787,386				29,985,881
Basic (loss) earnings per share of common stock		$	(0.06	)		$	(0.02	)		$	(0.07	)		$	0.04
Calculation of diluted (loss) earnings per share of common stock:
Net (loss) income (attributable) available to common stockholders		$	(1,899	)		$	(616	)		$	(2,515	)		$	1,175
Net (loss) income (attributable) available to common stockholders plus assumed conversions (2)		$	(1,899	)		$	(616	)		$	(2,515	)		$	1,175
Denominator for basic weighted average shares of common stock (1)		33,939,826				30,449,739				33,787,386				29,985,881
Effect of convertible Senior Common Stock (2)		—				—				—				—
Denominator for diluted weighted average shares of common stock (2)		33,939,826				30,449,739				33,787,386				29,985,881
Diluted (loss) earnings per share of common stock		$	(0.06	)		$	(0.02	)		$	(0.07	)		$	0.04

 

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(1)	The weighted average number of OP Units held by Non-controlling OP Unitholders was 503,033 and 502,133 for the three and six months ended June 30, 2020, respectively, and 742,937 for both the three and six months ended June 30, 2019.

(2)	We excluded convertible shares of Senior Common Stock of 650,055 and 718,770 from the calculation of diluted (loss) earnings per share for the three and six months ended June 30, 2020 and 2019, respectively, because they were anti-dilutive.

Real Estate

The following table sets forth the components of our investments in real estate as of June 30, 2020 and December 31, 2019, excluding real estate held for sale as of June 30, 2020 and December 31, 2019, respectively (dollars in thousands):

 

		June 30, 2020				December 31, 2019
Real estate:
Land (1)		$	144,304			$	137,532
Building and improvements		893,547				851,245
Tenant improvements		68,423				68,201
Accumulated depreciation		(219,175		)		(207,523		)
Real estate, net		$	887,099			$	849,455

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

Real estate depreciation expense on building and tenant improvements was $9.2 million and $18.2 million for the three and six months ended June 30, 2020, respectively. Real estate depreciation expense on building and tenant improvements was $8.1 million and $16.1 million for the three and six months ended June 30, 2019, respectively.

Acquisitions

We acquired five properties during the six months ended June 30, 2020, and six properties during the six months ended June 30, 2019. The acquisitions are summarized below (dollars in thousands):

Six Months Ended		Aggregate Square Footage			Weighted Average Lease Term		Aggregate Purchase Price				Capitalized Acquisition Expenses				Aggregate Annualized GAAP Fixed Lease Payments				Aggregate Debt Issued or Assumed
June 30, 2020	(1)	890,038			14.8 Years		$	71,965			$	255		(3)	$	5,303			$	35,855
June 30, 2019	(2)	1,174,311			13.7 Years		46,563				452			(3)	3,819				8,900

(1)

On January 8, 2020, we acquired a 64,800 square foot property in Indianapolis, Indiana for $5.3 million. The property is leased to three tenants with a weighted average lease term of 7.2 years with annualized GAAP rent of $0.5 million. On January 27, 2020, we acquired a 320,838 square foot, three-property portfolio in Houston, Texas, Charlotte, North Carolina, and St. Charles, Missouri for $34.7 million. The portfolio has a weighted average lease term of 20.0 years, and an annualized GAAP rent of $2.6 million. We issued $18.3 million of mortgage debt with a fixed interest rate of 3.625% in connection with the acquisition. On March 9, 2020, we acquired a 504,400 square foot property in Chatsworth, Georgia for $32.0 million. We entered into an interest rate swap in connection with our $17.5 million of issued debt, resulting in a fixed interest rate of 2.8%. The annualized GAAP rent on the 10.5 year lease is $2.2 million.

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(2)

On February 8, 2019, we acquired a 26,050 square foot property in a suburb of Philadelphia, Pennsylvania, for $2.7 million. The annualized GAAP rent on the 15.1 year lease is $0.2 million. On February 28, 2019, we acquired a 34,800 square foot property in Indianapolis, Indiana for $3.6 million. The annualized GAAP rent on the 10.0 year lease is $0.3 million. On April 5, 2019, we acquired a 207,000 square foot property in Ocala, Florida, for $11.9 million. The annualized GAAP rent on the 20.1 year lease is $0.8 million. On April 5, 2019, we acquired a 176,000 square foot property in Ocala, Florida, for $7.3 million. The annualized GAAP rent on the 20.1 year lease is $0.7 million. On April 30, 2019, we acquired a 54,430 square foot property in Columbus, Ohio, for $3.2 million. The annualized GAAP rent on the 7.0 year lease is $0.2 million. On June 18, 2019, we acquired a 676,031 square foot property in Tifton, Georgia, for $17.9 million. The annualized GAAP rent on the 8.5 year lease is $1.6 million. We issued $8.9 million of mortgage debt with a fixed interest rate of 4.35% in connection with this acquisition.

(3)	We treated our acquisitions during the six months ended June 30, 2020 and 2019 as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $0.3 million and $0.5 million, respectively, of acquisition costs that would otherwise have been expensed under business combination treatment.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the six months ended June 30, 2020 and 2019 as follows (dollars in thousands):

		Six Months Ended June 30, 2020				Six Months Ended June 30, 2019
Acquired assets and liabilities		Purchase price				Purchase price
Land (1)		$	7,296			$	3,053
Building and improvements		54,000				34,670
Tenant Improvements		1,285				858
In-place Leases		4,442				3,177
Leasing Costs		4,261				2,982
Customer Relationships		2,223				1,491
Above Market Leases (2)		210				1,865
Below Market Leases (3)		(1,752		)		(1,533		)
Total Purchase Price		$	71,965			$	46,563

(1)	This amount includes $2,711 of land value subject to a land lease agreement.

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

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

Significant Real Estate Activity on Existing Assets

During the six months ended June 30, 2020 and 2019, we executed eight and five leases, respectively, which are summarized below (dollars in thousands):

Six Months Ended		Aggregate Square Footage			Weighted Average Remaining Lease Term		Aggregate Annualized GAAP Fixed Lease Payments				Aggregate Tenant Improvement				Aggregate Leasing Commissions
June 30, 2020		362,171			6.6 years		$	5,000			$	2,226			$	962
June 30, 2019		230,264			8.8 years		3,366				785				910

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the six months ending December 31, 2020 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):

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Year	Tenant Lease Payments
Six Months Ending 2020	$	54,979
2021	108,646
2022	103,030
2023	95,269
2024	86,407
2025	77,057
Thereafter	296,165
	$	821,553

We account for all of our real estate leasing arrangements as operating leases. A majority of our leases are subject to fixed rental increases, but a small subset of our lease portfolio has variable lease payments that are driven by the consumer price index. Many of our tenants have renewal options in their respective leases, but we seldom include option periods in the determination of lease term, as we generally will not enter into leasing arrangements with bargain renewal options. A small number of tenants have termination options.

Future minimum lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses as of December 31, 2019, for each of the five succeeding fiscal years and thereafter, is as follows (dollars in thousands):

 

Year	Tenant Lease Payments
2020	$	107,159
2021	101,794
2022	94,252
2023	86,460
2024	77,414
Thereafter	307,591
	$	774,670

 

Lease Revenue Reconciliation

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the six months ended June 30, 2020 and 2019, respectively (dollars in thousands):

		For the three months ended June 30,								For the six months ended June 30,
Lease revenue reconciliation		2020				2019				2020				2019
Fixed lease payments		$	29,690			$	27,254			$	59,169			$	54,416
Variable lease payments		3,835				943				7,976				1,918
		$	33,525			$	28,197			$	67,145			$	56,334

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 June 30, 2020 and December 31, 2019, excluding real estate held for sale as of June 30, 2020 and December 31, 2019, respectively (dollars in thousands):

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		June 30, 2020								December 31, 2019
		Lease Intangibles				Accumulated Amortization				Lease Intangibles				Accumulated Amortization
In-place leases		$	96,215			$	(51,633	)		$	92,906			$	(48,468	)
Leasing costs		72,914				(36,259		)		68,256				(33,705		)
Customer relationships		66,400				(30,531		)		65,363				(28,887		)
		$	235,529			$	(118,423	)		$	226,525			$	(111,060	)
		Deferred Rent Receivable/(Liability)				Accumulated (Amortization)/Accretion				Deferred Rent Receivable/(Liability)				Accumulated (Amortization)/Accretion
Above market leases		$	14,758			$	(10,259	)		$	16,502			$	(10,005	)
Below market leases and deferred revenue		(37,368		)		16,402				(34,322		)		15,000
		$	(22,610	)		$	6,143			$	(17,820	)		$	4,995

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $5.0 million and $10.1 million for the three and six months ended June 30, 2020, respectively, and $4.5 million and $9.5 million for the three and six months ended June 30, 2019, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income.

Total amortization related to above-market lease values was $0.2 million and $0.4 million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $0.5 million for the three and six months ended June 30, 2019, 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 $0.7 million and $1.4 million for the three and six months ended June 30, 2020, respectively, and $0.6 million and $1.2 million for the three and six months ended June 30, 2019, 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 during the six months ended June 30, 2020 and 2019 were as follows:

 

Intangible Assets & Liabilities		2020		2019
In-place leases		16.3		15.5
Leasing costs		16.3		15.5
Customer relationships		19.5		20.5
Above market leases		18.0		9.3
Below market leases		14.2		7.8
All intangible assets & liabilities		16.9		17.0

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Real Estate Dispositions

During the six months ended June 30, 2020, we continued to execute our capital recycling program, whereby we sell properties outside of our core markets and redeploy proceeds to either fund property acquisitions in our target secondary growth markets, or repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available. On February 20, 2020, we sold one non-core property, located in Charlotte, North Carolina, which is detailed in the table below (dollars in thousands):

Square Footage Sold			Sales Price				Sales Costs				Loss on Sale of Real Estate, net
64,500			$	4,145			$	198			$	(12	)

Our disposition during the six months ended June 30, 2020 was not classified as a discontinued operation because it did not represent a strategic shift in operations, nor will it have a major effect on our operations and financial results. Accordingly, the operating results of this property is included within continuing operations for all periods reported.

The table below summarizes the components of operating income from the real estate and related assets disposed of during the three and six months ended June 30, 2020, and 2019 (dollars in thousands):

		For the three months ended June 30,								For the six months ended June 30,
		2020				2019				2020				2019
Operating revenue		$	—			$	294			$	—			$	589
Operating expense		1				77				32				147
Other expense, net		—			(1)	(1		)		(12		)	(1)	(1		)
(Expense) income from real estate and related assets sold		$	(1	)		$	216			$	(44	)		$	441

(1)	Includes a $0.01 million loss on sale of real estate, net on one property.

Real Estate Held for Sale

As of June 30, 2020, we had two properties classified as held for sale, located in Maple Heights, Ohio and Boston Heights, Ohio. We consider these assets to be non-core to our long term strategy. As of June 30, 2020, our Maple Heights, Ohio property was under contract to sell, and we had an executed letter of intent for our Boston Heights, Ohio property. At December 31, 2019, we had one property classified as held for sale, located in Charlotte, North Carolina. This property was sold during the six months ended June 30, 2020.

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

 

	June 30, 2020				December 31, 2019
Assets Held for Sale
Real estate, at cost	$	18,204			$	7,411
Less: accumulated depreciation	6,539				3,421
Total real estate held for sale, net	11,665				3,990
Lease intangibles, net	171				—
Deferred rent receivable, net	3				—
Total Assets Held for Sale	$	11,839			$	3,990
Liabilities Held for Sale
Asset retirement obligation	$	149			$	21
Total Liabilities Held for Sale	$	149			$	21

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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 six months ended June 30, 2020 and identified one held and used asset, located in Blaine, Minnesota, which was impaired by $1.7 million. In performing our impairment testing, the undiscounted cash flows for this asset were below the carrying value, so we impaired the asset and wrote it down to its fair value, which we determined using third party purchase offers. We did not recognize an impairment charge during the six months ended June 30, 2019.

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

Our mortgage notes payable and Credit Facility as of June 30, 2020 and December 31, 2019 are summarized below (dollars in thousands):

		Encumbered properties at					Carrying Value at								Stated Interest Rates at		Scheduled Maturity Dates at
		June 30, 2020					June 30, 2020				December 31, 2019				June 30, 2020		June 30, 2020
Mortgage and other secured loans:
Fixed rate mortgage loans		61					$	436,867			$	412,771			(1)		(2)
Variable rate mortgage loans		9					32,519				45,151				(3)		(2)
Premiums and discounts, net		-					(210		)		(239		)		N/A		N/A
Deferred financing costs, mortgage loans, net		-					(3,793		)		(3,944		)		N/A		N/A
Total mortgage notes payable, net		70					$	465,383			$	453,739			(4)
Variable rate revolving credit facility		51			(6)		$	43,100			$	52,400			LIBOR + 1.65%		7/2/2023
Deferred financing costs, revolving credit facility		-					(690		)		(821		)		N/A		N/A
Total revolver, net		51					$	42,410			$	51,579
Variable rate term loan facility		-			(6)		$	160,000			$	122,300			LIBOR + 1.60%		7/2/2024
Deferred financing costs, term loan facility		-					(910		)		(1,024		)		N/A		N/A
Total term loan, net		N/A					$	159,090			$	121,276
Total mortgage notes payable and credit facility		121					$	666,883			$	626,594			(5)

 

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

(2)	We have 55 mortgage notes payable with maturity dates ranging from 9/30/2020 through 8/1/2037.

(3)	Interest rates on our variable rate mortgage notes payable vary from one month LIBOR + 2.00% to one month LIBOR + 2.75%. As of June 30, 2020, one month LIBOR was approximately 0.16%.

(4)	The weighted average interest rate on the mortgage notes outstanding as of June 30, 2020 was approximately 4.27%.

(5)	The weighted average interest rate on all debt outstanding as of June 30, 2020 was approximately 3.52%.

(6)	The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 51 unencumbered properties as of June 30, 2020.

N/A - Not Applicable

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Mortgage Notes Payable

As of June 30, 2020, we had 55 mortgage notes payable, collateralized by a total of 70 properties with a net book value of $710.3 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. We have full recourse for $4.8 million of the mortgages notes payable, net, or 1.0% of the outstanding balance. 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 six months ended June 30, 2020, we repaid three mortgages, collateralized by four properties, which are summarized in the table below (dollars in thousands):

Aggregate Fixed Rate Debt Repaid				Interest Rate on Fixed Rate Debt Repaid
$	5,918			6.00%

Aggregate Variable Rate Debt Repaid				Weighted Average Interest Rate on Variable Rate Debt Repaid
$	12,107			LIBOR +	2.25%

During the six months ended June 30, 2020, we issued four mortgages, collateralized by four properties, which are summarized in the table below (dollars in thousands):

Aggregate Fixed Rate Debt Issued				Weighted Average Interest Rate on Fixed Rate Debt
$	35,855		(1)	3.22%

(1)	We issued $18.3 million of fixed rate debt in connection with the three-property portfolio acquired on January 27, 2020 with a maturity date of February 1, 2030. The interest rate is fixed at 3.625%. On March 9, 2020, we issued $17.5 million of floating rate debt swapped to fixed rate debt of 2.8% in connection with the one property acquisition.

We did not make any payments for deferred financing costs during the three months ended June 30, 2020 and made payments of $0.4 million for deferred financing costs during the six months ended June 30, 2020, and $0.4 million and $0.7 million for deferred financing costs during the three and six months ended June 30, 2019, respectively.

Scheduled principal payments of mortgage notes payable for the six months ending December 31, 2020, and each of the five succeeding years and thereafter are as follows (dollars in thousands):

 

Year		Scheduled Principal Payments
Six Months Ending December 31, 2020		$	13,246
2021		33,566
2022		107,739
2023		72,071
2024		49,178
2025		37,118
Thereafter		156,468
Total		$	469,386		(1)

(1)	This figure does not include $0.2 million of premiums and discounts, net, and $3.8 million of deferred financing costs, which are reflected in mortgage notes payable, net on the condensed consolidated balance sheets.

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We believe we will be able to address all mortgage notes payable maturing over the next 12 months through a combination of refinancing our existing indebtedness, cash from operations, proceeds from one or more equity offerings and availability on our Credit Facility.

Interest Rate Cap and Interest Rate Swap Agreements

We have entered into interest rate cap agreements that cap the interest rate on certain of our variable-rate debt and we have assumed or entered into interest rate swap agreements in which we hedged our exposure to variable interest rates by agreeing to pay fixed interest rates to our respective counterparty. We have adopted the fair value measurement provisions for our financial instruments recorded at fair value. The fair value guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Generally, we will estimate the fair value of our interest rate caps and interest rate swaps, in the absence of observable market data, using estimates of value including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At June 30, 2020 and December 31, 2019, our interest rate cap agreements and interest rate swaps were valued using Level 2 inputs.

The fair value of the interest rate cap agreements is recorded in other assets on our accompanying condensed consolidated balance sheets. We record changes in the fair value of the interest rate cap agreements quarterly based on the current market valuations at quarter end. If the interest rate cap qualifies for hedge accounting, the change in the estimated fair value is recorded to accumulated other comprehensive income to the extent that it is effective, with any ineffective portion recorded to interest expense in our condensed consolidated statements of operations and comprehensive income. If the interest rate cap does not qualify for hedge accounting, or if it is determined the hedge is ineffective, any change in the fair value is recognized in interest expense in our consolidated statements of operations and comprehensive income. The following table summarizes the interest rate caps at June 30, 2020 and December 31, 2019 (dollars in thousands):

 

				June 30, 2020								December 31, 2019
Aggregate Cost				Aggregate Notional Amount				Aggregate Fair Value				Aggregate Notional Amount				Aggregate Fair Value
$	1,537		(1)	$	191,718			$	42			$	166,728			$	250

(1)	We have entered into various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 1.50% to 3.00%.

We have assumed or entered into interest rate swap agreements in connection with certain of our acquisitions or mortgage financings, whereby we will pay our counterparty a fixed rate interest rate on a monthly basis, and receive payments from our counterparty equivalent to the stipulated floating rate. The fair values of our interest rate swap agreements are recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate swaps as cash flow hedges, and we record changes in the fair value of the interest rate swap agreement to accumulated other comprehensive income on the condensed consolidated balance sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. The following table summarizes our interest rate swaps at June 30, 2020 and December 31, 2019 (dollars in thousands):

June 30, 2020												December 31, 2019
Aggregate Notional Amount				Aggregate Fair Value Asset				Aggregate Fair Value Liability				Aggregate Notional Amount				Aggregate Fair Value Asset				Aggregate Fair Value Liability
$	62,933			$	—			$	(3,876	)		$	45,777			$	—			$	(1,173	)

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

		Amount of loss recognized in Comprehensive Income
		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Derivatives in cash flow hedging relationships
Interest rate caps		$	(143	)		$	(150	)		$	(307	)		$	(484	)
Interest rate swaps		(338		)		(838		)		(2,702		)		(1,227		)
Total		$	(481	)		$	(988	)		$	(3,009	)		$	(1,711	)

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		June 30, 2020				December 31, 2019
Interest rate caps		Other assets		$	42			$	250
Interest rate swaps		Other liabilities		(3,876		)		(1,173		)
Total derivative liabilities, net				$	(3,834	)		$	(923	)

The fair value of all mortgage notes payable outstanding as of June 30, 2020 was $481.2 million, as compared to the carrying value stated above of $469.4 million. The fair value is calculated based on a discounted cash flow analysis, using management’s estimate of market interest rates on long-term debt with comparable terms and loan to value ratios. The fair value was calculated using Level 3 inputs of the hierarchy established by ASC 820, “Fair Value Measurements and Disclosures.”

Credit Facility

On July 2, 2019, we amended, extended and upsized our Credit Facility, expanding the Term Loan from $75.0 million to $160.0 million, and increasing the Revolver from $85.0 million to $100.0 million. The Term Loan has a new five-year term, with a maturity date of July 2, 2024, and the Revolver has a new four-year term, with a maturity date of July 2, 2023. The interest rate for the Credit Facility was reduced by 10 basis points at each of the leverage tiers. We entered into multiple interest rate cap agreements on the amended Term Loan, which cap LIBOR ranging from 2.50% to 2.75%, to hedge our exposure to variable interest rates. We used the net proceeds derived from the amended Credit Facility to repay all previously existing borrowings under the Revolver. We incurred fees of approximately $1.3 million in connection with the Credit Facility amendment. The bank syndicate is now comprised of KeyBank, Fifth Third Bank, U.S. Bank National Association, The Huntington National Bank, Goldman Sachs Bank USA, and Wells Fargo Bank, National Association.

As of June 30, 2020, there was $203.1 million outstanding under our Credit Facility, at a weighted average interest rate of approximately 1.77%, and $13.5 million outstanding under letters of credit, at a weighted average interest rate of 1.65%. As of June 30, 2020, the maximum additional amount we could draw under the Credit Facility was $19.5 million. We were in compliance with all covenants under the Credit Facility as of June 30, 2020.

The amount outstanding under the Credit Facility approximates fair value as of June 30, 2020.

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Ground Leases

We are obligated as lessee under four ground leases. Future lease payments due under the terms of these leases as of June 30, 2020 are as follows (dollars in thousands):

Year		Future Lease Payments Due Under Operating Leases
Six Months Ending December 31, 2020		$	234
2021		477
2022		489
2023		492
2024		493
2025		494
Thereafter		7,305
Total anticipated lease payments		$	9,984
Less: amount representing interest		(4,216		)
Present value of lease payments		$	5,768

Rental expense incurred for properties with ground lease obligations during the three and six months ended June 30, 2020 was $0.1 million and $0.3 million, respectively, and during the three and six months ended June 30, 2019 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.

Letters of Credit

As of June 30, 2020, there was $13.5 million outstanding under letters of credit. These letters of credit are not reflected on our condensed consolidated balance sheets.

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Stockholders’ Equity

The following table summarizes the changes in our equity for the three and six months ended June 30, 2020 and 2019 (in thousands):

 

	Three Months Ended June 30,							Six Months Ended June 30,
Series A and B Preferred Stock	2020			2019				2020			2019
Balance, beginning of period	$	—		$	2			$	—		$	2
Issuance of Series A and B preferred stock, net	—			—				—			—
Balance, end of period	$	—		$	2			$	—		$	2
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	$	34		$	30			$	32		$	29
Issuance of common stock, net	—			1				2			2
Balance, end of period	$	34		$	31			$	34		$	31
Additional Paid in Capital
Balance, beginning of period	$	599,232		$	573,868			$	571,205		$	559,977
Issuance of common stock, net	508			19,135				28,438			33,246
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	1			(297		)		98			(517		)
Balance, end of period	$	599,741		$	592,706			$	599,741		$	592,706
Accumulated Other Comprehensive Income
Balance, beginning of period	$	(4,654	)	$	(870	)		$	(2,126	)	$	(148	)
Comprehensive income	(481		)	(989		)		(3,009		)	(1,711		)
Balance, end of period	$	(5,135	)	$	(1,859	)		$	(5,135	)	$	(1,859	)
Distributions in Excess of Accumulated Earnings
Balance, beginning of period	$	(374,259	)	$	(319,402	)		$	(360,978	)	$	(310,117	)
Distributions declared to common, senior common, and preferred stockholders	(15,634		)	(14,280		)		(31,184		)	(28,193		)
Net income attributable to the Company	993			2,221				3,262			6,849
Balance, end of period	$	(388,900	)	$	(331,461	)		$	(388,900	)	$	(331,461	)
Total Stockholders' Equity
Balance, beginning of period	$	220,354		$	253,629			$	208,134		$	249,744
Issuance of common stock, net	508			19,136				28,440			33,248
Distributions declared to common, senior common, and preferred stockholders	(15,634		)	(14,280		)		(31,184		)	(28,193		)
Comprehensive income	(481		)	(989		)		(3,009		)	(1,711		)
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	1			(297		)		98			(517		)
Net income attributable to the Company	993			2,221				3,262			6,849
Balance, end of period	$	205,741		$	259,420			$	205,741		$	259,420
Non-Controlling Interest
Balance, beginning of period	$	3,110		$	4,662			$	2,903		$	4,675
Distributions declared to Non-controlling OP Unit holders	(189		)	(278		)		(378		)	(556		)
Issuance of Non-controlling OP Units as consideration in real estate acquisitions, net	—			—				502			—
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	(1		)	297				(98		)	517
Net (loss) income (attributable) available to OP units held by Non-controlling OP Unitholders	(28		)	(16		)		(37		)	29
Balance, end of period	$	2,892		$	4,665			$	2,892		$	4,665
Total Equity	$	208,633		$	264,085			$	208,633		$	264,085

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Distributions

We paid the following distributions per share for the three and six months ended June 30, 2020 and 2019:

 

		For the three months ended June 30,								For the six months ended June 30,
		2020				2019				2020				2019
Common Stock and Non-controlling OP Units		$	0.37545			$	0.37500			$	0.75090			$	0.75000
Senior Common Stock		0.2625				0.2625				0.5250				0.5250
Series A Preferred Stock		—			(1)	0.4843749				—			(1)	0.9687498
Series B Preferred Stock		—			(1)	0.46875				—			(1)	0.9375
Series D Preferred Stock		0.4374999				0.4374999				0.8749998				0.8749998
Series E Preferred Stock		0.414063				—				0.8281260				—
Series F Preferred Stock		0.375			(2)	—				0.375			(2)	—

(1)	We fully redeemed all outstanding shares of both Series A Preferred Stock and Series B Preferred Stock on October 28, 2019.

(2)	Series F Preferred Stock distributions were declared, but not paid, as there were no Series F Preferred Stock shares outstanding on the applicable dividend record dates.

Recent Activity

Common Stock ATM Program

During the six months ended June 30, 2020, we sold 1.3 million shares of common stock, raising $28.4 million in net proceeds under our At-the-Market Equity Offering Sales Agreements 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”), pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $250.0 million (the “Common Stock ATM Program”). As of June 30, 2020, we had remaining capacity to sell up to $208.7 million of common stock under the Common Stock ATM Program.

Mezzanine Equity

Our 7.00% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) and 6.625% Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”) are classified as mezzanine equity on our condensed consolidated balance sheets because both are redeemable at the option of the shareholder upon a change of control of greater than 50% in accordance with ASC 480-10-S99 “Distinguishing Liabilities from Equity,” which requires mezzanine equity classification for preferred stock issuances with redemption features which are outside of the control of the issuer. A change in control of our company, outside of our control, is only possible if a tender offer is accepted by over 90% of our shareholders. All other change in control situations would require input from our Board of Directors. In addition, our Series E Preferred Stock is redeemable at the option of the shareholder in the event a delisting event occurs. We will periodically evaluate the likelihood that a delisting event or change of control of greater than 50% will take place, and if we deem this probable, we would adjust the Series D Preferred Stock and Series E Preferred Stock presented in mezzanine equity to their redemption value, with the offset to gain (loss) on extinguishment. We currently believe the likelihood of a change of control greater than 50%, or a delisting event, is remote.

We have an At-the-Market Equity Offering Sales Agreement with sales agents Baird, Goldman Sachs, Stifel, Fifth Third, and U.S. Bancorp Investments, Inc., pursuant to which we may, 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. We sold 86,564 shares of our Series E Preferred Stock, raising $1.9 million in net proceeds under the agreement during the six months ended June 30, 2020. As of June 30, 2020, we had remaining capacity to sell up to $98.0 million of Series E Preferred Stock under the Series E Preferred Stock Sales Agreement. We do not have an active At-the-Market program for our Series D Preferred Stock.

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Universal Shelf Registration Statements

On January 11, 2019, we filed a universal registration statement on Form S-3, File No. 333-229209, and an amendment thereto on Form S-3/A on January 24, 2019 (collectively referred to as the “2019 Universal Shelf”). The 2019 Universal Shelf became effective on February 13, 2019 and replaced our prior universal shelf registration statement. The 2019 Universal Shelf allows us to issue up to $500.0 million of securities. As of June 30, 2020, we had the ability to issue up to $407.2 million under the 2019 Universal Shelf.

On January 29, 2020, we filed an additional universal registration statement on Form S-3, File No. 333-236143 (the “2020 Universal Shelf”). The 2020 Universal Shelf was declared effective on February 11, 2020 and is in addition to the 2019 Universal Shelf. The 2020 Universal Shelf allows us to issue up to an additional $800.0 million of securities. Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our Series F Preferred Stock. As of June 30, 2020, we had the ability to issue up to $800.0 million of securities under the 2020 universal shelf, as we have not sold any securities under the 2020 Universal Shelf.

Series F Preferred Stock

On February 20, 2020, the Company 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. Currently, there are no shares of the Series F Preferred Stock outstanding.

Amendment to Operating Partnership Agreement

Distributions

On July 14, 2020, our Board of Directors declared the following monthly distributions for the months of July, August and September of 2020:

 

Record Date		Payment Date		Common Stock and Non-controlling OP Unit Distributions per Share				Series D Preferred Distributions per Share				Series E Preferred Distributions per Share
July 24, 2020		July 31, 2020		$	0.12515			$	0.1458333			$	0.138021
August 24, 2020		August 31, 2020		0.12515				0.1458333				0.138021
September 23, 2020		September 30, 2020		0.12515				0.1458333				0.138021
				$	0.37545			$	0.4374999			$	0.414063

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Senior Common Stock Distributions
Payable to the Holders of Record During the Month of:		Payment Date		Distribution per Share
July		August 5, 2020		$	0.0875
August		September 4, 2020		0.0875
September		October 5, 2020		0.0875
				$	0.2625

Series F Preferred Stock Distributions
Record Date		Payment Date		Distribution per Share
July 29, 2020		August 5, 2020		$	0.125
August 26, 2020		September 4, 2020		0.125
September 30, 2020		October 7, 2020		0.125
				$	0.375

COVID-19

As of July 27, 2020, we have collected approximately 99% of all outstanding July cash base rent obligations. In April 2020, we granted rent deferrals to three tenants representing approximately 2% of total portfolio rents. The agreements with these tenants include current partial payment in exchange for rent deferrals of varying terms with deferred amounts to be paid by the respective tenant back to us, for the period starting in July 2020 and ending through March 2021. We have received and may receive additional rent modification requests in future periods from our tenants, but we have not granted any additional rent deferrals at this time. We are unable to quantify the economic impact of these potential requests at this time.

Equity Activity

Subsequent to June 30, 2020 and through July 27, 2020, we raised $1.6 million in net proceeds from the sale of 85,000 shares of Common Stock under our Common Stock ATM Program and $1.5 million in net proceeds from the sale of 67,249 shares of Series E Preferred Stock under our Series E Preferred ATM Program.

Leasing activity

On July 8, 2020, the tenant in our Richmond, Virginia property renewed their lease for an additional six years, with a new maturity date of September 30, 2026.

Sale activity

On July 1, 2020, we sold our Maple Heights, Ohio property for $11.4 million. We recognized a gain on sale, net, of $1.2 million.

Financing activity

On July 1, 2020, we repaid the $4.0 million variable rate debt on our Maple Heights, Ohio property.

On July 14, 2020, the Company amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between the Company and the Adviser (the “Amended Agreement”). The Company’s entrance into the Amended Agreement was approved by its board of directors, including, specifically, unanimously by its independent directors. The Amended Agreement revised and replaced the previous calculation of the Base Management Fee, which was based on Total Equity, with a calculation based on Gross Tangible Real Estate. The revised Base Management Fee will be payable quarterly in arrears and shall be 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 Amended Agreement as the current gross value of the Company’s property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Amended Agreement remain unchanged. The revised Base Management Fee calculation will begin with the fee calculations for the quarter ending September 30, 2020.

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•	we owned 121 properties totaling 14.7 million square feet in 28 states;

•	our occupancy rate was 97.2%;

•	the weighted average remaining term of our mortgage debt was 4.8 years and the weighted average interest rate was 4.29%; and

•	the average remaining lease term of the portfolio was 7.5 years.

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(1)	We issued $18.3 million of fixed rate debt in connection with the three-property portfolio acquired on January 27, 2020 with a maturity date of February 1, 2030. The interest rate is fixed at 3.625%. On March 9, 2020, we issued $17.5 million of floating rate debt swapped to fixed rate debt of 2.8% in connection with the one property acquisition.

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(1)	Refer to the “Funds from Operations” section below within the Management’s Discussion and Analysis section for the definition of FFO.

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(1)	Refer to the “Funds from Operations” section below within the Management’s Discussion and Analysis section for the definition of FFO.

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(1)

Debt obligations represent borrowings under our Revolver, which represents $43.1 million of the debt obligation due in 2023, our Term Loan, which represents $160.0 million of the debt obligation due in 2024, and mortgage notes payable that were outstanding as of June 30, 2020. This figure does not include $0.2 million of premiums and discounts, net and $5.4 million of deferred financing costs, net, which are reflected in mortgage notes payable, net, borrowings under Revolver, net and borrowings under Term Loan, net on the condensed consolidated balance sheets.

(2)	Interest on debt obligations includes estimated interest on borrowings under our Revolver and Term Loan and mortgage notes payable. The balance and interest rate on our Revolver and Term Loan is variable; thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of June 30, 2020.

(3)	Operating lease obligations represent the ground lease payments due on four of our properties.

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(4)	Purchase obligations consist of tenant and capital improvements at five of our properties.

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