good-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-33097

GLADSTONE COMMERCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Maryland		02-0681276
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1521 Westbranch Drive,	Suite 100	22102
McLean,	Virginia
(Address of principal executive offices)		(Zip Code)

(703) 287-5800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GOOD

The Nasdaq Stock Market LLC

6.625% Series E Cumulative Redeemable Preferred Stock, par value $0.001 per share

GOODN

The Nasdaq Stock Market LLC

6.00% Series G Cumulative Redeemable Preferred Stock, par value $0.001 per share

GOODO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of November 7, 2022 was 39,607,009.

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GLADSTONE COMMERCIAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

September 30, 2022

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		PAGE
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

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

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

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

	Notes to Condensed Consolidated Financial Statements	8

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	45

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

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

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	46

SIGNATURES		49

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Gladstone Commercial Corporation

Condensed Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)


	September 30, 2022		December 31, 2021
ASSETS
Real estate, at cost	$	1,279,455	$	1,225,258
Less: accumulated depreciation	284,802		266,672
Total real estate, net	994,653		958,586
Lease intangibles, net	112,993		114,494
Real estate and related assets held for sale	11,434		—
Cash and cash equivalents	13,540		7,956
Restricted cash	4,146		5,222
Funds held in escrow	9,464		7,304
Right-of-use assets from operating leases	5,189		5,361
Deferred rent receivable, net	38,935		39,066
Other assets	19,314		5,363
TOTAL ASSETS	$	1,209,668	$	1,143,352
LIABILITIES, MEZZANINE EQUITY AND EQUITY
LIABILITIES
Mortgage notes payable, net (1)	$	367,618	$	449,944
Borrowings under Revolver	7,750		33,550
Borrowings under Term Loan A, Term Loan B and Term Loan C, net	366,395		224,032
Deferred rent liability, net	40,701		26,770
Operating lease liabilities	5,360		5,509
Asset retirement obligation	4,501		3,769
Accounts payable and accrued expenses	10,904		6,736
Liabilities related to assets held for sale	16		—
Due to Adviser and Administrator (1)	3,704		3,431
Other liabilities	15,072		16,788
TOTAL LIABILITIES	$	822,021	$	770,529
Commitments and contingencies (2)
MEZZANINE EQUITY
Series E and G redeemable preferred stock, net, par value $0.001 per share; $25 per share liquidation preference; 10,760,000 shares authorized; and 7,061,448 and 7,061,448 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	$	170,261	$	170,261
TOTAL MEZZANINE EQUITY	$	170,261	$	170,261
EQUITY
Senior common stock, par value $0.001 per share; 950,000 shares authorized; and 431,064 and 600,061 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	$	1	$	1
Common stock, par value $0.001 per share, 62,292,200 and 62,290,000 shares authorized; and 39,607,009 and 37,473,587 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	39		37
Series F redeemable preferred stock, par value $0.001 per share; $25 per share liquidation preference; 25,997,800 and 26,000,000 shares authorized and 597,616 and 422,920 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (3)	1		—
Additional paid in capital	717,098		671,134
Accumulated other comprehensive income	12,366		(1,346)
Distributions in excess of accumulated earnings	(514,057)		(468,523)
TOTAL STOCKHOLDERS' EQUITY	$	215,448	$	201,303
OP Units held by Non-controlling OP Unitholders (3)	1,938		1,259
TOTAL EQUITY	$	217,386	$	202,562
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	1,209,668	$	1,143,352

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

(2)Refer to Note 7 “Commitments and Contingencies”

(3)Refer to Note 8 “Equity and Mezzanine Equity”

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Gladstone Commercial Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income

(Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)


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

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Gladstone Commercial Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)


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

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


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

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

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

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



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


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

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (dollars in thousands):


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

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Gladstone Commercial Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization, Basis of Presentation and Significant Accounting Policies

Gladstone Commercial Corporation is a real estate investment trust (“REIT”) that was incorporated under the General Corporation Law of the State of Maryland on February 14, 2003. We focus on acquiring, owning and managing primarily office and industrial properties. Subject to certain restrictions and limitations, our business is managed by Gladstone Management Corporation, a Delaware corporation (the “Adviser”), and administrative services are provided by Gladstone Administration, LLC, a Delaware limited liability company (the “Administrator”), each pursuant to a contractual arrangement with us. Our Adviser and Administrator collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Gladstone Commercial Corporation conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership (the “Operating Partnership”).

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

Interim Financial Information

Our interim financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data presented herein was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period, have been included. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2022. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

Use of Estimates

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

Significant Accounting Policies

The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates. A summary of all of our significant accounting policies is provided in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes to our critical accounting policies during the three and nine months ended September 30, 2022.

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2. Related-Party Transactions

Gladstone Management and Gladstone Administration

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. Two of our executive officers, Mr. Gladstone and Mr. Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Our president, Mr. Arthur “Buzz” Cooper, is also executive vice president of commercial and industrial real estate of our Adviser. Mr. Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president, general counsel and secretary, as well as executive vice president of administration of our Adviser. We have entered into an advisory agreement with our Adviser, as amended from time to time (the “Advisory Agreement”), and an administration agreement with our Administrator (the “Administration Agreement”). The services and fees under the Advisory Agreement and Administration Agreement are described below. As of September 30, 2022 and December 31, 2021, $3.7 million and $3.4 million, respectively, were collectively due to our Adviser and Administrator. Our entrance into the Advisory Agreement and each amendment thereto has been approved unanimously by our Board of Directors. Our Board of Directors reviews and considers renewing the agreements with our Adviser and Administrator each July. During their July 2022 meeting, our Board of Directors reviewed and renewed each of the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2023.

Base Management Fee

On July 14, 2020, we amended and restated the Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between us and the Adviser (the “Sixth Amended Advisory Agreement”), which replaced the previous calculation of the base management fee with a calculation based on Gross Tangible Real Estate. The revised base management fee is payable quarterly in arrears and calculated at an annual rate of 0.425% (0.10625% per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Sixth Amended Advisory Agreement as the current gross value of our property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculation of the other fees in the Advisory Agreement remains unchanged.

For the three and nine months ended September 30, 2022, we recorded a base management fee of $1.6 million and $4.7 million, respectively. For the three and nine months ended September 30, 2021, we recorded a base management fee of $1.5 million and $4.4 million, respectively.

Incentive Fee

Pursuant to the Advisory Agreement, the calculation of the incentive fee rewards the Adviser in circumstances where our quarterly Core FFO (defined at the end of this paragraph), before giving effect to any incentive fee, or pre-incentive fee Core FFO, exceeds 2.0% quarterly, or 8.0% annualized, of adjusted total stockholders’ equity (after giving effect to the base management fee but before giving effect to the incentive fee). We refer to this as the hurdle rate. The Adviser will receive 15.0% of the amount of our pre-incentive fee Core FFO that exceeds the hurdle rate. However, in no event shall the incentive fee for a particular quarter exceed by 15.0% (the cap) the average quarterly incentive fee paid by us for the previous four quarters (excluding quarters for which no incentive fee was paid). Core FFO (as defined in the Advisory Agreement) is GAAP net (loss) income (attributable) available to common stockholders, excluding the incentive fee, depreciation and amortization, any realized and unrealized gains, losses or other non-cash items recorded in net (loss) income (attributable) available to common stockholders for the period, and one-time events pursuant to changes in GAAP. The Incentive Fee is used by the Adviser primarily for performance-based compensation related to certain of its employees.

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

Capital Gain Fee

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For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property (equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements) of the disposed property. At the end of the fiscal year, if this number is positive, then the capital gain fee payable for such time period shall equal 15.0% of such amount. No capital gain fee was recognized during the three and nine months ended September 30, 2022 or 2021.

Termination Fee

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

Administration Agreement

Under the terms of the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under contractual agreements. We believe that the methodology of allocating the Administrator’s total expenses by approximate percentage of time services were performed among all companies serviced by our Administrator more closely approximates fees paid to actual services performed. For the three and nine months ended September 30, 2022, we recorded an administration fee of $0.5 million and $1.3 million, respectively. For the three and nine months ended September 30, 2021, we recorded an administration fee of $0.4 million and $1.0 million, respectively.

Gladstone Securities

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

Mortgage Financing Arrangement Agreement

We entered into an agreement with Gladstone Securities, effective June 18, 2013, for it to act as our non-exclusive agent to assist us with arranging mortgage financing for properties we own. In connection with this engagement, Gladstone Securities will, from time to time, continue to solicit the interest of various commercial real estate lenders or recommend to us third party lenders offering credit products or packages that are responsive to our needs. We pay Gladstone Securities a financing fee in connection with the services it provides to us for securing mortgage financing on any of our properties. The amount of these financing fees, which are payable upon closing of the financing, are based on a percentage of the amount of the mortgage, generally ranging from 0.15% to a maximum of 1.00% of the mortgage obtained. The amount of the financing fees may be reduced or eliminated, as determined by us and Gladstone Securities, after taking into consideration various factors, including, but not limited to, the involvement of any third-party brokers and market conditions. We paid financing fees to Gladstone Securities of $0.1 million and $0.3 million during the three and nine months ended September 30, 2022, respectively, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.29% and 0.32%, respectively, of the mortgage principal secured. We paid financing fees to Gladstone Securities of $14,000 during the nine months ended September 30, 2021, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.25% of the mortgage principal secured. Our Board of Directors renewed the agreement for an additional year, through August 31, 2023, at its July 2022 meeting.

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Dealer Manager Agreement

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

Under the Dealer Manager Agreement, Gladstone Securities, as dealer manager, will provide certain sales, promotional and marketing services to us in connection with the Offering, and we will pay Gladstone Securities (i) selling commissions of 6.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Selling Commissions”), and (ii) a dealer manager fee of 3.0% of the gross proceeds from sales of Series F Preferred Stock in the Primary Offering (the “Dealer Manager Fee”). No Selling Commissions or Dealer Manager Fee shall be paid with respect to shares sold pursuant to the DRIP. Gladstone Securities may, in its sole discretion, re-allow a portion of the Dealer Manager Fee to participating broker-dealers in support of the Offering. We paid fees of $0.1 million and $0.4 million to Gladstone Securities during the three and nine months ended September 30, 2022, respectively, in connection with the Offering. We paid fees of $0.4 million and $0.5 million to Gladstone Securities during the three and nine months ended September 30, 2021, respectively, in connection with the Offering.

3. (Loss) Earnings Per Share of Common Stock

The following tables set forth the computation of basic and diluted (loss) earnings per share of common stock for the three and nine months ended September 30, 2022 and 2021. The operating partnership units in the Operating Partnership (“OP Units”) held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”) (which may be redeemed for shares of common stock) have been excluded from the diluted (loss) earnings per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of (loss) earnings would also be added back to net (loss) income. Net (loss) income figures are presented net of such non-controlling interests in the (loss) earnings per share calculation.

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


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

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

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

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

4. Real Estate and Intangible Assets

Real Estate

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


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

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

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

Acquisitions

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


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

(1)On February 24, 2022, we acquired an 80,000 square foot property in Wilkesboro, North Carolina for $7.5 million. The property is fully leased to one tenant and had 12.7 years of remaining lease term at the time we acquired the property. On March 11, 2022, we acquired a 56,000 square foot property in Oklahoma City, Oklahoma for $6.0 million. The property is fully leased to one tenant and had 7.0 years of remaining lease term at the time we acquired the property. On May 4, 2022, we acquired a two-property, 260,719 square foot portfolio in Cleveland, Ohio and Fort Payne, Alabama for $19.5 million. The properties are fully leased to one tenant and had 11.4 years of remaining lease term at the time we acquired the properties. On May 12, 2022, we acquired a three-property, 345,584 square foot portfolio in Wilmington, North Carolina for $18.9 million. The properties are fully leased to one tenant and had 13.1 years of remaining lease term at the time we acquired the properties. On August 5, 2022, we acquired a two-property, 246,000 square foot portfolio in Bridgeton, New Jersey and Vineland, New Jersey for $32.7 million. The properties are fully leased to one tenant and had 15.1 years of remaining lease term at the time we acquired the properties. On September 16, 2022, we acquired a 67,328 square foot property in Jacksonville, Florida for $8.1 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On September 20, 2022, we acquired a 49,375 square foot property in Fort Payne, Alabama for $5.6 million. The property is fully leased to one tenant and had 14.8 years of remaining lease term at the time we acquired the property.

(2)On January 22, 2021, we acquired a 180,152 square foot property in Findlay, Ohio for $11.1 million. The property is fully leased to one tenant and had 14.2 years of remaining lease term at the time we acquired the property. On June 17, 2021, we acquired a 25,200 square foot property in Baytown, Texas for $8.2 million. The property is fully leased to one tenant and had 12.6 years of remaining lease term at the time we acquired the property. On July 21, 2021, we acquired an 80,604 square foot, four-property portfolio in Pacific, Missouri for $22.1 million. These properties are fully leased to one tenant for 17.4 years at time we acquired the portfolio. On August 20, 2021, we acquired an 81,760 square foot, two-property portfolio in Peru, Illinois for $4.8 million. These properties are fully leased to one tenant for 15.0 years at time we acquired the portfolio.

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


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


Total Purchase Price	$	98,276		$	46,225

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

(2)This amount includes $32 of prepaid rent included in Other liabilities on the condensed consolidated balance sheets.

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the three months ending December 31, 2022 and each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of September 30, 2022 (dollars in thousands):


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

In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant directly, or reimbursed to us from the tenant; however, we would be required to pay operating expenses on the respective properties in the event the tenants fail to pay them.

Lease Revenue Reconciliation

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the three and nine months ended September 30, 2022 and 2021, respectively (dollars in thousands):


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

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

Intangible Assets

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


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

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

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $4.7 million and $14.5 million for the three and nine months ended September 30, 2022, respectively, and $5.0 million and $15.7 million for the three and nine months ended September 30, 2021, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income.

Total amortization related to above-market lease values was $0.2 million and $0.6 million for the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.6 million for the three and nine months ended September 30, 2021, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $1.5 million and $3.1 million for the three and nine months ended September 30, 2022, respectively, and $0.9 million and $3.3 million for the three and nine months ended September 30, 2021, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income.

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the nine months ended September 30, 2022 and 2021, respectively, were as follows:


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

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

Real Estate Dispositions

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During the nine months ended September 30, 2022, we continued to execute our capital recycling program, whereby we sold properties outside of our core markets and redeployed proceeds to either fund property acquisitions in our target, secondary growth markets, or repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available, and use the sales proceeds to acquire properties in our target, secondary growth markets, or pay down outstanding debt. During the nine months ended September 30, 2022, we sold three non-core properties, located in Jupiter, Florida, Parsippany, New Jersey, and Boston Heights, Ohio.


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

Our dispositions during the nine months ended September 30, 2022 were not classified as discontinued operations because they did not represent a strategic shift in operations, nor will such dispositions have a major effect on our operations and financial results. Accordingly, the operating results of these properties are included within continuing operations for all periods reported.

The table below summarizes the components of operating income from the real estate and related assets disposed of during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):


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

(1)Includes an $8.9 million gain on sale of real estate, net, on three property sales.

Real Estate Held for Sale

At September 30, 2022, we had two properties classified as held for sale, located in Columbus, Ohio and Allen, Texas. We consider these assets to be non-core to our long term strategy. At December 31, 2021, we did not have any properties classified as held for sale.

The table below summarizes the components of the assets and liabilities held for sale at September 30, 2022 reflected on the accompanying condensed consolidated balance sheets (dollars in thousands):


	September 30, 2022
Assets Held for Sale
Total real estate held for sale	$	9,979
Lease intangibles, net	680
Deferred rent receivable, net	775

Total Assets Held for Sale	$	11,434
Liabilities Held for Sale

Asset retirement obligation	$	16


Total Liabilities Held for Sale	$	16

Impairment Charges

We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the nine months ended September 30, 2022 and identified one held and used asset, located in Columbia, South Carolina, which was impaired by $10.7 million. In performing our impairment testing, the undiscounted cash flow for this asset was below the carrying value. We engaged a third party expert to determine the fair value for this asset, which was calculated using level 3 inputs. As part of their analysis, a sales comparison approach was used with the value per square foot range between $9.87 per

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square foot and $55.48 per square foot, with a weighted average of $30.72 per square foot. As a result, we recorded an impairment charge to the carrying value, to record this property at the appraised value of $4.5 million.

We evaluated our held for sale assets to determine if any of these assets were impaired during the nine months ended September 30, 2022, and identified one held for sale asset, located in Parsippany, New Jersey, which was impaired by $1.4 million. In performing our held for sale assessment, the carrying value of this asset was above the fair value, less costs of sale. As a result, we impaired this property to equal the fair market value less costs of sale. The property was sold during the nine months ended September 30, 2022.

We did not recognize an impairment charge during the nine months ended September 30, 2021.

Fair market value for this asset was calculated using Level 3 inputs (defined in Note 6 “Mortgage Notes Payable and Credit Facility”), which were determined using a negotiated sales price from an executed purchase and sale agreement with a third party. 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.

6. Mortgage Notes Payable and Credit Facility

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

Our mortgage notes payable and Credit Facility as of September 30, 2022 and December 31, 2021 are summarized below (dollars in thousands):


	Encumbered properties at		Carrying Value at				Stated Interest Rates at		Scheduled Maturity Dates at
	September 30, 2022		September 30, 2022		December 31, 2021		September 30, 2022		September 30, 2022
Mortgage and other secured loans:
Fixed rate mortgage loans	50		$	370,291	$	436,530	(1)		(2)
Variable rate mortgage loans	—		—		16,338		N/A		(2)
Premiums and discounts, net	—		(94)		(130)		N/A		N/A
Deferred financing costs, mortgage loans, net	—		(2,579)		(2,794)		N/A		N/A
Total mortgage notes payable, net	50		$	367,618	$	449,944	(3)
Variable rate revolving credit facility	82	(6)	$	7,750	$	33,550	SOFR + 1.50%	(4)	8/18/2026

Total revolver	82		$	7,750	$	33,550
Variable rate term loan facility A	—	(6)	$	160,000	$	160,000	SOFR + 1.45%	(4)	8/18/2027
Variable rate term loan facility B	—	(6)	60,000		65,000		SOFR + 1.45%	(4)	2/11/2026
Variable rate term loan facility C	—	(6)	150,000		—		SOFR + 1.45%	(4)	2/18/2028
Deferred financing costs, term loan facility	—		(3,605)		(968)		N/A		N/A
Total term loan, net	N/A		$	366,395	$	224,032
Total mortgage notes payable and credit facility	132		$	741,763	$	707,526	(5)

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

(2)We have 44 mortgage notes payable with maturity dates ranging from December 6, 2022 through August 1, 2037.

(3)The weighted average interest rate on the mortgage notes outstanding as of September 30, 2022 was approximately 4.19%.

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(4)As of September 30, 2022, Secured Overnight Financing Rate (“SOFR”) was approximately 2.98%.

(5)The weighted average interest rate on all debt outstanding as of September 30, 2022 was approximately 4.31%.

(6)The amount we may draw under our Credit Facility is based on a percentage of the fair value of a combined pool of 82 unencumbered properties as of September 30, 2022.

N/A - Not Applicable

Mortgage Notes Payable

As of September 30, 2022, we had 44 mortgage notes payable, collateralized by a total of 50 properties with a net book value of $556.7 million. We have limited recourse liabilities that could result from any one or more of the following circumstances: a borrower voluntarily filing for bankruptcy, improper conveyance of a property, fraud or material misrepresentation, misapplication or misappropriation of rents, security deposits, insurance proceeds or condemnation proceeds, or physical waste or damage to the property resulting from a borrower’s gross negligence or willful misconduct. As of September 30, 2022, we did not have any mortgages subject to recourse. We will also indemnify lenders against claims resulting from the presence of hazardous substances or activity involving hazardous substances in violation of environmental laws on a property.

During the nine months ended September 30, 2022, we repaid 13 mortgages, collateralized by 27 properties, which is summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Repaid		Weighted Average Interest Rate on Fixed Rate Debt Repaid
$	97,843	4.75	%


Aggregate Variable Rate Debt Repaid		Weighted Average Interest Rate on Variable Rate Debt Repaid
$	30,336	LIBOR/SOFR +	2.50%	(1)

(1)As of September 30, 2022, Secured Overnight Financing Rate (“SOFR”) was approximately 2.98%.

During the nine months ended September 30, 2022, we issued five mortgages, collateralized by 10 properties, which is summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Issued			Weighted Average Interest Rate on Fixed Rate Debt
$	41,313	(1)	4.39	%

(1)We issued $10.0 million of fixed rate debt with a maturity date of May 4, 2027, in connection with the two-property portfolio acquired on May 4, 2022. The interest rate is fixed at 4.00%. We issued $10.0 million of fixed rate debt with a maturity date of June 1, 2032, in connection with the three-property acquisition on May 12, 2022. The interest rate is fixed at 3.40%. We issued $16.9 million of fixed rate debt with a maturity date of August 1, 2027, in connection with the two-property acquisition on August 5, 2022. The interest rate is fixed at 4.95%. We issued $4.4 million of swapped to fixed rate debt with a maturity date of September 16, 2029, in connection with the property acquisition on September 16, 2022. The interest rate is swapped to a fixed rate of 5.39%.


Variable Rate Debt Issued			Interest Rate on Variable Rate Debt
$	15,000	(1)	SOFR +	2.50%

(1)We issued $15.0 million of variable rate debt in connection with refinancing mortgage debt at two properties with a new maturity date of April 27, 2024 and interest rate of SOFR plus 2.50%. This mortgage was repaid on August 18, 2022.

During the nine months ended September 30, 2022, we extended the maturity date of three mortgages, collateralized by five properties, which is summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Extended		Weighted Average Interest Rate on Fixed Rate Debt Extended		Extension Term
$	14,633	5.41	%	1.0 year

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Variable Rate Debt Extended			Interest Rate on Variable Rate Debt Extended		Extension Term
$	7,059	(1)	LIBOR +	2.75%	1.0 year

(1)We repaid this mortgage on August 18, 2022.

We made payments of $5.6 million and $6.2 million for deferred financing costs during the three and nine months ended September 30, 2022. We did not make any payments for deferred financing costs during the three months ended September 30, 2021, but made payments of $0.6 million for deferred financing costs during the nine months ended September 30, 2021.

Scheduled principal payments of mortgage notes payable for the three months ending December 31, 2022, and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands):


Year	Scheduled Principal Payments
Three Months Ending December 31, 2022	$	16,030
2023	66,120
2024	20,420
2025	38,802
2026	42,258
2027	94,717
Thereafter	91,944
Total	$	370,291	(1)

(1)This figure does not include $(0.1) million of premiums and (discounts), net, and $2.6 million of deferred financing costs, which are reflected in mortgage notes payable, net on the condensed consolidated balance sheets.

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

Interest Rate Cap and Interest Rate Swap Agreements

We have entered into interest rate cap agreements that cap the interest rate on certain of our variable-rate debt and we have assumed or entered into interest rate swap agreements in which we hedged our exposure to variable interest rates by agreeing to pay fixed interest rates to our respective counterparty. We have adopted the fair value measurement provisions for our financial instruments recorded at fair value. The fair value guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Generally, we will estimate the fair value of our interest rate caps and interest rate swaps, in the absence of observable market data, using estimates of value including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021 (dollars in thousands):

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			September 30, 2022				December 31, 2021
Aggregate Cost			Aggregate Notional Amount		Aggregate Fair Value		Aggregate Notional Amount		Aggregate Fair Value
$	1,228	(1)	$	225,000	$	4,843	$	233,632	$	324

(1)We have entered into various interest rate cap agreements on variable rate debt with LIBOR caps ranging from 1.50% to 2.75%.

We have assumed or entered into interest rate swap agreements in connection with certain of our mortgage financings and Credit Facility, whereby we will pay our counterparty a fixed rate interest rate on a monthly basis and receive payments from our counterparty equivalent to the stipulated floating rate. The fair value of our interest rate swap agreements is recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate swaps as cash flow hedges, and we record changes in the fair value of the interest rate swap agreement to accumulated other comprehensive income on the condensed consolidated balance sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. The following table summarizes our interest rate swaps at September 30, 2022 and December 31, 2021 (dollars in thousands):


September 30, 2022						December 31, 2021
Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability		Aggregate Notional Amount		Aggregate Fair Value Asset		Aggregate Fair Value Liability
$	230,136	$	8,868	$	(66)	$	73,212	$	841	$	(1,217)

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


	Amount of gain (loss), net, recognized in Comprehensive Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Derivatives in cash flow hedging relationships
Interest rate caps	$	1,758	$	(49)	$	4,520	$	(26)
Interest rate swaps	5,032		470		9,140		2,151
Total	$	6,790	$	421	$	13,660	$	2,125

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


	Amount reclassified out of Accumulated Other Comprehensive Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest rate caps	$	(52)	$	(145)	$	(52)	$	(145)
Total	$	(52)	$	(145)	$	(52)	$	(145)

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


		Asset (Liability) Derivatives Fair Value at
Derivatives Designated as Hedging Instruments	Balance Sheet Location	September 30, 2022		December 31, 2021
Interest rate caps	Other assets	$	4,843	$	324
Interest rate swaps	Other assets	8,868		841
Interest rate swaps	Other liabilities	(66)		(1,217)
Total derivative liabilities, net		$	13,645	$	(52)

The fair value of all mortgage notes payable outstanding as of September 30, 2022 was $346.8 million, as compared to the carrying value stated above of $367.6 million. The fair value is calculated based on a discounted cash flow analysis, using management’s estimate of market interest rates on long-term debt with comparable terms and loan to value ratios. The fair value was calculated using Level 3 inputs of the hierarchy established by ASC 820, “Fair Value Measurements and Disclosures.”

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Reference Rate Reform

Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”) contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. As of September 30, 2022, we elected to apply the hedge accounting expedients related to probability and the assessment of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. We also elected the option to not reassess a previous accounting determination, and the option to not dedesignate a hedging relationship due to a change in a critical term. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in our hedging activities occur.

Credit Facility

On July 2, 2019, we amended, extended and upsized our Credit Facility, expanding Term Loan A from $75.0 million to $160.0 million, and increased our Revolver from $85.0 million to $100.0 million. Term Loan A has a maturity date of July 2, 2024, and the Revolver has a maturity date of July 2, 2023. The interest rate for the Credit Facility is equal to LIBOR plus a spread ranging from 125 to 215 basis points, depending on our leverage. We entered into multiple interest rate cap agreements on Term Loan A, which cap LIBOR ranging from 2.50% to 2.75%, to hedge our exposure to variable interest rates. The Credit Facility’s bank syndicate is 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.

On February 11, 2021, we added a new $65.0 million Term Loan B, inclusive of a $15.0 million delayed funding component. Term Loan B has a maturity date of February 11, 2026 and a LIBOR floor of 25 basis points, plus a spread ranging from 140 to 225 basis points, depending on our leverage. We entered into multiple interest rate cap agreements on Term Loan B, which cap LIBOR from 1.50% to 1.75%. We incurred fees of approximately $0.5 million in connection with issuing Term Loan B. As of September 30, 2022, there was $60.0 million outstanding under Term Loan B, and we used all net proceeds to repay all outstanding borrowings on the Revolver and fund acquisitions.

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

As of September 30, 2022, there was $377.8 million outstanding under our Credit Facility, at a weighted average interest rate of approximately 4.43%, and $17.1 million outstanding under letters of credit, at a weighted average interest rate of 1.75%. As of September 30, 2022, the maximum additional amount we could draw under the Credit Facility was $56.0 million. We were in compliance with all covenants under the Credit Facility as of September 30, 2022.

The amount outstanding under the Credit Facility approximates fair value as of September 30, 2022.

7. Commitments and Contingencies

Ground Leases

We are obligated as lessee under four ground leases. Future minimum rental payments due under the terms of these leases for the three months ending December 31, 2022 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):

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Year	Future Lease Payments Due Under Operating Leases
Three Months Ending December 31, 2022	$	123
2023	492
2024	493
2025	494
2026	498
2027	506
Thereafter	6,301
Total anticipated lease payments	$	8,907
Less: amount representing interest	(3,547)
Present value of lease payments	$	5,360

Rental expense incurred for properties with ground lease obligations during the three and nine months ended September 30, 2022 was $0.1 million and $0.3 million, respectively, and during the three and nine months ended September 30, 2021 was $0.1 million and $0.4 million, respectively. Our ground leases are treated as operating leases and rental expenses are reflected in property operating expenses on the condensed consolidated statements of operations and comprehensive income. Our ground leases have a weighted average remaining lease term of 18.7 years and a weighted average discount rate of 5.33%.

Letters of Credit

As of September 30, 2022, there was $17.1 million outstanding under letters of credit. These letters of credit are not reflected on our condensed consolidated balance sheets.

8. Equity and Mezzanine Equity

Stockholders’ Equity

The following table summarizes the changes in our equity for the three and nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021




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	$	39	$	36	$	37	$	35
Issuance of common stock, net	—		1		2		2
Balance, end of period	$	39	$	37	$	39	$	37
Series F Preferred Stock
Balance, beginning of period	$	1	$	—	$	—	$	—
Issuance of Series F preferred stock, net	—		—		1		—
Redemption of Series F preferred stock, net	—		—		—		—
Balance, end of period	$	1	$	—	$	1	$	—
Additional Paid in Capital
Balance, beginning of period	$	705,629	$	648,112	$	671,134	$	626,533
Issuance of common stock and Series F preferred stock, net	9,856		8,699		44,513		29,110
Redemption of OP Units	—		—		—		4,812
Redemption of Series F preferred stock, net	—		—		55		—
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	1,613		(21)		1,396		(3,665)

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Balance, end of period	$	717,098	$	656,790	$	717,098	$	656,790
Accumulated Other Comprehensive Income
Balance, beginning of period	$	5,524	$	(2,641)	$	(1,346)	$	(4,345)
Comprehensive income	6,790		421		13,660		2,125
Reclassification into interest expense	52		145		52		145
Balance, end of period	$	12,366	$	(2,075)	$	12,366	$	(2,075)
Distributions in Excess of Accumulated Earnings
Balance, beginning of period	$	(498,574)	$	(442,122)	$	(468,523)	$	(409,041)
Distributions declared to common, senior common, and preferred stockholders	(17,984)		(16,849)		(53,000)		(50,011)
Redemption of Series D preferred stock, net	—		—		—		(2,141)
Redemption of Series F preferred stock, net	—		—		(5)		—
Net income attributable to the Company	2,501		4,477		7,471		6,699
Balance, end of period	$	(514,057)	$	(454,494)	$	(514,057)	$	(454,494)
Total Stockholders' Equity
Balance, beginning of period	$	212,620	$	203,386	$	201,303	$	213,183
Issuance of common stock and Series F preferred stock, net	9,856		8,700		44,516		29,112
Redemption of OP Units	—		—		—		4,812
Redemption of Series D preferred stock, net	—		—		—		(2,141)
Redemption of Series F preferred stock, net	—		—		50		—
Distributions declared to common, senior common, and preferred stockholders	(17,984)		(16,849)		(53,000)		(50,011)
Comprehensive income	6,790		421		13,660		2,125
Reclassification into interest expense	52		145		52		145
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	1,613		(21)		1,396		(3,665)
Net income attributable to the Company	2,501		4,477		7,471		6,699
Balance, end of period	$	215,448	$	200,259	$	215,448	$	200,259
Non-Controlling Interest
Balance, beginning of period	$	1,275	$	1,338	$	1,259	$	2,854
Distributions declared to Non-controlling OP Unit holders	(114)		(97)		(307)		(382)
Issuance of Non-controlling OP Units as consideration in real estate acquisitions, net	2,394		—		2,394		—
Redemptions of OP Units	—		—		—		(4,812)
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	(1,613)		21		(1,396)		3,665
Net (loss) income (attributable) available to OP units held by Non-controlling OP Unitholders	(4)		21		(12)		(42)
Balance, end of period	$	1,938	$	1,283	$	1,938	$	1,283
Total Equity	$	217,386	$	201,542	$	217,386	$	201,542

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Distributions

We paid the following distributions per share for the three and nine months ended September 30, 2022 and 2021:


	For the three months ended September 30,					For the nine months ended September 30,
	2022		2021			2022		2021
Common Stock and Non-controlling OP Units	$	0.37620	$	0.37545		$	1.12860	$	1.12635
Senior Common Stock	0.2625		0.2625			0.7875		0.7875



Series D Preferred Stock	—		—		(1)	—		0.8749998		(1)
Series E Preferred Stock	0.414063		0.414063			1.242189		1.242189
Series F Preferred Stock	0.375		0.375			1.125		1.125
Series G Preferred Stock	0.375		0.375		(2)	1.125		0.375		(2)

(1)We redeemed all outstanding shares of our Series D Preferred Stock on June 30, 2021.

(2)Our shares of Series G Preferred Stock were issued on June 28, 2021.

Recent Activity

Common Stock ATM Program

During the nine months ended September 30, 2022, we sold 2.0 million shares of common stock, raising $40.6 million in net proceeds under our At-the-Market Equity Offering Sales Agreements with sales agents Robert W. Baird & Co. Incorporated, Goldman Sachs & Co. LLC, Stifel, Nicolaus & Company, Incorporated, BTIG, LLC, and Fifth Third Securities, Inc. On February 22, 2022, we entered into Amendment No. 1 to our existing At-the-Market Equity Offering Sales Agreement (the “Common Stock Sales Agreement”), dated December 3, 2019. The amendment permits shares of common stock to be issued pursuant to the Common Stock Sales Agreement under the Company’s Registration Statement on Form S-3 (File No. 333-236143) and future registration statements on Form S-3 (the “Common Stock ATM Program”). As of September 30, 2022, we had remaining capacity to sell up to $26.5 million of common stock pursuant to the Common Stock ATM Program under the 2020 Universal Shelf (as defined below).

Mezzanine Equity

Our 6.625% Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”), and our 6.00% Series G Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”) are classified as mezzanine equity in our condensed consolidated balance sheets because both are redeemable at the option of the shareholder upon a change of control of greater than 50%. 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 and Series G Preferred Stock are redeemable at the option of the applicable 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 adjust the Series E Preferred Stock, and Series G 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 of greater than 50%, or a delisting event, is remote.

Universal Shelf Registration Statement

On January 29, 2020, we filed a 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. The 2020 Universal Shelf allows us to issue up to $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, and $63.0 million is reserved for our Common Stock ATM Program. As of September 30, 2022, we had the ability to issue up to $648.6 million of securities under the 2020 Universal Shelf.

Series F Preferred Stock

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of our authorized and unissued shares of common stock as shares of Series F Preferred Stock. The reclassification decreased the number of shares classified as common stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification. We sold 164,400 shares of our Series F Preferred Stock, raising $3.7 million in net proceeds during the nine months ended September 30, 2022. As of September 30, 2022, we had remaining capacity to sell up to $621.6 million of Series F Preferred Stock.

Non-controlling Interest in Operating Partnership

As of September 30, 2022 and December 31, 2021, we owned approximately 99.0% and 99.3%, 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 nine months ended September 30, 2021, we redeemed 246,039 OP Units for an equivalent amount of common stock.

The Operating Partnership is required to make distributions on each OP Unit in the same amount as those paid on each share of our common stock, with the distributions on the OP Units held by us being utilized to make distributions to our common stockholders.

As of September 30, 2022 and December 31, 2021, there were 391,468 and 256,994 outstanding OP Units held by Non-controlling OP Unitholders, respectively.

9. Subsequent Events

Distributions

On October 11, 2022, our Board of Directors declared the following monthly distributions for the months of October, November and December of 2022:


Record Date	Payment Date	Common Stock and Non-controlling OP Unit Distributions per Share		Series E Preferred Distributions per Share		Series G Preferred Distributions per Share
October 21, 2022	October 31, 2022	$	0.12540	$	0.138021	$	0.125
November 18, 2022	November 30, 2022	0.12540		0.138021		0.125
December 20, 2022	December 30, 2022	0.12540		0.138021		0.125
		$	0.37620	$	0.414063	$	0.375

Senior Common Stock Distributions

Payable to the Holders of Record During the Month of:

Payment Date

Distribution per Share

October

November 4, 2022

0.0875

November

December 5, 2022

0.0875

December

January 6, 2023

0.0875

0.2625

Series F Preferred Stock Distributions

Record Date

Payment Date

Distribution per Share

October 26, 2022

November 4, 2022

0.125

November 23, 2022

December 5, 2022

0.125

December 28, 2022

January 6, 2023

0.125

0.375

Equity Activity

Subsequent to September 30, 2022 and through November 7, 2022, we raised $0.2 million in net proceeds from the sale of 8,500 shares of Series F Preferred Stock.

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Sale Activity

On October 28, 2022, we sold one of our properties in Columbus, Ohio for $2.3 million, resulting in a loss on sale, net, of $0.02 million.

Acquisition Activity

On October 26, 2022, we purchased a 68,674 square foot industrial property in Denver, Colorado for $12.0 million. This property is fully leased to one tenant on a 20.0 year lease.

Financing Activity

On October 26, 2022, we issued $6.6 million of swapped to fixed rate debt in connection with property acquisition on the same date, with a term of 6.9 years and interest rate swapped to 5.90%.

Election of Director

Effective October 11, 2022, Paula Novara was elected to our Board of Directors. Ms. Novara also serves as head of human resources, facilities and office management and IT of the Adviser and certain of its affiliates.

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

All statements contained herein, other than historical facts, may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our business, financial condition, liquidity, results of operations, funds from operations or prospects to be materially different from any future business, financial condition, liquidity, results of operations, funds from operations or prospects expressed or implied by such forward-looking statements. For further information about these and other factors that could affect our future results, please see the captions titled “Forward-Looking Statements” and “Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended December 31, 2021. We caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.

All references to “we,” “our,” “us” and the “Company” in this Report mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where otherwise noted or where the context indicates that the term means only Gladstone Commercial Corporation.

General

We are an externally-advised 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. Our properties are geographically diversified and our tenants cover a broad cross section of business sectors and range in size from small to very large private and public companies, many of which are corporations that do not have publicly-rated debt. We have historically entered into, and intend in the future to enter into, purchase agreements primarily for real estate having net leases with remaining terms of approximately seven to 15 years and contractual rental rate increases. Under a net lease, the tenant is required to pay most or all operating, maintenance, repair and insurance costs and real estate taxes with respect to the leased property.

We actively communicate with buyout funds, real estate brokers and other third parties to locate properties for potential acquisition or to provide mortgage financing in an effort to build our portfolio. We target secondary growth markets that possess favorable economic growth trends, diversified industries, and growing population and employment.

All references to annualized generally accepted accounting principles (“GAAP”) rent are rents that each tenant pays in accordance with the terms of its respective lease reported evenly over the non-cancelable term of the lease.

As of November 7, 2022:

•we owned 137 properties totaling 17.2 million square feet of rentable space, located in 27 states;

•our occupancy rate was 96.3%;

•the weighted average remaining term of our mortgage debt was 4.3 years and the weighted average interest rate was 4.21%; and

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

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Business Environment

Since the onset of the COVID-19 pandemic in March 2020, authorities throughout the United States and the world have implemented widespread measures attempting to contain its spread and impact, such as travel restrictions, quarantines, the promotion of social distancing and limitations on business activity. Generally, year to date 2022 has seen the lifting of most restrictive measures that were implemented during 2020 and 2021. These measures, and the pandemic generally, have caused significant national and global economic disruption, including disrupted business operations, including those of some of our tenants, and continue to have an adverse effect on demand for office space in the short term, including office utilization rates. Economic recovery in the United States and various other regions of the world has continued, but may be threatened by the further adverse effects of COVID-19 and more significantly by continuing inflationary conditions, rising interest rates and the impact of ongoing or escalated geopolitical tensions and conflict.

The demand for industrial space has remained strong due to the continuing growth of e-commerce and reshoring of manufacturing operations, but appears to be only partially counterbalancing the adverse effects of COVID-19 on the commercial real estate industry. However, product delivery delays caused by supply chain disruption, and the apparent national labor shortage, have resulted in inflation and higher costs for both industrial and office construction projects. Industrial absorption increased on a nominal basis in 2021, compared to 2020, according to research reports, and continues to be strong through the first quarter of 2022, averaging approximately 130 million square feet of absorption each quarter. Construction activity for the industrial sector remains strong, as year-end 2021 estimates have approximately 500 million square feet of properties under construction with over 30% of that space pre-leased. Research reports also reflect that the office sector experienced negative absorption for each of the previous four quarters. Office space available for sublease has increased and is placing downward pressure on office rental rates.

Interest rates remain volatile in response to competing concerns about inflationary pressures and the spread and effect of COVID-19 variants, coupled with the threat of a near-term recession. The yield on the 10-year US Treasury Note has increased significantly during the first half of 2022 to approximately 3%, which adversely affects interest rates on long-term financing. After completing the 12th year of the current cycle, some national research firms are estimating that both pricing and investment sales volume would be peaking and the national economy would be slowing in the near term. Global recessionary conditions may occur over the next 24 months caused in part by inflation, the ongoing COVID-19 pandemic, and geopolitical conditions, although the actual timeline, impact and duration are unknown.

From a more macro-economic perspective, there continue to be significant uncertainties associated with the current economic environment and increasing probability of near-term recession.

Other Business Environment Considerations

The short-term and long-term economic implications are unknown, in relation to recent world events, including inflation, supply chain disruptions, labor shortages, rapidly rising interest rates, long term impact of the COVID-19 pandemic and associated government response in addition to any subsequent shift in policy, geopolitical conditions, new regulations or the long-term impact of social and infrastructure spending and tax reform in the U.S. Finally, the continuing uncertainty surrounding the ability of the federal government to address its fiscal condition in both the near and long term, as well as other geopolitical issues relating to the global economic slowdown has increased domestic and global instability. These developments could cause interest rates and borrowing costs to be volatile, which may adversely affect our ability to access both the equity and debt markets and could have an adverse impact on our tenants as well.

The majority of our variable rate debt is based upon the Secured Overnight Financing Rate (“SOFR”), although we have some variable rate mortgages based on the one-month London Interbank Offered Rate (“LIBOR”), which include fallback language providing a mechanism for the parties to negotiate a new reference interest rate in the event that LIBOR ceases to exist. LIBOR is currently anticipated to be phased out by June 2023 and is expected to transition to SOFR, which incorporates repo data collected from multiple data sets. The intent is to adjust the SOFR to minimize differences between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR. We are currently monitoring the transition as SOFR becomes the standard benchmark for variable rate debt. During the transition further changes or reforms to the determination of supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based debt, or the value of our portfolio of LIBOR-indexed, floating-rate debt.

We continue to focus on re-leasing vacant space, renewing upcoming lease expirations, re-financing upcoming loan maturities, and acquiring additional properties with associated long-term leases. Currently, we have seven partially vacant buildings and three fully vacant buildings. There are no outstanding COVID-19 related rent modifications in place.

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Our available vacant space at September 30, 2022 represents 3.1% of our total square footage and the annual carrying costs on the vacant space, including real estate taxes and property operating expenses, are approximately $3.8 million. We continue to actively seek new tenants for these properties.

We believe our lease expiration schedule for the remainder of 2022 is quite manageable, as it equates to only 2.7% of our lease revenue at September 30, 2022. Property acquisitions since the beginning of 2019 have totaled $455.4 million and all transactions were industrial in nature, with a weighted average lease term of 12.9 years and a current weighted average lease term today of 10.8 years.

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 National Association (“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.

Recent Developments

Sale Activity

During the nine months ended September 30, 2022 we continued to execute our capital recycling program, whereby we sold properties outside of our core markets and redeployed proceeds to either fund property acquisitions in our target secondary growth markets, or repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available, and use the sales proceeds to acquire properties in our target, secondary growth markets, or pay down outstanding debt. During the nine months ended September 30, 2022, we sold three non-core properties, located in Jupiter, Florida, Parsippany, New Jersey, and Boston Heights, Ohio.


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

On October 28, 2022, we sold one of our properties in Columbus, Ohio for $2.3 million, resulting in a gain on sale, net, of $0.02 million.

Acquisition Activity

During the nine months ended September 30, 2022, we acquired 11 industrial properties located in Wilkesboro, North Carolina, Oklahoma City, Oklahoma, Cleveland, Ohio, Fort Payne, Alabama, Wilmington, North Carolina, Bridgeton, New Jersey, Vineland, New Jersey, and Jacksonville, Florida which are summarized below (dollars in thousands):


Aggregate Square Footage	Weighted Average Remaining Lease Term at Time of Acquisition	Aggregate Purchase Price		Aggregate Capitalized Acquisition Expenses		Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Debt Issued
1,105,006	13.8 years	$	98,276	$	776	$	6,722	$	41,313

On October 26, 2022, we purchased a 68,674 square foot industrial property in Denver, Colorado for $12.0 million. This property is fully leased to 1.00 tenant on a 20.0 year lease.

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Leasing Activity

During and subsequent to the nine months ended September 30, 2022, we executed nine leases, which are summarized below (dollars in thousands):


Aggregate Square Footage	Weighted Average Remaining Lease Term	Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Tenant Improvement		Aggregate Leasing Commissions
501,501	8.1 years	$	5,744	$	5,670	$	2,029

On October 12, 2022, we executed a lease amendment at our Egg Harbor, New Jersey property to extend the lease term an additional 2.0 years.

On October 31, 2022, we executed a lease for 20,682 square feet of vacant space in our Mason, Ohio property for 7.3 years, bringing the property to full occupancy.

During the nine months ended September 30, 2022, we had two lease terminations, which are summarized below (dollars in thousands):


Aggregate Square Footage Reduced	Aggregate Accelerated Rent		Aggregate Accelerated Rent Recognized through September 30, 2022
216,095	$	5,888	$	5,175

Financing Activity

During the nine months ended September 30, 2022, we repaid 13 mortgages, collateralized by 27 properties, which are summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Repaid		Weighted Average Interest Rate on Fixed Rate Debt Repaid
$	97,843	4.75	%


Aggregate Variable Rate Debt Repaid		Weighted Average Interest Rate on Variable Rate Debt Repaid
$	30,336	LIBOR/SOFR +	2.50%	(1)

(1)As of September 30, 2022, Secured Overnight Financing Rate (“SOFR”) was approximately 2.98%.

During the nine months ended September 30, 2022, we issued five mortgages, collateralized by 10 properties, which are summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Issued			Weighted Average Interest Rate on Fixed Rate Debt
$	41,313	(1)	4.39	%

(1)We issued $10.0 million of fixed rate debt in connection with the two-property portfolio acquired on May 4, 2022 with a maturity date of May 4, 2027. The interest rate is fixed at 4.00%. We issued $10.0 million of fixed rate debt with a maturity date of June 1, 2032, in connection with the three-property acquisition on May 12, 2022. The interest rate is fixed at 3.40%. We issued $16.9 million of fixed rate debt with a maturity date of August 1, 2027, in connection with the two-property acquisition on August 5, 2022. The interest rate is fixed at 4.95%. We issued $4.4 million of swapped to fixed rate debt with a maturity date of September 16, 2029, in connection with the property acquisition on September 16, 2022. The interest rate is swapped to a fixed rate of 5.39%.

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Variable Rate Debt Issued			Interest Rate on Variable Rate Debt
$	15,000	(1)	SOFR +	2.50%

(1)We issued $15.0 million of variable rate debt in connection with refinancing mortgage debt at two properties with a new maturity date of April 27, 2024 and interest rate of SOFR plus 2.50%.

On October 26, 2022, we issued $6.6 million of swapped to fixed rate debt in connection with property acquisition on the same date, with a term of 6.9 years and interest rate swapped to 5.90%.

During the nine months ended September 30, 2022, we extended the maturity date of three mortgages, collateralized by five properties, which is summarized in the table below (dollars in thousands):


Aggregate Fixed Rate Debt Extended		Weighted Average Interest Rate on Fixed Rate Debt Extended		Extension Term
$	14,633	5.41	%	1.0 year

Variable Rate Debt Extended

Interest Rate on Variable Rate Debt Extended

Extension Term

7,059

LIBOR +

2.75%

1.0 year

Equity Activities

Common Stock ATM Program

During the nine months ended September 30, 2022, we sold 2.0 million shares of common stock, raising $40.6 million in net proceeds under our At-the-Market Equity Offering Sales Agreements (the “Common Stock Sales Agreement”) with sales agents Robert W. Baird & Co. Incorporated, Goldman Sachs & Co. LLC, Stifel, Nicolaus & Company, Incorporated, BTIG, LLC, and Fifth Third Securities, Inc. On February 22, 2022, we entered into Amendment No. 1 to our Common Stock Sales Agreement. The amendment permits shares of common stock to be issued pursuant to the Common Stock Sales Agreement under the Company’s Registration Statement on Form S-3 (File No. 333-236143) and future registration statements on Form S-3 (the “Common Stock ATM Program”). As of September 30, 2022, we had remaining capacity to sell up to $26.5 million of common stock pursuant to the Common Stock ATM Program under the 2020 Universal Shelf (as defined below).

Universal Shelf Registration Statement

On January 29, 2020, we filed a 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. The 2020 Universal Shelf allows us to issue up to $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 6.00% Series F Cumulative Redeemable Preferred Stock, par value $0.001 per share (the “Series F Preferred Stock”) and $63.0 million is reserved for our Common Stock ATM Program. As of September 30, 2022, we had the ability to issue up to $648.6 million of securities under the 2020 Universal Shelf.

Series F Preferred Stock

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On February 20, 2020, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of our authorized and unissued shares of Common Stock as shares of Series F Preferred Stock. The reclassification decreased the number of shares classified as common stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification. We sold 164,400 shares of our Series F Preferred Stock, raising $3.7 million in net proceeds during the three and nine months ended September 30, 2022. As of September 30, 2022, we had remaining capacity to sell up to $621.6 million of Series F Preferred Stock.

Non-controlling Interest in Operating Partnership

As of September 30, 2022 and December 31, 2021, we owned approximately 99.0% and 99.3%, respectively, of the outstanding operating partnership units in the Operating Partnership (“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 nine months ended September 30, 2021, we redeemed 246,039 OP Units for an equivalent amount of common stock.

As of September 30, 2022 and December 31, 2021, there were 391,468 and 256,994 outstanding OP Units held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”), respectively.

Diversity of Our Portfolio

Gladstone Management Corporation, a Delaware corporation (our “Adviser”), seeks to diversify our portfolio to avoid dependence on any one particular tenant, industry or geographic market. By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic market. For the nine months ended September 30, 2022, our largest tenant comprised only 3.9% of total lease revenue. The table below reflects the breakdown of our total lease revenue by tenant industry classification for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):


	For the three months ended September 30,								For the nine months ended September 30,
	2022				2021				2022				2021
Industry Classification	Lease Revenue		Percentage of Lease Revenue		Lease Revenue		Percentage of Lease Revenue		Lease Revenue		Percentage of Lease Revenue		Lease Revenue		Percentage of Lease Revenue
Telecommunications	$	5,859	14.7		$	5,815	16.7		$	17,216	15.6		$	16,978	16.8
Automotive	4,815		12.1		3,392		9.9		14,085		12.6		8,845		8.6
Diversified/Conglomerate Services	4,248		10.7		4,631		13.5		13,338		11.9		14,148		13.8
Healthcare	4,025		10.1		3,786		11.0		12,084		10.8		11,720		11.4
Banking	5,726		14.4		2,597		7.6		10,941		9.8		7,713		7.5
Diversified/Conglomerate Manufacturing	2,779		7.0		1,866		5.4		8,198		7.3		5,748		5.6
Buildings and Real Estate	2,317		5.8		2,331		6.8		6,976		6.2		6,968		6.8
Personal, Food & Miscellaneous Services	1,809		4.5		1,540		4.5		4,906		4.4		5,552		5.4
Beverage, Food & Tobacco	1,430		3.6		1,497		4.4		4,216		3.8		4,450		4.3
Personal & Non-Durable Consumer Products	1,669		4.2		617		1.8		3,634		3.3		1,852		1.8
Chemicals, Plastics & Rubber	1,208		3.0		1,208		3.5		3,619		3.2		3,499		3.4
Machinery	995		2.5		970		2.8		2,944		2.6		2,991		2.9
Containers, Packaging & Glass	971		2.4		777		2.3		2,850		2.6		1,985		1.9
Information Technology	669		1.7		1,673		4.9		2,824		2.5		5,011		4.9
Childcare	573		1.4		573		1.7		1,718		1.5		1,718		1.7
Printing & Publishing	229		0.6		571		1.7		688		0.6		1,439		1.4
Education	204		0.5		203		0.6		611		0.5		606		0.6
Electronics	185		0.5		166		0.5		546		0.5		796		0.8
Home & Office Furnishings	123		0.3		121		0.4		370		0.3		362		0.4
Total	$	39,834	100.0	%	$	34,334	100.0	%	$	111,764	100.0	%	$	102,381	100.0	%

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The tables below reflect the breakdown of total lease revenue by state for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):


State	Lease Revenue for the three months ended September 30, 2022		Percentage of Lease Revenue		Number of Leases for the three months ended September 30, 2022	Lease Revenue for the three months ended September 30, 2021		Percentage of Lease Revenue		Number of Leases for the three months ended September 30, 2021
Texas	$	5,452	13.7	%	15	$	3,801	11.1	%	15
New Jersey	4,271		10.7		4	756		2.2		4
Florida	3,775		9.5		9	4,191		12.2		10
Pennsylvania	3,707		9.3		10	3,807		11.1		10
Ohio	3,381		8.5		15	3,671		10.7		15
Georgia	2,894		7.3		10	2,757		8.0		9
North Carolina	2,320		5.8		10	1,604		4.7		7
Alabama	1,933		4.9		7	1,634		4.8		5
South Carolina	1,719		4.3		2	1,408		4.1		2
Michigan	1,608		4.0		6	1,609		4.7		6
All Other States	8,774		22.0		48	9,096		26.4		48
Total	$	39,834	100.0	%	136	$	34,334	100.0	%	131


State	Lease Revenue for the nine months ended September 30, 2022		% of Lease Revenue		Number of Leases for the nine months ended September 30, 2022	Lease Revenue for the nine months ended September 30, 2021		% of Lease Revenue		Number of Leases for the nine months ended September 30, 2021
Texas	$	15,971	14.3	%	15	$	11,232	11.0	%	15
Florida	12,242		11.0		9	12,614		12.3		10
Pennsylvania	11,145		10.0		10	11,409		11.1		10
Ohio	10,517		9.4		15	11,284		11.0		15
Georgia	8,749		7.8		10	8,167		8.0		9
North Carolina	6,354		5.7		10	5,084		5.0		7
New Jersey	5,772		5.2		4	2,259		2.2		4
Alabama	5,254		4.7		7	4,911		4.8		5
Michigan	4,825		4.3		6	4,765		4.7		6
South Carolina	4,530		4.2		2	4,162		4.1		2
All Other States	26,405		23.4		48	26,494		25.8		48
	$	111,764	100.0	%	136	$	102,381	100.0	%	131

Our Adviser and Administrator

Our Adviser is led by a management team with extensive experience purchasing real estate and originating mortgage loans. Our Adviser and Gladstone Administration, LLC, a Delaware limited liability company (our “Administrator”) are controlled by Mr. David 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, as well as president and chief investment officer of our Adviser. Mr. Terry Lee Brubaker, our vice chairman and chief operating officer, is also the vice chairman and chief operating officer of our Adviser and Administrator and assistant secretary of our Adviser. Mr. Arthur “Buzz” 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, general counsel and secretary, Michael LiCalsi (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.

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

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Land Corporation. Mr. Cooper and Mr. Gerson do not put forth any material efforts in assisting affiliated companies. In the future, our Adviser may provide investment advisory services to other companies, both public and private.

Advisory and Administration Agreements

Under the terms of the Advisory Agreement, we are 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 all or some 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 2022 meeting, our Board of Directors reviewed and renewed the Advisory Agreement and Administration Agreement for an additional year, through August 31, 2023.

Base Management Fee

On July 14, 2020, we amended and restated the previous Advisory Agreement by entering into the Sixth Amended and Restated Investment Advisory Agreement between us and the Adviser (the “Sixth Amended Advisory Agreement”). The Sixth Amended Advisory Agreement replaced the previous calculation of the base management fee with a calculation based on Gross Tangible Real Estate. The revised base management fee will be payable quarterly in arrears and calculated at an annual rate of 0.425% (0.10625% per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined in the Sixth Amended Advisory Agreement as the current gross value of our property portfolio (meaning the aggregate of each property’s original acquisition price plus the cost of any subsequent capital improvements thereon). The calculations of the other fees in the Amended Agreement remain unchanged.

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.

Incentive Fee

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Capital Gain Fee

Under the Advisory Agreement, we will pay to the Adviser a capital gain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property (equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements) of the disposed property. At the end of the fiscal year, if this number is positive, then the capital gain fee payable for such time period shall equal 15.0% of such amount. No capital gain fee was recognized during the three and nine months ended September 30, 2022 or 2021.

Termination Fee

The Advisory Agreement includes a termination fee clause whereby, in the event of our termination of the agreement without cause (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24-month period prior to such termination. A termination fee is also payable if the Adviser terminates the agreement after the Company has defaulted and applicable cure periods have expired. The 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 of the agreement, 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 our Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the appropriate 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.

Significant Accounting Policies and Estimates

The preparation of our financial statements in accordance with GAAP requires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates. A summary of all of our significant accounting policies is provided in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, filed by us with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2022 (our “2021 Form 10-K”). There were no material changes to our critical accounting policies or estimates during the nine months ended September 30, 2022.

Results of Operations

The weighted average yield on our total portfolio, which was 7.8% and 7.9% as of September 30, 2022 and 2021, respectively, is calculated by taking the annualized straight-line rents plus operating expense recoveries, reflected as lease revenue on our condensed consolidated statements of operations and other comprehensive income, less property operating expenses, of each acquisition since inception, as a percentage of the acquisition cost plus subsequent capital improvements. The weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties.

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A comparison of our operating results for the three and nine months ended September 30, 2022 and 2021 is below (dollars in thousands, except per share amounts):


	For the three months ended September 30,
	2022		2021		$ Change		% Change
Operating revenues
Lease revenue	$	39,834	$	34,334	$	5,500	16.0	%
Total operating revenues	$	39,834	$	34,334	$	5,500	16.0	%
Operating expenses
Depreciation and amortization	$	15,764	$	14,760	$	1,004	6.8	%
Property operating expenses	6,536		6,807		(271)		(4.0)	%
Base management fee	1,603		1,472		131		8.9	%
Incentive fee	1,513		1,266		247		19.5	%
Administration fee	481		382		99		25.9	%
General and administrative	833		811		22		2.7	%
Impairment charge	10,718		—		10,718		100.0	%


Total operating expenses	$	37,448	$	25,498	$	11,950	46.9	%
Other (expense) income
Interest expense	$	(9,107)	$	(6,688)	$	(2,419)	36.2	%
Gain on sale of real estate, net	8,902		—		8,902		100.0	%
Other income	316		2,350		(2,034)		(86.6)	%
Total other expense, net	$	111	$	(4,338)	$	4,449	(102.6)	%
Net income	$	2,497	$	4,498	$	(2,001)	(44.5)	%
Distributions attributable to Series D, E, F, and G preferred stock	(2,987)		(2,868)		(119)		4.1	%

Distributions attributable to senior common stock	(114)		(170)		56		(32.9)	%

Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders	$	(604)	$	1,460	$	(2,064)	(141.4)	%
Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted	$	(0.02)	$	0.04	$	(0.06)	(150.0)	%
FFO available to common stockholders and Non-controlling OP Unitholders - basic (1)	$	16,976	$	16,220	$	756	4.7	%
FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1)	$	17,090	$	16,390	$	700	4.3	%

FFO per weighted average share of common stock and Non-controlling OP Units - basic (1)	$	0.43	$	0.44	$	(0.01)	(2.3)	%
FFO per weighted average share of common stock and Non-controlling OP Units - diluted (1)	$	0.43	$	0.44	$	(0.01)	(2.3)	%
FFO per weighted average share of common stock and Non-controlling OP Units - diluted, as adjusted for comparability (1)	$	0.43	$	0.44	$	(0.01)	(2.3)	%

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

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	For the nine months ended September 30,
	2022		2021		$ Change		% Change
Operating revenues
Lease revenue	$	111,764	$	102,381	$	9,383	9.2	%
Total operating revenues	$	111,764	$	102,381	$	9,383	9.2	%
Operating expenses
Depreciation and amortization	$	45,672	$	45,661	$	11	—	%
Property operating expenses	20,118		20,278		(160)		(0.8)	%
Base management fee	4,727		4,369		358		8.2	%
Incentive fee	4,193		3,540		653		18.4	%
Administration fee	1,342		1,016		326		32.1	%
General and administrative	2,788		2,540		248		9.8	%
Impairment charge	12,092		—		12,092		100.0	%
Total operating expense before incentive fee waiver	$	90,932	$	77,404	$	13,528	17.5	%
Incentive fee waiver	—		(16)		16		(100.0)	%
Total operating expenses	$	90,932	$	77,388	$	13,544	17.5	%
Other (expense) income
Interest expense	$	(22,813)	$	(20,338)	$	(2,475)	12.2	%
Gain (loss) on sale of real estate, net	8,902		(882)		9,784		(1,109.3)	%
Other income	538		2,884		(2,346)		(81.3)	%
Total other expense, net	$	(13,373)	$	(18,336)	$	4,963	(27.1)	%
Net income	$	7,459	$	6,657	$	802	12.0	%
Distributions attributable to Series D, E, F, and G preferred stock	(8,900)		(8,571)		(329)		3.8	%
Series D preferred stock offering costs write off	—		(2,141)		2,141		(100.0)	%
Distributions attributable to senior common stock	(344)		(534)		190		(35.6)	%
Loss on extinguishment of Series F preferred stock	(5)		—		(5)		100.0	%
Net loss attributable to common stockholders and Non-controlling OP Unitholders	$	(1,790)	$	(4,589)	$	2,799	(61.0)	%
Net loss attributable to common stockholders and Non-controlling OP Unitholders per weighted average share and unit - basic & diluted	$	(0.05)	$	(0.13)	$	0.08	(61.5)	%
FFO available to common stockholders and Non-controlling OP Unitholders - basic (1)	$	47,072	$	41,954	$	5,118	12.2	%
FFO available to common stockholders and Non-controlling OP Unitholders - diluted (1)	$	47,416	$	42,488	$	4,928	11.6	%
FFO available to common stockholders and Non-controlling OP Unitholders - diluted, as adjusted for comparability (1)	$	47,416	$	44,629	$	2,787	6.2	%
FFO per weighted average share of common stock and Non-controlling OP Unit - basic (1)	$	1.21	$	1.15	$	0.06	5.2	%
FFO per weighted average share of common stock and Non-controlling OP Unit - diluted (1)	$	1.21	$	1.14	$	0.07	6.1	%
FFO per weighted average share of common stock and Non-controlling OP Unit - diluted, as adjusted for comparability (1)	$	1.21	$	1.20	$	0.01	0.8	%

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

Same Store Analysis

For the purposes of the following discussion, same store properties are properties we owned as of January 1, 2021, which have not been subsequently vacated, or disposed of. Acquired and disposed of properties are properties which were acquired, disposed of or classified as held for sale at any point subsequent to December 31, 2020. Properties with vacancy are properties that were fully vacant or had greater than 5.0% vacancy, based on square footage, at any point subsequent to January 1, 2021.

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Operating Revenues


	For the three months ended September 30,
	(Dollars in Thousands)
Lease Revenues	2022		2021		$ Change		% Change
Same Store Properties	$	28,706	$	27,952	$	754	2.7	%
Acquired & Disposed Properties	6,858		2,286		4,572		200.0	%
Properties with Vacancy	4,270		4,096		174		4.2	%

	$	39,834	$	34,334	$	5,500	16.0	%


	For the nine months ended September 30,
	(Dollars in Thousands)
Lease Revenues	2022		2021		$ Change		% Change
Same Store Properties	$	84,819	$	84,658	$	161	0.2	%
Acquired & Disposed Properties	13,259		6,319		6,940		109.8	%
Properties with Vacancy	13,686		11,404		2,282		20.0	%

	$	111,764	$	102,381	$	9,383	9.2	%

Lease revenues consist of rental income and operating expense recoveries earned from our tenants. Lease revenues from same store properties increased for the three and nine months ended September 30, 2022, primarily due to income recognized from tenant funded improvement projects, where our tenants used their capital to improve our buildings, partially offset by a decrease in variable lease payments due to a decrease in property operating expenses, and a corresponding decrease in recovery revenue from property operating expenses. Lease revenues increased for acquired and disposed of properties for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, primarily due to accelerated rent from a lease termination relating to one property we sold, coupled with us acquiring 11 industrial properties during the nine months ended September 30, 2022, partially offset by a loss of revenues from three properties sold during the same period. Lease revenues increased for our properties with vacancy for the three and nine months ended September 30, 2022 due to vacant space being leased.

Operating Expenses

Depreciation and amortization expense increased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, due to an increase in depreciation and amortization expense on the 11 industrial properties acquired during the nine months ended September 30, 2022, partially offset by a decrease in depreciation and amortization expense on the three properties sold during the same period.


	For the three months ended September 30,
	(Dollars in Thousands)
Property Operating Expenses	2022		2021		$ Change		% Change
Same Store Properties	$	4,070	$	4,202	$	(132)	(3.1)	%
Acquired & Disposed Properties	466		478		(12)		(2.5)	%
Properties with Vacancy	2,000		2,127		(127)		(6.0)	%

	$	6,536	$	6,807	$	(271)	(4.0)	%


	For the nine months ended September 30,
	(Dollars in Thousands)
Property Operating Expenses	2022		2021		$ Change		% Change
Same Store Properties	$	12,373	$	12,378	$	(5)	—	%
Acquired & Disposed Properties	1,515		1,478		37		2.5	%
Properties with Vacancy	6,230		6,422		(192)		(3.0)	%

	$	20,118	$	20,278	$	(160)	(0.8)	%

Property operating expenses consist of franchise taxes, property management fees, insurance, ground lease payments, property maintenance and repair expenses paid on behalf of certain of our properties. The decrease in property operating expenses for same store properties for the three and nine months ended September 30, 2022, from the comparable 2021 period, is a result of

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reduced real estate tax expense during the period, partially offset by general cost increases due to the inflationary environment during the three and nine months ended September 30, 2022. The decrease in property operating expenses for acquired and disposed of properties for the three months ended September 30, 2022, from the comparable 2021 period, is a result of a decrease in property operating expenses in relation to three property sales during the three months ended September 30, 2022. The increase in property operating expenses for acquired and disposed of properties for the nine months ended September 30, 2022, from the comparable 2021 period, is a result of an increase in property operating expenses for the 11 industrial properties acquired during the nine months ended September 30, 2022. The decrease in property operating expenses for properties with vacancy for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, is a result of reduced real estate tax expense during the period, partially offset by general cost increases due to the inflationary environment during the same period.

The base management fee paid to the Adviser increased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, due to an increase in Gross Tangible Real Estate over the three and nine months ended September 30, 2022 as compared to a smaller increase in Gross Tangible Real Estate during the three and nine months ended September 30, 2021. The calculation of the base management fee is described in detail above in “Advisory and Administration Agreements.”

The incentive fee paid to the Adviser increased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, due to a higher pre-incentive fee Core FFO. The increase in Core FFO is a result of an increase in operating revenues. The calculation of the incentive fee is described in detail above in “Advisory and Administration Agreements.”

The administration fee paid to the Administrator increased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, due to our Administrator incurring greater costs that are allocated to us. The calculation of the administration fee is described in detail above in “Advisory and Administration Agreements.”

General and administrative expenses increased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, primarily as a result of an increase in due diligence expenses for potential acquisition targets that were not completed, partially offset by a decrease in professional fees.

We recorded an impairment charge during the three and nine months ended September 30, 2022 on two 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 did not record an impairment charge during the three and nine months ended September 30, 2021.

Other Income and Expenses

Interest expense increased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021. This increase was primarily a result of increased interest costs on variable rate debt, as global interest rates have increased to counteract growing inflation, coupled with expensed deferred financing fees associated with mortgage repayments, and the Credit Facility amendment.

We sold three non-core office properties during the three and nine months ended September 30, 2022, and as a result, incurred a gain on sale of real estate, net. Loss on sale of real estate, net, for the nine months ended September 30, 2021, is attributable to two non-core office assets located in Rancho Cordova, California and Champaign, Illinois, being sold during the period.

Other income decreased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, primarily due to a cancelled sale fee we earned during the three and nine months ended September 30, 2021, coupled with income from a legal settlement.

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

Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders increased for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, primarily due to the increase in operating revenues due to asset acquisition activity during and subsequent to September 30, 2021, coupled with a gain on sale of real estate, net, from three non-core office property sales, partially offset by an increase in interest expense due to higher borrowing costs on variable rate debt due to global interest rate expansion.

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Liquidity and Capital Resources

Overview

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our Credit Facility and issuing additional equity securities. Our available liquidity as of September 30, 2022, was $69.5 million, consisting of approximately $13.5 million in cash and cash equivalents and available borrowing capacity of $56.0 million under our Credit Facility. Our available borrowing capacity under the Credit Facility decreased to $35.5 million as of November 7, 2022.

Future Capital Needs

We actively seek conservative investments that are likely to produce income to pay distributions to our stockholders. We intend to use the proceeds received from future equity raised and debt capital borrowed to continue to invest in industrial and office real property, make mortgage loans, or pay down outstanding borrowings under our Revolver. Accordingly, to ensure that we are able to effectively execute our business strategy, we routinely review our liquidity requirements and continually evaluate all potential sources of liquidity. Our short-term liquidity needs include proceeds necessary to fund our distributions to stockholders, pay the debt service costs on our existing long-term mortgages, refinancing maturing debt and fund our current operating costs. Our long-term liquidity needs include proceeds necessary to grow and maintain our portfolio of investments.

We believe that our available liquidity is sufficient to fund our distributions to stockholders, pay the debt service costs on our existing long-term mortgages and fund our current operating costs in the near term. We also believe we will be able to refinance our mortgage debt as it matures. Additionally, to satisfy our short-term obligations, we may request credits to our management fees that are issued from our Adviser, although our Adviser is under no obligation to provide any such credits, either in whole or in part. We further believe that our cash flow from operations coupled with the financing capital available to us in the future are sufficient to fund our long-term liquidity needs.

Equity Capital

During the nine months ended September 30, 2022, we raised net proceeds of $40.6 million of common equity under our Common Stock ATM Program at a net weighted average per share price of $20.38. We used these proceeds to fund acquisitions, pay down outstanding debt and for other general corporate purposes. We did not sell any of our Series E Preferred Stock under our Series E Preferred Stock Sales Agreement during the nine months ended September 30, 2022. We raised net proceeds of $3.7 million from sales of our Series F Preferred Stock during the nine months ended September 30, 2022.

As of November 7, 2022, we had the ability to raise up to $648.3 million of additional equity capital through the sale and issuance of securities that are registered under the 2020 Universal Shelf, in one or more future public offerings. Of the $648.3 million of available capacity under our 2020 Universal Shelf, approximately $26.5 million is reserved for additional sales under our Common Stock ATM Program, and approximately $621.3 million is reserved for the sale of our Series F Preferred Stock as of November 7, 2022. We expect to continue to use our Common Stock ATM Program as a source of liquidity for the remainder of 2022.

Debt Capital

As of September 30, 2022, we had 44 mortgage notes payable in the aggregate principal amount of $370.3 million, collateralized by a total of 50 properties with a remaining weighted average maturity of 4.4 years. The weighted-average interest rate on the mortgage notes payable as of September 30, 2022 was 4.19%.

We continue to see banks and non-bank lenders willing to issue mortgages. Consequently, we are focused on obtaining mortgages through regional banks, non-bank lenders and the CMBS market.

As of September 30, 2022, we had mortgage debt in the aggregate principal amount of $16.0 million payable during the remainder of 2022 and $66.1 million payable during 2023. The 2022 principal amount payable includes both amortizing principal payments and one balloon principal payments due during the remaining three months of 2022. We anticipate being able to refinance our mortgages that come due during 2022 and 2023 with a combination of new mortgage debt, availability under our Credit Facility and the issuance of additional equity securities. In addition, we have raised substantial equity under our at-the-market programs and plan to continue to use these programs.

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Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2022, was $56.9 million, as compared to net cash provided by operating activities of $53.7 million for the nine months ended September 30, 2021. This change was primarily a result of an increase in operating revenues from our 11 industrial property acquisitions during the nine months ended September 30, 2022, partially offset by an increase in interest expense due to higher interest rates on variable rate debt. The majority of cash from operating activities is generated from the lease revenues that we receive from our tenants. We utilize this cash to fund our property-level operating expenses and use the excess cash primarily for debt and interest payments on our mortgage notes payable, interest payments on our Credit Facility, distributions to our stockholders, management fees to our Adviser, Administration fees to our Administrator and other entity-level operating expenses.

Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2022, was $75.5 million, which primarily consisted of 11 property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by the sale of three properties. Net cash used in investing activities during the nine months ended September 30, 2021, was $46.0 million, which primarily consisted of eight property acquisitions, coupled with capital improvements performed at certain of our properties, partially offset by proceeds from the sale of two properties.

Financing Activities

Net cash provided in financing activities during the nine months ended September 30, 2022, was $23.1 million, which primarily consisted of the issuance of $45.2 million of common and preferred equity, coupled with a net increase in Credit Facility borrowings of $119.2 million, partially offset by the repayment of $138.9 million of outstanding mortgage debt, and distributions paid to common, senior common and preferred shareholders. Net cash used in financing activities for the nine months ended September 30, 2021, was $8.6 million, which primarily consisted of $14.3 million of mortgage principal repayments, and distributions paid to common, senior common and preferred shareholders, partially offset by $5.5 million in new mortgage borrowings coupled with the issuance of $130.0 million of equity.

Credit Facility

On July 2, 2019, we amended, extended and upsized our Credit Facility, expanding Term Loan A from $75.0 million to $160.0 million, and increasing our Revolver from $85.0 million to $100.0 million. Term Loan A has a maturity date of July 2, 2024, and the Revolver has a maturity date of July 2, 2023. The interest rate for the Credit Facility is equal to LIBOR plus a spread ranging from 125 to 215 basis points depending on our leverage. We entered into multiple interest rate cap agreements on Term Loan A, which cap LIBOR ranging from 2.50% to 2.75%, to hedge our exposure to variable interest rates. The bank syndicate is 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.

On February 11, 2021, we added Term Loan B, a new $65.0 million term loan component to our Credit Facility. Term Loan B has a maturity date of February 11, 2026 and a LIBOR floor of 25 basis points plus a spread ranging from 140 to 225 basis points depending on our leverage. We entered into multiple interest rate cap agreements on Term Loan B, which cap LIBOR from 1.50% to 1.75%. We incurred fees of approximately $0.5 million in connection with issuing Term Loan B. As of September 30, 2022, there was $60.0 million outstanding under Term Loan B, and we used all net proceeds to repay all outstanding borrowings on the Revolver.

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

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As of September 30, 2022, there was $377.8 million outstanding under our Credit Facility at a weighted average interest rate of approximately 4.43% and $17.1 million outstanding under letters of credit at a weighted average interest rate of 1.75%. As of November 7, 2022, the maximum additional amount we could draw under the Credit Facility was $35.5 million. We were in compliance with all covenants under the Credit Facility as of September 30, 2022.

Contractual Obligations

The following table reflects our material contractual obligations as of September 30, 2022 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Debt Obligations (1)	$	748,041	$	79,729	$	56,036	$	369,357	$	242,919
Interest on Debt Obligations (2)	140,297		30,973		55,284		43,563		10,477
Operating Lease Obligations (3)	8,907		492		987		1,000		6,428
Purchase Obligations (4)	9,559		5,074		3,772		713		—
	$	906,804	$	116,268	$	116,079	$	414,633	$	259,824

(1)Debt obligations represent borrowings under our Revolver, which represents $7.8 million of the debt obligation due in 2026, our Term Loan A, which represents $160.0 million of the debt obligation due in 2027, our Term Loan B, which represents $60.0 million of the debt obligation due in 2026, our Term Loan C, which represents $150.0 million of the debt obligation due in 2028 and mortgage notes payable that were outstanding as of September 30, 2022. This figure does not include $(0.1) million of premiums and (discounts), net and $6.2 million of deferred financing costs, net, which are reflected in mortgage notes payable, 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, Term Loan A, Term Loan B and Term Loan C is variable; thus, the interest payment obligation calculated for purposes of this table was based upon rates and balances as of September 30, 2022.

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

(4)Purchase obligations consist of tenant and capital improvements at 13 of our properties.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of September 30, 2022.

Funds from Operations

The National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds from Operations (“FFO”) as a relevant non-GAAP supplemental measure of operating performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the same basis determined under GAAP. FFO, as defined by NAREIT, is net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses on property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures.

FFO does not represent cash flows from operating activities in accordance with GAAP, which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income. FFO should not be considered an alternative to net income as an indication of our performance or to cash flows from operations as a measure of liquidity or ability to make distributions. Comparison of FFO, using the NAREIT definition, to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.

FFO available to common stockholders is FFO adjusted to subtract distributions made to holders of preferred stock and senior common stock. We believe that net income available to common stockholders is the most directly comparable GAAP measure to FFO available to common stockholders.

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Basic funds from operations per share (“Basic FFO per share”), and diluted funds from operations per share (“Diluted FFO per share”), is FFO available to common stockholders divided by the number of weighted average shares of common stock outstanding and FFO available to common stockholders divided by the number of weighted average shares of common stock outstanding on a diluted basis, respectively, during a period. We believe that FFO available to common stockholders, Basic FFO per share and Diluted FFO per share are useful to investors because they provide investors with a further context for evaluating our FFO results in the same manner that investors use net income and earnings per share (“EPS”), in evaluating net income available to common stockholders. In addition, because most REITs provide FFO available to common stockholders, Basic FFO and Diluted FFO per share information to the investment community, we believe these are useful supplemental measures when comparing us to other REITs. We believe that net income is the most directly comparable GAAP measure to FFO, Basic EPS is the most directly comparable GAAP measure to Basic FFO per share, and that Diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share.

We also present FFO available to our common stockholders and Non-controlling OP Unitholders as adjusted for comparability as an additional supplemental measure, as we believe it is more reflective of our core operating performance, and provides investors and analysts an additional measure to compare our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. FFO as adjusted for comparability is generally calculated as FFO available to common stockholders and Non-controlling OP Unitholders, excluding certain non-recurring and non-cash income and expense adjustments, which management believes are not reflective of the results within our operating real estate portfolio.

The following table provides a reconciliation of our FFO available to common stockholders for the three and nine months ended September 30, 2022 and 2021, respectively, to the most directly comparable GAAP measure, net income available to common stockholders, and a computation of basic and diluted FFO per weighted average share of common stock:


	For the three months ended September 30,				For the nine months ended September 30,
	(Dollars in Thousands, Except for Per Share Amounts)				(Dollars in Thousands, Except for Per Share Amounts)
	2022		2021		2022		2021
Calculation of basic FFO per share of common stock and Non-controlling OP Unit
Net income	$	2,497	$	4,498	$	7,459	$	6,657
Less: Distributions attributable to preferred and senior common stock	(3,101)		(3,038)		(9,244)		(9,105)
Less: Series D preferred stock offering costs write off	—		—		—		(2,141)
Less: Loss on extinguishment of Series F preferred stock	—		—		(5)		—
Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders	$	(604)	$	1,460	$	(1,790)	$	(4,589)
Adjustments:
Add: Real estate depreciation and amortization	$	15,764	$	14,760	$	45,672	$	45,661
Add: Impairment charge	10,718		—		12,092		—
Add: Loss on sale of real estate, net	—		—		—		882
Less: Gain on sale of real estate, net	(8,902)		—		(8,902)		—
FFO available to common stockholders and Non-controlling OP Unitholders - basic	$	16,976	$	16,220	$	47,072	$	41,954
Weighted average common shares outstanding - basic	39,504,734		36,768,779		38,723,581		36,296,414
Weighted average Non-controlling OP Units outstanding	273,072		256,994		262,412		337,205
Total common shares and Non-controlling OP Units	39,777,806		37,025,773		38,985,993		36,633,619
Basic FFO per weighted average share of common stock and Non-controlling OP Unit	$	0.43	$	0.44	$	1.21	$	1.15
Calculation of diluted FFO per share of common stock and Non-controlling OP Unit
Net income	$	2,497	$	4,498	$	7,459	$	6,657
Less: Distributions attributable to preferred and senior common stock	(3,101)		(3,038)		(9,244)		(9,105)
Less: Series D preferred stock offering costs write off	—		—		—		(2,141)
Less: Loss on extinguishment of Series F preferred stock	—		—		(5)		—
Net (loss) income (attributable) available to common stockholders and Non-controlling OP Unitholders	$	(604)	$	1,460	$	(1,790)	$	(4,589)
Adjustments:
Add: Real estate depreciation and amortization	$	15,764	$	14,760	$	45,672	$	45,661

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Add: Impairment charge	10,718		—		12,092		—
Add: Income impact of assumed conversion of senior common stock	114		170		344		534
Add: Loss on sale of real estate, net	—		—		—		882
Less: Gain on sale of real estate, net	(8,902)		—		(8,902)		—
FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions	$	17,090	$	16,390	$	47,416	$	42,488
Weighted average common shares outstanding - basic	39,504,734		36,768,779		38,723,581		36,296,414
Weighted average Non-controlling OP Units outstanding	273,072		256,994		262,412		337,205
Effect of convertible senior common stock	363,246		532,785		363,246		532,785
Weighted average common shares and Non-controlling OP Units outstanding - diluted	40,141,052		37,558,558		39,349,239		37,166,404
Diluted FFO per weighted average share of common stock and Non-controlling OP Unit	$	0.43	$	0.44	$	1.21	$	1.14
Calculation of diluted FFO per share of common stock and Non-controlling OP Unit, as adjusted for comparability
FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions	$	17,090	$	16,390	$	47,416	$	42,488
Add: Series D preferred stock offering costs write off	—		—		—		2,141
FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions, as adjusted for comparability	$	17,090	$	16,390	$	47,416	$	44,629
Weighted average common shares and Non-controlling OP Units outstanding - diluted	40,141,052		37,558,558		39,349,239		37,166,404
Diluted FFO per weighted average share of common stock and Non-controlling OP Unit, as adjusted for comparability	$	0.43	$	0.44	$	1.21	$	1.20
Distributions declared per share of common stock and Non-controlling OP Unit	$	0.37620	$	0.37545	$	1.12860	$	1.12635

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Item 3.			Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The primary risk that we believe we are and will be exposed to is interest rate risk. Certain of our leases contain escalations based on market indices, and the interest rate on our Credit Facility is variable. Although we seek to mitigate this risk by structuring such provisions of our loans and leases to contain a minimum interest rate or escalation rate, as applicable, these features do not eliminate this risk. To that end, we have entered into derivative contracts to cap interest rates for our variable rate notes payable, and we have entered into interest rate swaps whereby we pay a fixed interest rate to our respective counterparty, and receive one month LIBOR in return. For details regarding our rate cap agreements and our interest rate swap agreements see Note 6 – Mortgage Notes Payable and Credit Facility of the accompanying condensed consolidated financial statements.

To illustrate the potential impact of changes in interest rates on our net income for the nine months ended September 30, 2022, we have performed the following analysis, which assumes that our condensed consolidated balance sheets remain constant and that no further actions beyond a minimum interest rate or escalation rate are taken to alter our existing interest rate sensitivity.

The following table summarizes the annual impact of a 1%, 2% and 3% increase, and a 1% and 2% decrease in SOFR as of September 30, 2022. As of September 30, 2022, our effective average SOFR was 2.98%. Given that a 3% decrease in SOFR would result in a negative rate, the impact of this fluctuation is not presented below (dollars in thousands).


Interest Rate Change	(Decrease) increase to Interest Expense		Net increase (decrease) to Net Income
2% Decrease to SOFR	$	(4,720)	$	4,720
1% Decrease to SOFR	$	(2,638)	$	2,638
1% Increase to SOFR	(1,561)		1,561
2% Increase to SOFR	(1,482)		1,482
3% Increase to SOFR	(1,404)		1,404

As of September 30, 2022, the fair value of our mortgage debt outstanding was $346.8 million. Interest rate fluctuations may affect the fair value of our debt instruments. If interest rates on our debt instruments, using rates at September 30, 2022, had been one percentage point higher or lower, the fair value of those debt instruments on that date would have decreased or increased by $11.5 million and $12.3 million, respectively.

The amount outstanding under the Credit Facility approximates fair value as of September 30, 2022.

In the future, we may be exposed to additional effects of interest rate changes, primarily as a result of our Revolver, Term Loan A, Term Loan B, and Term Loan C, or long-term mortgage debt, which we use to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates. Additionally, we believe that there may be minimal impact on our variable rate debt, which is based upon one month LIBOR, as a result of the expected transition from LIBOR to SOFR. We are currently monitoring the transition and the potential risks to us. We may also enter into derivative financial instruments such as interest rate swaps and caps to mitigate the interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.

In addition to anticipated changes in interest rates, the value of our real estate is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees and borrowers, all of which may affect our ability to refinance debt, if necessary.

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Item 4.			Controls and Procedures.

a) Evaluation of Disclosure Controls and Procedures

As of September 30, 2022, our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective as of September 30, 2022 in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of necessarily achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION


Item 1.			Legal Proceedings.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.


Item 1A.			Risk Factors.

Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. For a discussion of these risks, please refer to the section captioned “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. There are no material changes to risks associated with our business or investment in our securities from those previously set forth in the report described above.


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

Sales of Unregistered Securities

As partial consideration in connection with the acquisition of a $5.6 million asset located in Fort Payne, Alabama on September 20, 2022, the Operating Partnership issued 134,474 OP Units, constituting an aggregate fair value of approximately $2.4 million as of the acquisition date. With regard to the OP Units issued in connection with the transaction, following a one-year holding period, the OP Units will be redeemable for cash or, at the Company’s discretion, exchangeable for shares of the Company’s common stock, in accordance with the terms of the Operating Partnership’s partnership agreement. The issuance of the OP Units pursuant to the related contribution agreement was consummated without registration under the Securities Act in reliance upon the exemption from registration in Section 4(a)(2) of the Securities Act as transactions not involving any public offering. No sales commission or other consideration was paid in connection with the sale.

Issuer Purchases of Equity Securities

None.


Item 3.			Defaults Upon Senior Securities

None.


Item 4.			Mine Safety Disclosures

Not applicable.


Item 5.			Other Information

None.


Item 6.			Exhibits

Exhibit Index


Exhibit Number						Exhibit Description

3.1						Articles of Restatement of the Registrant, incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed January 12, 2017.
3.2						Articles Supplementary, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed April 12, 2018.

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3.3						Articles of Amendment, incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed April 12, 2018.
3.4						Articles Supplementary for 6.625% Series E Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed September 27, 2019.
3.5						Articles Supplementary, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed December 3, 2019.
3.6						Articles Supplementary for 6.00% Series F Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed February 20, 2020.
3.7						Articles Supplementary for 6.00% Series G Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed June 24, 2021.
3.8						Articles Supplementary, incorporated by reference to Exhibit 3.8 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33097), filed August 9, 2021.
3.9						Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11 (File No. 333-106024), filed June 11, 2003.
3.10						First Amendment to Bylaws of the Registrant, incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed July 10, 2007.
3.11						Second Amendment to Bylaws of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed December 1, 2016.
4.1						Form of Certificate for Common Stock of the Registrant, incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11 (File No. 333-106024), filed August 8, 2003.
4.2						Form of Certificate for 6.625% Series E Cumulative Redeemable Preferred Stock of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed September 27, 2019.
4.3						Form of Certificate for 6.00% Series F Cumulative Redeemable Preferred Stock of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed February 20, 2020.
4.4						Form of Certificate for 6.00% Series G Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed June 24, 2021.
4.5						Form of Indenture, incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form S-3 (File No. 333-236143), filed January 29, 2020.
10.1						Fourth Amended and Restated Credit Agreement and Other Loan Documents, dated as of August 18, 2022 by and among Gladstone Commercial Limited Partnership, as borrower, Gladstone Commercial Corporation and certain of its wholly owned subsidiaries, as guarantors, each of the financial institutions initially a signatory thereto together with their successors and assignees, as lenders, and KeyBank National Association, as lender and agent, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33097), filed August 19, 2022.
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1*						Estimated Value Methodology for Series F Cumulative Redeemable Preferred Stock as of September 30, 2022.
101.INS***						iXBRL Instance Document
101.SCH***						iXBRL Taxonomy Extension Schema Document
101.CAL***						iXBRL Taxonomy Extension Calculation Linkbase Document
101.LAB***						iXBRL Taxonomy Extension Label Linkbase Document
101.PRE***						iXBRL Taxonomy Extension Presentation Linkbase Document
101.DEF***						iXBRL Definition Linkbase
104						Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

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*			Filed herewith
**			Furnished herewith
***			Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in iXBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2022 and 2021, (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 and (iv) the Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Gladstone Commercial Corporation

Date:

November 7, 2022

By:

/s/ Gary Gerson

Gary Gerson

Chief Financial Officer

Date:

November 7, 2022

By:

/s/ David Gladstone

David Gladstone

Chief Executive Officer and
Chairman of the Board of Directors