The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements ofAmerican Finance Trust, Inc. and the notes thereto. As used herein, the terms "Company," "we," "our" and "us" refer toAmerican Finance Trust, Inc. , aMaryland corporation, including, as required by context,American Finance Operating Partnership, L.P. , aDelaware limited partnership, which we refer to as the "OP," and its subsidiaries. We are externally managed byAmerican Finance Advisors, LLC (our "Advisor"), aDelaware limited liability company. Forward-Looking Statements Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements, including statements regarding the intent, belief or current expectations of us, our Advisor and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, which could cause actual results to differ materially from the results contemplated by the forward-looking statements. Some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements are set forth under "Risk Factors" and "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Overview We are an externally managed real estate investment trust forU.S. federal income tax purposes ("REIT") focusing on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution-related commercial real estate properties located primarily inthe United States . Our assets consist primarily of freestanding single-tenant properties that are net leased to "investment grade" and other creditworthy tenants and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers. We intend to focus our future acquisitions primarily on net leased, single-tenant service retail properties, defined as properties leased to tenants in the retail banking, restaurant, grocery, pharmacy, gas, convenience, fitness, and auto services sectors. As ofMarch 31, 2021 , we owned 925 properties, comprised of 19.7 million rentable square feet, which were 94.9% leased, including 892 single-tenant net leased commercial properties (850 of which are retail properties) and 33 multi-tenant retail properties. Based on annualized rental income on a straight-line basis as ofMarch 31, 2021 , the total single-tenant properties comprised 70% of our total portfolio and were 59% leased to service retail tenants, and the total multi-tenant properties comprised 30% of our portfolio, and were 50% leased to experiential retail tenants, defined as tenants in the restaurant, discount retail, entertainment, salon/beauty and grocery store sectors, among others. Substantially all of our business is conducted through the OP and its wholly owned subsidiaries. The Advisor manages our day-to-day business with the assistance of our property manager,American Finance Properties, LLC (the "Property Manager"). The Advisor and the Property Manager are under common control withAR Global Investments, LLC ("AR Global") and these related parties receive compensation and fees for providing services to us. We also reimburse these entities for certain expenses they incur in providing these services to us. For our purposes, "investment grade" includes both tenants (or lease guarantors) with actual investment grade ratings or tenants with "implied" investment grade ratings. Implied investment grade may include the actual rating of a tenant's parent or the guarantor of the parent (regardless of whether the parent has guaranteed the tenant's obligation under the lease) or tenants that are identified as investment grade by using a proprietary Moody's analytical tool which generates an implied rating by measuring an entity's probability of default. Based on annualized rental income on a straight-line basis as ofMarch 31, 2021 , approximately 60.6% of the tenants in our single-tenant portfolio were considered "investment grade" consisting of 49.6% with actual investment grade ratings and 11.0% with implied investment grade ratings, and approximately 30.7% of the anchor tenants in our multi-tenant portfolio were considered "investment grade" consisting of 21.4% with actual investment grade ratings and 9.3% with implied investment grade ratings. Management Update on the Impacts of the COVID-19 Pandemic The COVID-19 global pandemic has created several risks and uncertainties that may impact our business, including our future results of operations and our liquidity. The ultimate impact on our results of operations, our liquidity and the ability of our tenants to continue to pay us rent will depend on numerous factors including the overall length and severity of the COVID-19 pandemic. For a further discussion of the risks and uncertainties associated with the impact of the COVID-19 on us, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 40 -------------------------------------------------------------------------------- Table of Contents We have taken several steps to mitigate the impact of the pandemic on our business. We have been in direct contact with our tenants since the crisis began, cultivating open dialogue and deepening the fundamental relationships that we have carefully developed through prior transactions and historic operations. Based on this approach and the overall financial strength and creditworthiness of our tenants, we believe that we have had positive results in our cash rent collections during this pandemic. We have collected nearly 100% of the original cash rent due for the first quarter 2021 across our entire portfolio, including nearly 100% from our top 20 tenants (based on the total of first quarter original cash rent). This was an improvement from the fourth quarter of 2020 and reflects the expiration of rent deferral agreements where tenants have resumed paying full rent as well as collections of deferred rent paid during the period. "Original cash rent" refers to contractual rents on a cash basis due from tenants as stipulated in their originally executed lease agreement at inception or as amended, prior to any rent deferral agreement. We calculate "original cash rent collections" by comparing the total amount of rent collected during the period to the original cash rent due. Total rent collected during the period includes both original cash rent due and payments made by tenants pursuant to rent deferral agreements. Eliminating the impact of deferred rent paid, we collected 98% of original cash rent collections for the first quarter of 2021. The deferral amounts received in the third and fourth quarters of 2020 were less than 1% of total rent collected in those quarters. A deferral agreement is an executed or approved amendment to an existing lease to defer a certain portion of cash rent due to a future period. During the year endedDecember 31, 2020 , we granted rent deferrals for an aggregate of$7.0 million or approximately 3% of original cash rent due for the year. During the three months endedMarch 31, 2021 we deferred an insignificant amount of rent. Those deferral amounts are or were scheduled for repayment during 2020 or 2021. During the first quarter of 2021, we collected approximately 15% of the total$7.0 million rents we deferred. During the first quarter of 2021, we granted rent deferrals with respect to less than 1% of original cash rent due during the period, and we granted rent abatements with respect to less than 1% of original cash rent due during the period. The most common arrangements granted during the first quarter of 2021 provide deferral of some or all of the rent due for the first quarter of 2021 with such amounts to be paid in the latter part of 2021 and early 2022. The terms of these lease amendments providing for rent deferrals and abatements differ by tenant in terms of length and amount of the deferral or abatement, although the deferrals and abatements are generally coupled with an extension of the lease. The cash rent collections for the first quarter of 2021 uses cash receipts as ofApril 30, 2021 and therefore is inclusive of cash received in April for rent due in the first quarter of 2021. Such cash receipts are not included in cash and cash equivalents on ourMarch 31, 2021 consolidated balance sheet. The below cash rent status may not be indicative of any future period and remains subject to changes based ongoing collection efforts and negotiation of additional agreements. Moreover, there is no assurance that we will be able to collect the cash rent that is due in future months including the deferred 2020 rent amounts due during 2021 under deferral agreements we have entered into with our tenants. The impact of the COVID-19 pandemic on our tenants and thus our ability to collect rents in future periods cannot be determined at present. The table below shows the percentage of original cash rent for our single-tenant portfolio, our multi-tenant portfolio, and our total portfolio we collected in each fiscal quarter of 2020 and 2021. Period Single-Tenant (1) Multi-Tenant (2) Total Portfolio (3) First Quarter 2020 98 % 100 % 99 % Second Quarter 2020 96 % 72 % 88 % Third Quarter 2020 98 % 85 % 94 % Fourth Quarter 2020 100 % 91 % 97 % First Quarter 2021 100 % 99 % 100 % ____________ (1) Eliminating the impact of deferred rent paid, single-tenant collections were 99% of original cash rent due for the first quarter of 2021. Deferred rent received was either not present or less than 1% of rent collected before the first quarter of 2021. (2) Eliminating the impact of deferred rent paid, multi-tenant collections were 95% of original cash rent due for the first quarter of 2021. Deferred rent received was either not present or less than 1% of rent collected before the first quarter of 2021. (3) Eliminating the impact of deferred rent paid, total portfolio collections were 98% of original cash rent due for the first quarter of 2021. Deferred rent received was either not present or less than 1% of rent collected before the first quarter of 2021. The total amounts of abated rent, for abatement agreements entered into throughMarch 31, 2021 , was$0.2 million for the three months endedMarch 31, 2021 . In addition to the proactive measures taken on rent collections, we have taken additional steps to maximize our flexibility related to our liquidity and minimize the related risk during this uncertain time. InJuly 2020 , we entered into an amendment to our revolving unsecured corporate credit facility (the "Credit Facility") designed to provide us with additional flexibility during 41 -------------------------------------------------------------------------------- Table of Contents the period fromApril 1, 2020 throughMarch 31, 2021 (the "Adjustment Period") to continue addressing the adverse impacts of the COVID-19 pandemic, including certain relief from financial covenants. See Note 5 - Credit Facility for further details. Additionally, onMarch 30, 2020 , we announced a reduction in our dividend, beginning in the second quarter of 2020, reducing the cash needed to fund dividend payments by approximately$27.2 million per year based on shares outstanding at that time. For additional information on our financing activity during the first quarter of 2021 and subsequent toMarch 31, 2021 , see the "Liquidity and Capital Resources" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Significant Accounting Estimates and Critical Accounting Policies For a discussion about our significant accounting estimates and critical accounting policies, see the "Significant Accounting Estimates and Critical Accounting Policies" section of our 2020 Annual Report on Form 10-K. Except for those required by new accounting pronouncements discussed below, there have been no material changes from these significant accounting estimates and critical accounting policies. Recently Issued Accounting Pronouncements Please see Note 2 - Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements to our consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion. 42 -------------------------------------------------------------------------------- Table of Contents Properties The following table represents certain additional information about the properties we own atMarch 31, 2021 : Number of Rentable Square Feet Portfolio Acquisition Date Properties (In thousands) Remaining Lease Term (1) Percentage Leased
Dollar General I Apr 2013; May 2013 2 18 7.1 100.0% Walgreens I Jul 2013 1 11 16.5 100.0% Dollar General II Jul 2013 2 18 7.2 100.0% AutoZone I Jul 2013 1 8 6.3 100.0% Dollar General III Jul 2013 5 46 7.1 100.0% BSFS I Jul 2013 1 9 2.8 100.0% Dollar General IV Jul 2013 2 18 4.9 100.0% Tractor Supply I Aug 2013 1 19 6.7 100.0% Dollar General V Aug 2013 1 12 6.8 100.0% Aug 2013; Nov 2013; Mattress Firm I Feb 2014; Mar 2014; 5 24 5.7 100.0% Apr 2014 Family Dollar I Aug 2013 1 8 0.2 100.0% Lowe's I Aug 2013 5 671 8.2 100.0% O'Reilly Auto Parts I Aug 2013 1 11 9.3 100.0% Food Lion I Aug 2013 1 45 8.6 100.0% Family Dollar II Aug 2013 1 8 2.2 100.0% Walgreens II Aug 2013 1 14 12.0 100.0% Dollar General VI Aug 2013 1 9 4.9 100.0% Dollar General VII Aug 2013 1 9 7.0 100.0% Family Dollar III Aug 2013 1 8 1.5 100.0% Chili's I Aug 2013 2 13 4.7 100.0% CVS I Aug 2013 1 10 4.8 100.0% Joe's Crab Shack I Aug 2013 1 8 6.0 100.0% Dollar General VIII Sep 2013 1 9 7.3 100.0% Tire Kingdom I Sep 2013 1 7 4.0 100.0% AutoZone II Sep 2013 1 7 2.2 100.0% Family Dollar IV Sep 2013 1 8 2.2 100.0% Fresenius I Sep 2013 1 6 4.3 100.0% Dollar General IX Sep 2013 1 9 4.1 100.0% Advance Auto I Sep 2013 1 11 2.2 100.0% Walgreens III Sep 2013 1 15 5.0 100.0% Walgreens IV Sep 2013 1 14 3.5 100.0% CVS II Sep 2013 1 16 15.8 100.0% Arby's I Sep 2013 1 3 7.3 100.0% Dollar General X Sep 2013 1 9 7.0 100.0% AmeriCold I Sep 2013 9 1,407 6.5 100.0% Home Depot I Sep 2013 2 1,315 5.8 100.0% New Breed Logistics I Sep 2013 1 390 5.1 100.0% Truist Bank I Sep 2013 19 96 7.1 100.0% National Tire & Battery I Sep 2013 1 11 2.7 100.0% Circle K I Sep 2013 19 55 7.6 100.0% Walgreens V Sep 2013 1 14 6.4 100.0% Walgreens VI Sep 2013 1 15 8.1 100.0% FedEx Ground I Sep 2013 1 22 2.2 100.0% Walgreens VII Sep 2013 8 113 8.3 100.0% O'Charley's I Sep 2013 20 135 10.6 100.0% Krystal I Sep 2013 6 13 8.5 83.6% 1st Constitution Bancorp I Sep 2013 1 3 2.8 100.0% American Tire Distributors I Sep 2013 1 125 2.8 100.0% 43
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Table of Contents Number of Rentable Square Feet Portfolio Acquisition Date Properties (In thousands) Remaining Lease Term (1) Percentage Leased
Tractor Supply II Oct 2013 1 23 2.5 100.0% United Healthcare I Oct 2013 1 400 0.2 100.0% National Tire & Battery II Oct 2013 1 7 11.2 100.0% Tractor Supply III Oct 2013 1 19 7.1 100.0% Verizon Wireless Oct 2013 1 4 8.5 100.0% Dollar General XI Oct 2013 1 9 6.1 100.0% Talecris Plasma Resources I Oct 2013 1 22 2.0 100.0% Amazon I Oct 2013 1 79 2.3 100.0% Fresenius II Oct 2013 2 16 6.4 100.0% Dollar General XII Nov 2013; Jan 2014 2 18 7.7 100.0% Dollar General XIII Nov 2013 1 9 5.0 100.0% Advance Auto II Nov 2013 2 14 2.1 100.0% FedEx Ground II Nov 2013 1 49 2.3 100.0% Burger King I Nov 2013 41 169 16.5 100.0% Dollar General XIV Nov 2013 3 27 7.2 100.0% Dollar General XV Nov 2013 1 9 7.6 100.0% FedEx Ground III Nov 2013 1 24 2.4 100.0% Dollar General XVI Nov 2013 1 9 4.7 100.0% Family Dollar V Nov 2013 1 8 2.0 100.0% CVS III Dec 2013 1 11 2.8 100.0% Mattress Firm III Dec 2013 1 5 7.3 100.0% Arby's II Dec 2013 1 4 7.1 100.0% Family Dollar VI Dec 2013 2 17 2.8 100.0% SAAB Sensis I Dec 2013 1 91 4.0 100.0% Citizens Bank I Dec 2013 9 31 2.8 100.0% Truist Bank II Jan 2014 15 79 7.8 100.0% Mattress Firm IV Jan 2014 1 5 3.4 100.0% FedEx Ground IV Jan 2014 1 59 2.2 100.0% Mattress Firm V Jan 2014 1 6 2.6 100.0% Family Dollar VII Feb 2014 1 8 3.3 100.0% Aaron's I Feb 2014 1 8 2.4 100.0% AutoZone III Feb 2014 1 7 2.0 100.0% C&S Wholesale Grocer I Feb 2014 1 360 1.2 100.0% Advance Auto III Feb 2014 1 6 3.4 100.0% Family Dollar VIII Mar 2014 3 25 2.3 100.0% Dollar General XVII Mar 2014; May 2014 3 27 7.0 100.0% Truist Bank III [2] Mar 2014 70 347 8.7 98.7% Truist Bank IV Mar 2014 6 33 8.8 100.0% First Horizon Bank Mar 2014 8 40 8.0 100.0% Draper Aden Associates Mar 2014 1 78 9.7 100.0% Church of Jesus Christ Mar 2014 1 3 2.5 100.0% Dollar General XVIII Mar 2014 1 9 7.0 100.0% Sanofi US I Mar 2014 1 737 11.8 100.0% Family Dollar IX Apr 2014 1 8 3.0 100.0% Stop & Shop I May 2014 7 492 5.8 100.0% Bi-Lo I May 2014 1 56 4.8 100.0% Dollar General XIX May 2014 1 12 7.4 100.0% Dollar General XX May 2014 5 49 6.1 100.0% Dollar General XXI May 2014 1 9 7.4 100.0% Dollar General XXII May 2014 1 11 6.1 100.0% FedEx Ground V Feb 2016 1 46 4.3 100.0% FedEx Ground VI Feb 2016 1 121 4.4 100.0% 44
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Table of Contents Number of Rentable Square Feet Portfolio Acquisition Date Properties (In thousands) Remaining Lease Term (1) Percentage Leased FedEx Ground VII Feb 2016 1 42 4.5 100.0% FedEx Ground VIII Feb 2016 1 79 4.6 100.0% Liberty Crossing (3) Feb 2017 1 106 3.7 82.7% San Pedro Crossing (3) Feb 2017 1 207 4.2 87.8% Tiffany Springs MarketCenter (3) Feb 2017 1 265 4.7 85.9% The Streets of West Chester (3) Feb 2017 1 237 9.5 85.3% Prairie Towne Center (3) Feb 2017 1 264 9.0 80.4% Southway Shopping Center(3) Feb 2017 1 182 4.3 88.6% Stirling Slidell Centre (3) Feb 2017 1 140 2.1 45.8% Northwoods Marketplace (3) Feb 2017 1 236 4.0 96.8% Centennial Plaza (3) Feb 2017 1 234 2.5 96.6% Northlake Commons (3) Feb 2017 1 109 3.7 86.8% Shops at Shelby Crossing (3) Feb 2017 1 236 3.0 90.9% Shoppes of West Melbourne (3) Feb 2017 1 144 3.3 82.1% The Centrum (3) Feb 2017 1 271 4.4 77.7% Shoppes at Wyomissing (3) Feb 2017 1 103 3.2 64.0% Southroads Shopping Center (3) Feb 2017 1 409 4.3 78.5% Parkside Shopping Center (3) Feb 2017 1 183 4.0 80.5% Colonial Landing (3) Feb 2017 1 264 5.2 93.6% The Shops at West End (3) Feb 2017 1 382 6.9 71.2% Township Marketplace (3) Feb 2017 1 299 3.3 85.5% Cross Pointe Centre (3) Feb 2017 1 226 8.6 100.0% Towne Centre Plaza (3) Feb 2017 1 94 2.1 100.0% Village at Quail Springs (3) Feb 2017 1 100 6.2 100.0% Pine Ridge Plaza (3) Feb 2017 1 239 3.0 95.8% Bison Hollow (3) Feb 2017 1 135 3.7 100.0% Jefferson Commons (3) Feb 2017 1 206 6.0 97.9% Northpark Center (3) Feb 2017 1 318 5.0 95.0% Anderson Station (3) Feb 2017 1 244 3.5 95.9% Patton Creek (3) Feb 2017 1 491 3.6 82.1% North Lakeland Plaza (3) Feb 2017 1 171 4.3 98.0% Riverbend Marketplace (3) Feb 2017 1 143 3.6 85.0% Montecito Crossing (3) Feb 2017 1 180 3.9 86.2% Best on the Boulevard (3) Feb 2017 1 205 2.6 86.1% Shops at RiverGate South (3) Feb 2017 1 141 5.2 96.1% Dollar General XXIII Mar 2017; May 2017; 8 71 8.4 100.0% Jun 2017 Jo-Ann Fabrics I Apr 2017 1 18 3.8 100.0% Bob Evans I Apr 2017 23 117 16.1 95.2% FedEx Ground IX May 2017 1 54 5.2 100.0% Chili's II May 2017 1 6 6.6 100.0% Sonic Drive In I Jun 2017 2 3 11.3 100.0% Bridgestone HOSEPower I Jun 2017 2 41 8.4 100.0% Bridgestone HOSEPower II Jul 2017 1 25 8.6 100.0% FedEx Ground X Jul 2017 1 142 6.3 100.0% Chili's III Aug 2017 1 6 6.6 100.0% FedEx Ground XI Sep 2017 1 29 6.3 100.0% Hardee's I Sep 2017 4 13 - -% Tractor Supply IV Oct 2017 2 51 5.6 100.0% Circle K II Nov 2017 6 20 16.3 100.0% Sonic Drive In II Nov 2017 20 31 16.7 100.0% Bridgestone HOSEPower III Dec 2017 1 21 9.3 100.0% 45
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Table of Contents Number of Rentable Square Feet Portfolio Acquisition Date Properties (In thousands) Remaining Lease Term (1) Percentage Leased Sonny's BBQ I Jan 2018 3 19 12.8 100.0% Mountain Express I Jan 2018 9 30 16.8 100.0% Kum & Go I Feb 2018 1 5 7.2 100.0% DaVita I Feb 2018 2 13 4.9 100.0% Imperial I Mar 2018 9 22 19.6 100.0% Mountain Express II Jun 2018 15 59 17.1 100.0% Dialysis I Jul 2018 7 65 7.1 100.0% Children of America I Aug 2018 2 33 12.4 79.7% Burger King II Aug 2018 1 3 12.4 100.0% Imperial II Aug 2018 9 18 19.6 100.0% Bob Evans II Aug 2018 22 112 16.1 100.0% Mountain Express III Sep 2018 14 47 17.3 100.0% Taco John's Sep 2018 7 15 12.6 100.0% HIFZA Trading Oct 2018 1 4 19.8 100.0% DaVita II Oct 2018 1 10 6.5 100.0% Pizza Hut I Oct 2018 9 23 12.6 100.0% Little Caesars I Dec 2018 11 19 17.8 100.0% Caliber Collision I Dec 2018 3 48 11.0 100.0% Tractor Supply V Dec 2018; Mar 2019 5 97 10.4 100.0% Fresenius III Jan 2019 6 44 6.2 100.0% Pizza Hut II Jan 2019 31 90 17.8 100.0% Mountain Express IV Feb 2019 8 28 17.8 100.0% Feb 2019; Mar 2019; Mountain Express V Apr 2019 18 96 17.9 100.0% Fresenius IV Mar 2019 1 9 10.7 100.0% Mountain Express VI Jun 2019 1 3 17.8 100.0% IMTAA May 2019; Jan 2020 12 40 18.3 100.0% Pizza Hut III May 2019; Jun 2019 13 47 18.2 100.0% Fresenius V Jun 2019 2 19 11.1 100.0% Fresenius VI Jun 2019 1 10 5.8 100.0% Fresenius VII Jun 2019 3 59 9.5 50.1% Caliber Collision II Aug 2019 1 19 8.0 100.0% Dollar General XXV Sep 2019 5 44 9.7 100.0% Dollar General XXIV Sep 2019; Oct 2019 9 82 13.4 100.0% Mister Carwash I Sep 2019 3 13 18.5 100.0% Checkers I Sep 2019 1 1 18.4 100.0% DaVita III Sep 2019; Mar 2020 2 20 8.4 100.0% Dialysis II Sep 2019 50 426 7.6 100.0% Mister Carwash II Nov 2019 2 8 18.7 100.0% Advance Auto IV Dec 2019; Jan 2020 14 96 8.3 100.0% Advance Auto V Dec 2019 11 73 7.8 100.0% Dollar General XXVI Dec 2019 12 114 11.1 100.0% Pizza Hut IV Dec 2019; Mar 2020 16 50 18.8 100.0% American Car Center I Mar 2020 16 178 19.0 100.0% BJ's Wholesale Club Mar 2020 1 110 9.6 100.0% Mammoth Car Wash Mar 2020 9 56 19.0 100.0% Mammoth Car Wash Apr 2020 1 18 19.0 100.0% Mammoth Car Wash Apr 2020 1 4 19.1 100.0% DaVita IV Apr 2020 1 10 10.3 100.0% GPM Jul. 2020 30 112 15.2 100.0% IMTAA II Aug 2020; Dec 2020 10 54 14.4 100.0% Fresenius IX Nov 2020 6 46 9.9 100.0% 46
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Table of Contents Number of Rentable Square Feet Portfolio Acquisition Date Properties (In thousands) Remaining Lease Term (1) Percentage Leased Kalma Kaur Dec 2020 10 37 19.8 100.0% Dialysis III Dec 2020 15 128 4.5 100.0% National Convenience Distributors Mar. 2021 5 385 20.0 100.0% Advance Auto VI Mar. 2021 2 14 6.2 100.0% 925 19,657 8.7 94.9% ________ (1)Remaining lease term in years as ofMarch 31, 2021 . If the portfolio has multiple properties with varying lease expirations, remaining lease term is calculated on a weighted-average basis. (2)Includes one property leased toTruist Bank which was unoccupied as of March 31, 2021 and was being marketed for sale. Please see Note 3 - Real Estate Investments to our consolidated financial statements in this Quarterly Report on Form 10-Q for further details. (3)Multi-tenant properties. All other properties are single-tenant. Results of Operations In addition to the comparative quarter-over-quarter discussion below, please see the "Overview - Management Update on the Impacts of the COVID-19 Pandemic" section above for additional information on the risks and uncertainties associated with the COVID-19 pandemic and management's actions taken to mitigate those risks and uncertainties. Comparison of the Three Months EndedMarch 31, 2021 and 2020 We owned 813 properties for the entirety of both the three months endedMarch 31, 2021 and 2020 (our "ThreeMonth Same Store ") that were 93.8% leased as ofMarch 31, 2021 . FromJanuary 1, 2020 throughMarch 31, 2021 , we acquired 112 properties (our "Acquisitions SinceJanuary 1, 2020 '') that were 100.0% leased as ofMarch 31, 2021 . FromJanuary 1, 2020 throughMarch 31, 2021 , we sold eight properties (our "Disposals SinceJanuary 1, 2020 ''). The following table summarizes our leasing activity during the three months endedMarch 31, 2021 : Three Months Ended March 31, 2021 (In thousands) Costs to execute Number of Annualized SLR (1) prior to Lease Annualized SLR (1) after Costs to lease per square Leases Rentable Square Feet Execution/Renewal/Termination Lease Execution/Renewal execute lease foot New leases (2) 11 191,952 $ - $ 2,120$ 1,391 $ 7.25 Lease renewals/amendments (2) 53 490,867 $ 6,825 $ 6,399$ 249 $ 0.51 ______ (1)Annualized rental income on a straight-line basis as ofMarch 31, 2021 . Represents the GAAP basis annualized straight-line rent that is recognized over the term on the respective leases, which includes free rent, periodic rent increases, and excludes recoveries. (2)New leases reflect leases in which a new tenant took possession of the space during the three months endedMarch 31, 2021 , excluding new property acquisitions. Lease renewals/amendments reflect leases in which an existing tenant executed terms to extend the term or change the rental terms of the lease during the three months endedMarch 31, 2021 . This excludes leases modifications for deferrals/abatements in response to COVID-19 negotiations which qualify for FASB relief. For more information - see Management update on Impacts of the COVID-19 Pandemic - Management's Actions. (3)Represents leases that were terminated prior to their contractual lease expiration dates. Net Loss Attributable to Common Stockholders Net loss attributable to common stockholders was$9.4 million for the three months endedMarch 31, 2021 , as compared to$9.2 million for the three months endedMarch 31, 2020 . The change in net loss attributable to common stockholders is discussed in detail for each line item of the consolidated statements of operations and comprehensive loss in the sections that follow. Property Results of Operations Same Store Acquisitions Disposals Total Increase Three Months Ended March Increase Three Months Ended March Increase Increase Three Months EndedMarch 31 , (Decrease) 31, (Decrease) 31, (Decrease) Three Months EndedMarch 31 , (Decrease) 2021 2020 $ 2021 2020 $ 2021 2020 $ 2021 2020 $ Revenue from tenants$ 74,123 $ 74,060 $ 63$ 4,807 $ 356 $ 4,451 $ 257 $ 148 $ 109 $ 79,187 $ 74,564 $ 4,623 Less: Property operating 13,384 12,282 1,102 55 - 55 - - - 13,439 12,282 1,157 NOI$ 60,739 $ 61,778 $ (1,039) $ 4,752 $ 356 $ 4,396 $ 257 $ 148 $ 109 $ 65,748 $ 62,282 $ 3,466 47
-------------------------------------------------------------------------------- Table of Contents Net operating income ("NOI") is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate portfolio. NOI is equal to revenue from tenants less property operating expense. NOI excludes all other financial statement amounts included in net loss attributable to common stockholders. We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. See "Non-GAAP Financial Measures" included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation to our net loss attributable to common stockholders. Revenue from Tenants Revenue from tenants increased$4.6 million to$79.2 million for the three months endedMarch 31, 2021 , compared to$74.6 million for the three months endedMarch 31, 2020 . This increase in revenue from tenants was due to incremental revenue from our Acquisitions SinceJanuary 1, 2020 of approximately$4.5 million , and by an increase in ourThree Month Same Store revenue of approximately$0.1 million , partially offset by a decrease in revenue as a result of our Disposals SinceJanuary 1, 2020 of approximately$0.1 million , when compared to the same quarter last year. The slight increase in theThree Month Same Store revenue includes higher reimbursement revenue of$0.6 million partially offset by higher bad debt expense of$0.4 million as compared to first quarter of 2020, which is recorded as a reduction of revenue from tenants. For additional information on our revenue recognition policy and details on the factors included in our assessment, see Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements included in this Form 10-Q. Property Operating Expenses Property operating expenses primarily consist of the costs associated with maintaining our properties including real estate taxes, utilities, and repairs and maintenance. Property operating expenses increased$1.2 million to$13.4 million for the three months endedMarch 31, 2021 compared to$12.3 million for the three months endedMarch 31, 2020 . This increase was driven by an increase of$0.1 million from our Acquisitions SinceJanuary 1, 2020 and an increase of approximately$1.1 million inThree Month Same Store properties The increase in theThree Month Same Store property operating expenses is attributable to higher reimbursement expenses of$0.6 million with the remainder primarily attributable to real estate tax reassessments which were paid in 2019 and credited in 2020, which lowered expenses during the three months endedMarch 31, 2020 and did not recur in the three months endedMarch 31, 2021 . Other Results of Operations Asset Management Fees toRelated Party We pay asset management fees to the Advisor for managing our day-to-day operations. These fees include a base management fee, which has a fixed and variable portion and an incentive variable management fee. Asset management fees paid to the Advisor increased$0.4 million to$7.3 million for the three months endedMarch 31, 2021 , compared to$6.9 million for the three months endedMarch 31, 2020 , primarily due to an increase in the variable portion of the base management fee due to our equity issuances. The variable portion of the base management fee is calculated on a monthly basis and is equal to one-twelfth of 1.25% of the cumulative net proceeds of any equity raised by us (including, among other things, common stock, preferred stock and certain convertible debt but excluding among other things, equity based compensation) from and afterFebruary 16, 2017 . The variable portion of the base management fee will increase in connection with future issuances of equity securities. We incurred an incentive variable management fee of$0.1 million during the three months endedMarch 31, 2021 . No incentive variable management fee was incurred during the three months endedMarch 31, 2020 . In light of the unprecedented market disruption resulting from the COVID-19 pandemic, inMarch 2020 , we agreed with the Advisor to amend the advisory agreement to temporarily lower the quarterly thresholds we must reach on a quarterly basis for the Advisor to receive the variable incentive management fee through the end of 2020, and inJanuary 2021 , we agreed with the Advisor to further amend the advisory agreement to extend the expiration of these thresholds through the end of 2021. Please see Note 10 - Related Party Transactions and Arrangements to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding fees incurred from the Advisor. Acquisition, Transaction and Other Costs Acquisition, transaction and other costs decreased$0.4 million to$42,000 for the three months endedMarch 31, 2021 , compared to$0.5 million for the three months endedMarch 31, 2020 . The decrease was primarily due to less acquisition activity during the three months endedMarch 31, 2021 , as compared to the prior year quarter. The prepayment penalties related to mortgages during the three months endedMarch 31, 2020 were approximately$80,000 . We did not incur any prepayment penalties during the three months endedMarch 31, 2021 . 48
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Equity-Based Compensation During the three months endedMarch 31, 2021 and 2020, we recorded non-cash equity-based compensation expense of$4.3 million and$3.2 million , respectively, relating to restricted shares of Class A common stock ("restricted shares") granted to our board of directors and employees of the Advisor or its affiliates who are involved in providing services to us and the units of limited partnership designated as "LTIP Units" ("LTIP Units") that were granted to our Advisor in 2018 pursuant to a multi-year outperformance agreement (the "2018 OPP"). The higher expense recorded in the first quarter of 2021 was due to an amendment to the original award agreement onFebruary 26, 2021 for restricted shares previously issued to our former chief financial officer which accelerated the vesting of those restricted shares onApril 9, 2021 upon the effectiveness of her resignation. These restricted shares were scheduled to vest in 25% increments on each of the first four anniversaries of the grant date (September 15, 2020 ). Also, we recorded additional expense for the excess of the new value of those awards on the date of modification over the fair value of the awards immediately prior to the amendment. In addition, we granted our former chief financial officer an additional award of restricted shares that also fully vested upon the effectiveness of her resignationApril 9, 2021 , contributing to the increase to equity-based compensation expense recorded during the three months endedMarch 31, 2021 . For additional details, including theFebruary 2021 restricted share activity and the 2018 OPP and the LTIP Units, see Note 12 - Equity-Based Compensation to our consolidated financial statements included in this Quarterly Report on Form 10-Q. General and Administrative Expense General and administrative expense increased$1.2 million to$6.4 million for the three months endedMarch 31, 2021 , compared to$5.3 million for the three months endedMarch 31, 2020 . This increase was due to$0.8 million of increased legal fees,$0.2 million of increased audit fees, and$0.2 million of increased miscellaneous general and administrative expenses incurred during the three months endedMarch 31, 2021 as compared toMarch 31, 2020 . Depreciation and Amortization Expense Depreciation and amortization expense decreased$2.0 million to$32.3 million for the three months endedMarch 31, 2021 , compared to$34.3 million for the three months endedMarch 31, 2020 . Depreciation and amortization expense was impacted by a decrease of$3.8 million from ourThree Month Same Store properties partially offset by an increase of$1.7 million related to our Acquisitions SinceJanuary 1, 2020 , and an increase of$0.1 million from our Disposals SinceJanuary 1, 2020 . The decrease in our Same Store properties' depreciation and amortization expense is mainly attributable to lower amortization expense from in-place leases of$3.3 million as compared to the three months endedMarch 31, 2020 due to the write-off of$2.1 million within the single-tenant portfolio and$1.2 million within the multi-tenant portfolio which represents the expiration of in-place lease assets which had their amortization accelerated during the period endedMarch 31, 2020 as a result of tenant lease terminations. Gain on Sale/Exchange of Real Estate Investments During the three months endedMarch 31, 2021 we sold two properties. These properties sold for an aggregate contract price of$0.6 million , resulting in aggregate gains on sale of$0.3 million . During the three months endedMarch 31, 2020 , we sold two properties which resulted in gains on sale. These properties sold for an aggregate contract price of$3.8 million , resulting in aggregate gains on sale of$1.4 million . Interest Expense Interest expense increased$0.2 million to$19.3 million for the three months endedMarch 31, 2021 , compared to$19.1 million for the three months endedMarch 31, 2020 . This increase was due to higher average mortgage notes payable during the three months endedMarch 31, 2021 when compared to the average balance for the three months endedMarch 31, 2020 , partially offset by lower interest rates. During the three months endedMarch 31, 2021 and 2020, the average outstanding balances on our mortgage notes payable were$1.5 billion and$1.3 billion , respectively, and our average outstanding balance under our Credit Facility was$280.9 million and$350.1 million , respectively. For the three months endedMarch 31, 2021 and 2020, the weighted-average interest rates on our mortgage notes payable were 4.02% and 4.55% and the weighted-average interest rates on our Credit Facility were 2.79% and 3.75%, respectively. Other Income Other income was$24,000 and$72,000 for the three months endedMarch 31, 2021 and 2020. Loss on Non-Designated Derivative The loss on non-designated derivative instruments was immaterial for the three months endedMarch 31, 2021 and relates to an interest rate cap on a mortgage note payable entered into in the fourth quarter of 2020 that is designed to protect us from 49 -------------------------------------------------------------------------------- Table of Contents adverse interest rate changes. For additional information , see Note 7 - Derivatives and Hedging Activities to our consolidated financial statements included in this Quarterly Report on Form 10-Q. Cash Flows from Operating Activities Our cash flows provided by or used in operating activities is affected by the rental income generated from leasing activity, including leasing activity due to acquisitions and dispositions, restricted cash we are required to maintain, the timing of interest payments, the receipt of scheduled rent payments and the level of property operating expenses. Our cash flows from operating activities was$34.4 million during the three months endedMarch 31, 2021 and consisted of net loss of$3.8 million , adjusted for non-cash items of$37.6 million , including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs, amortization of mortgage premiums on borrowings, share-based compensation, gain on sale of real estate investments and impairment charges. In addition, cash flows from operating activities were impacted by an increase in the straight-line rent receivable of$1.7 million , a decrease in deferred rent of$1.4 million , an increase in accounts payable and accrued expenses of$3.3 million and an increase in prepaid expenses and other assets of$2.4 million . Our cash flows from operating activities was$24.1 million during the three months endedMarch 31, 2020 and consisted of net loss of$5.5 million , adjusted for non-cash items of$36.1 million , including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs, amortization of mortgage premiums on borrowings, share-based compensation, gain on sale of real estate investments and impairment charges. In addition, cash flows from operating activities were impacted by an increase in the straight-line rent receivable of$2.3 million , a decrease in deferred rent of$1.7 million , a decrease in accounts payable and accrued expenses of$0.2 million and an increase in prepaid expenses and other assets of$2.4 million . Cash Flows from Investing Activities The net cash used in investing activities during the three months endedMarch 31, 2021 of$37.5 million consisted primarily of cash paid for investments in real estate and other assets of$37.2 million , capital expenditures of$0.9 million and deposits for real estate acquisitions of$0.1 million , partially offset by cash received from the sale of real estate investments of$0.6 million . The net cash used in investing activities during the three months endedMarch 31, 2020 of$65.5 million consisted primarily of cash paid for investments in real estate and other assets of$63.4 million , capital expenditures of$3.3 million and deposits for real estate acquisitions of$1.1 million , partially offset by cash received from the sale of real estate investments, (net of mortgage loans repaid) of$2.3 million . Cash Flows from Financing Activities The net cash used in financing activities of$11.8 million during the three months endedMarch 31, 2021 consisted primarily of cash dividends paid to holders of Class A common stock of$23.1 million and cash dividends paid to holders of our Series A Preferred Stock of$3.7 million , partially offset by net proceeds from the issuance of Series A Preferred Stock of$2.3 million and net proceeds from the issuance of Series C Preferred Stock of$13.9 million . The net cash provided by financing activities of$135.5 million during the three months endedMarch 31, 2020 consisted primarily of net borrowings on our Credit Facility of$150.0 million and net proceeds received from the issuance of Series A Preferred Stock of$19.9 million , partially offset by cash dividends paid to holders of Class A common stock of$29.8 million and cash dividends paid to holders of our Series A Preferred Stock of$3.3 million . Liquidity and Capital Resources The negative impacts of the COVID-19 pandemic has caused and may continue to cause certain of our tenants to be unable to make rent payments to us timely, or at all, which has had, and could continue to have, an adverse effect on the amount of cash we receive from our operations. We have taken proactive steps with regard to rent collections to mitigate the impact on our business and liquidity. The ultimate impact on our results of operations, our liquidity and the ability of our tenants to continue to pay us rent will depend on numerous factors including the overall length and severity of the COVID-19 pandemic. Management is unable to predict the nature and scope of any of these factors. Because substantially all of our income is derived from rentals of commercial real property, our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations, our ability to consummate future property acquisitions and our ability to pay dividends and other distributions to our stockholders would be adversely affected if a significant number of tenants are unable to meet their obligations to us. In addition to the discussion below, please see the "Overview - Management Update on the Impacts of the COVID-19 Pandemic" section above for additional information on the risks and uncertainties associated with the COVID-19 pandemic and management's actions taken in response. 50 -------------------------------------------------------------------------------- Table of Contents We expect to fund our future short-term operating liquidity requirements through a combination of cash on hand, net cash provided by our property operations and proceeds from our Credit Facility; provided that, following the amendment to our Credit Facility inJuly 2020 , we are restricted from using proceeds from borrowings under the Credit Facility to accumulate or maintain cash or cash equivalents in excess of amounts necessary to meet current working capital requirements, which may limit our ability to use proceeds from the Credit Facility for these purposes. We may also generate additional liquidity through property dispositions and, to the extent available, secured or unsecured borrowings, our "at the market" equity offering program for Class A common stock (the "Class A Common Stock ATM Program"), our "at the market" equity offering program for Series A Preferred Stock (the "Series A Preferred Stock ATM Program"), our "at the market" equity offering program for Series C Preferred Stock (the "Series C Preferred Stock ATM Program"), or other offerings of debt or equity securities. The volatility in the global financial market could negatively impact our ability to raise capital through equity offerings, which as a result, could impact our decisions as to when and if we will seek additional equity funding. As ofMarch 31, 2021 andDecember 31, 2020 , we had cash and cash equivalents of$84.2 million and$102.9 million , respectively, and availability for future borrowings under our Credit Facility was$134.3 million and$126.0 million , respectively. During the Adjustment Period, our Credit Facility required us to maintain a combination of cash, cash equivalents and amounts available for future borrowings under our Credit Facility of not less than$100.0 million , which limited our ability to incur additional indebtedness and use cash that would otherwise be available to us. We were also restricted during the Adjustment Period from using proceeds from borrowings under the Credit Facility to accumulate or maintain cash or cash equivalents in excess of amounts necessary to meet current working capital requirements, as determined in good faith by us. Our principal demands for funds are for payment of our operating and administrative expenses, property acquisitions, capital expenditures, debt service obligations and cash dividends to our common and preferred stockholders. Mortgage Notes Payable and Credit Facility As ofMarch 31, 2021 , we had$1.5 billion of gross mortgage notes payable outstanding and$280.9 million outstanding under our Credit Facility. Of our total gross debt, 82.6% is fixed-rate (including by swap agreement), and 17.4% is variable-rate. As ofMarch 31, 2021 , our net debt to gross asset value ratio was 40.4%. We define net debt as the principal amount of our outstanding debt (excluding the effect of deferred financing costs, net and mortgage premiums and discounts, net) less cash and cash equivalents. Gross asset value is defined as total assets plus accumulated depreciation and amortization. As ofMarch 31, 2021 , the weighted-average interest rates on the mortgage notes payable and Credit Facility were 4.02% and 2.79% respectively. Based on debt outstanding as ofMarch 31, 2021 , future anticipated principal payments on our mortgage notes payable for the remainder of 2021 and the year endedDecember 31, 2022 are$109.9 million and$2.3 million , respectively. As ofMarch 31, 2021 , we had$4.0 billion in gross real estate assets, at cost, and we had pledged approximately$2.8 billion in gross real estate assets, at cost, as collateral for our mortgage notes payable. In addition, approximately$1.1 billion of these gross real estate investments, at cost, were included in the unencumbered asset pool comprising the borrowing base under the Credit Facility. Therefore, this real estate is only available to serve as collateral or satisfy other debts and obligations if it is first removed from the borrowing base under the Credit Facility, which would reduce the amount available to us on the Credit Facility. Credit Facility - Terms and Capacity As ofMarch 31, 2021 andDecember 31, 2020 , we had$280.9 million outstanding under our Credit Facility. Our Credit Facility provides for commitments for aggregate revolving loan borrowings and includes an uncommitted "accordion feature" whereby, upon the request of the OP, but at the sole discretion of the participating lenders, the commitments under the Credit Facility may be increased by up to an additional$500.0 million , subject to obtaining commitments from new lenders or additional commitments from participating lenders and certain customary conditions. As ofMarch 31, 2021 , we had increased our commitments through this accordion feature by$125.0 million , bringing total aggregate commitments to$540.0 million , and leaving$375.0 million of potential available commitments remaining. The amount available for future borrowings under the Credit Facility is based on the lesser of (1) a percentage of the value of the pool of eligible unencumbered real estate assets comprising the borrowing base, and (2) a maximum amount permitted to maintain a minimum debt service coverage ratio with respect to the borrowing base, in each case, as of the determination date. During the Adjustment Period, (a) the value of all eligible unencumbered real estate assets comprising the borrowing base purchased throughJune 30, 2020 was generally decreased by 10%, and (b) the minimum unsecured interest coverage ratio required to be maintained by the eligible unencumbered real estate assets comprising the borrowing base was decreased during the fiscal quarter endedJune 30, 2020 and was increased during the other fiscal quarters of the Adjustment Period. As ofMarch 31, 2021 , we had a total borrowing capacity under the Credit Facility of$415.1 million based on the value of the borrowing base under the Credit Facility. Of this amount,$280.9 million was outstanding under the Credit Facility as ofMarch 31, 2021 and$134.3 million remained available for future borrowings. 51 -------------------------------------------------------------------------------- Table of Contents Our Credit Facility requires payments of interest only and matures onApril 26, 2022 . We also have a one-time right, subject to customary conditions, to extend the maturity date for an additional term of one year toApril 26, 2023 . Borrowings under our Credit Facility bear interest at either (i) the Base Rate (as defined in the Credit Facility) plus an applicable spread ranging from 0.60% to 1.20% depending on our consolidated leverage ratio or (ii) LIBOR plus an applicable margin ranging from 1.60% to 2.20%, depending on our consolidated leverage ratio. FromJuly 24, 2020 until delivery of the compliance certificate for the fiscal quarter endingJune 30, 2021 , the margin will be 1.50% with respect to the Base Rate and 2.50% with respect to LIBOR regardless of our consolidated leverage ratio. The "floor" on LIBOR is 0.25%. As ofMarch 31, 2021 we have elected to use the LIBOR rate for all our borrowings under the Credit Facility. LIBOR Exposure InJuly 2017 , theFinancial Conduct Authority (which regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, theFederal Reserve Board and theFederal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to LIBOR in derivatives and other financial contracts. OnNovember 30, 2020 , theFinancial Conduct Authority announced a partial extension of this deadline, indicating its intention to cease the publication of the one-week and two-month USD LIBOR settings immediately followingDecember 31, 2021 , and the remaining USD LIBOR settings immediately following the LIBOR publication onJune 30, 2023 . While we expect LIBOR to be available in substantially its current form until at least the end of 2023, it is possible that LIBOR will become unavailable prior to that time. To transition from LIBOR under the Credit Facility, we will either utilize the Base Rate (as defined in the Credit Facility) or an alternative benchmark established by the agent in accordance with the terms of the Credit Facility, which will be SOFR if available or an alternate benchmark that is being widely used in the market at that time as selected by the agent. Acquisitions and Dispositions - Three Months EndedMarch 31, 2021 One of our primary uses of cash during the three months endedMarch 31, 2021 was for acquisitions of properties. During the three months endedMarch 31, 2021 , we acquired seven properties for an aggregate purchase price of$37.2 million , including capitalized acquisition costs. The acquisitions during the three months endedMarch 31, 2021 were funded through a combination of proceeds from cash on hand, the issuance and sale of Series A Preferred Stock and Series C Preferred Stock (discussed below) and proceeds from dispositions of properties (discussed below). During the three months endedMarch 31, 2021 , we sold two properties, for an aggregate contract price of$0.6 million , excluding disposition related costs. There was no mortgage debt on these properties. Acquisitions and Dispositions - Subsequent toMarch 31, 2021 We have entered into definitive purchase and sale agreements ("PSAs") to acquire an additional 21 properties for an aggregate contract purchase price of approximately$21.4 million . The PSAs are subject to conditions, and there can be no assurance we will complete any of these acquisitions on their contemplated terms, or at all. We have also entered into a letter of intent ("LOI") to acquire one property for a contract purchase price of$10.2 million . We anticipate using cash on hand, which we expect will include cash from prior borrowings under our Credit Facility, proceeds from our ATM Programs, proceeds from future dispositions of properties and proceeds from borrowings (including mortgage borrowings and additional borrowings under our Credit Facility), to fund the consideration required to complete these acquisitions. During the Adjustment Period, (i) all properties acquired with proceeds from the borrowings under the Credit Facility were required to be added to the borrowing base, and (ii) we were prohibited from acquiring any multi-tenant properties and from making certain other investments. With respect to our pending acquisitions, in light of the disruptions caused by the COVID-19 pandemic, we are taking a prudent stance with our acquisition pipeline and are carefully determining appropriate risk adjusted capitalization rate targets for potential new acquisitions going forward. ATM Programs We did not sell any shares under the Class A Common Stock ATM Program during the three months endedMarch 31, 2021 . During the three months endedMarch 31, 2021 , we sold 91,703 shares under the Series A Preferred Stock ATM Program for gross proceeds of$2.3 million and net proceeds of$2.3 million , after commissions paid of approximately$35,000 . During the three months endedMarch 31, 2021 , we sold 564,101 shares under the Series C Preferred Stock ATM Program for gross proceeds of$14.1 million and net proceeds of$13.9 million , after commissions paid of approximately$0.2 million . 52 -------------------------------------------------------------------------------- Table of Contents Distribution Reinvestment Plan Our distribution reinvestment plan ("DRIP") allows stockholders who have elected to participate in the DRIP to have dividends payable with respect to all or a portion of their shares of Class A common stock reinvested in additional shares of Class A common stock. Shares issued pursuant to the DRIP are, at our election, either (i) acquired directly from us, by issuing new shares, at a price based on the average of the high and low sales prices of Class A common stock on Nasdaq on the date of reinvestment, or (ii) acquired through open market purchases by the plan administrator at a price based on the weighted-average of the actual prices paid for all of the shares of Class A common stock purchased by the plan administrator with all participants' reinvested dividends for the related quarter, less a per share processing fee. During the three months endedMarch 31, 2021 and the year endedDecember 31, 2020 , all shares acquired by participants pursuant to the DRIP were acquired through open market purchases by the plan administrator and not issued directly to stockholders by us. Capital Expenditures and Construction in Progress We invest in capital expenditures to enhance and maintain the value of our properties. The recent economic uncertainty created by the COVID-19 global pandemic could impact our decisions on the amount and timing of future capital expenditures. We define revenue enhancing capital expenditures as improvements to our properties that we believe will result in higher income generation over time. Capital expenditures for maintenance are generally necessary, non-revenue generating improvements that extend the useful life of the property and are less frequent in nature. By providing this metric, we believe we are presenting useful information for investors that can help them assess the components of our capital expenditures that are expected to either grow or maintain our current revenue. Detail related to our capital expenditures during the three months endedMarch 31, 2021 is as follows: (In thousands) Three Months Ended March 31, 2021 Capital Expenditures Revenue enhancing $ 2,342 Maintenance 77 Total Capital Expenditures 2,419 Leasing commissions 2,149 Total $ 4,568 Also, as ofMarch 31, 2021 andDecember 31, 2020 , we had$0.4 million and$31,000 , respectively, of construction in progress which is included in the prepaid expenses and other assets on the consolidated balance sheets. 2021 LTIP Award OnMay 4, 2021 , our independent directors, acting as a group, authorized the issuance of a new award of LTIP Units to the Advisor after the performance period under the 2018 OPP expires onJuly 19, 2021 . The number of LTIP Units to be issued to the Advisor pursuant to this award will be equal to the quotient of$72.0 million divided by the tentrading day trailing average closing stock price of Class A common stock for the ten trading days up to and including the day before the new three-year performance period commences onJuly 20, 2021 . See Item 5 - Other Information for additional information. Non-GAAP Financial Measures This section discusses the non-GAAP financial measures we use to evaluate our performance, including Funds from Operations ("FFO"), Adjusted Funds from Operations ("AFFO") and NOI. While NOI is a property-level measure, AFFO is based on our total performance and therefore reflects the impact of other items not specifically associated with NOI such as interest expense, general and administrative expenses and operating fees to related parties. Additionally, NOI as defined herein, does not reflect an adjustment for straight-line rent but AFFO does. A description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income (loss), is provided below. Adjustments for unconsolidated partnerships and joint ventures are calculated to exclude the proportionate share of the non-controlling interest to arrive at FFO, AFFO and NOI attributable to stockholders. Funds from Operations and Adjusted Funds from Operations Funds from Operations Due to certain unique operating characteristics of real estate companies, as discussed below, theNational Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a performance measure known as FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. FFO is not equivalent to net income or loss as determined under GAAP. 53 -------------------------------------------------------------------------------- Table of Contents We calculate FFO, a non-GAAP measure, consistent with the standards established over time by theBoard of Governors of NAREIT, as restated in a White Paper and approved by theBoard of Governors of NAREIT effective inDecember 2018 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from sales of certain real estate assets, gain and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for consolidated partially-owned entities (including our OP) and equity in earnings of unconsolidated affiliates are made to arrive at our proportionate share of FFO attributable to our stockholders. Our FFO calculation complies with NAREIT's definition. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation and certain other items may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, among other things, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. Adjusted Funds from Operations In calculating AFFO, we start with FFO, then we exclude certain income or expense items from AFFO that we consider to be more reflective of investing activities, such as non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our day to day operating business plan, such as amounts related to litigation arising out of the merger withAmerican Realty Capital-Retail Centers of America, Inc. inFebruary 2017 (the "Merger"). These amounts include legal costs incurred as a result of the litigation, portions of which have been and may in the future be reimbursed under insurance policies maintained by us. Insurance reimbursements are deducted from AFFO in the period of reimbursement. We believe that excluding the litigation costs and subsequent insurance reimbursements related to litigation arising out of the Merger helps to provide a better understanding of the operating performance of our business. Other income and expense items also include early extinguishment of debt and unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments and gains and losses on investments. In addition, by excluding non-cash income and expense items such as amortization of above-market and below-market leases intangibles, amortization of deferred financing costs, straight-line rent, and share-based compensation related to restricted shares and the 2018 OPP from AFFO, we believe we provide useful information regarding those income and expense items which have a direct impact on our ongoing operating performance. In calculating AFFO, we exclude certain expenses which under GAAP are characterized as operating expenses in determining operating net income (loss). All paid and accrued merger, acquisition and transaction related fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired will also have negative effects on returns to investors, but are not reflective of our on-going performance. In addition, legal fees and expense associated with COVID-19-related lease disputes involving certain tenants negatively impact our operating performance but are not reflective of our on-going performance. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss). In addition, as discussed above, we view gains and losses from fair value adjustments as items which are unrealized and may not ultimately be realized and not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management's analysis of our operating performance. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information. By providing AFFO, we believe we are presenting useful information that can be used to better assess the sustainability of our ongoing operating performance without the impact of transactions or other items that are not related to the ongoing performance of our portfolio of properties. AFFO presented by us may not be comparable to AFFO reported by other REITs that define AFFO differently. Furthermore, we believe that in order to facilitate a clear understanding of our operating results, AFFO should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. AFFO should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to pay dividends. Accounting Treatment of Rent Deferrals/Abatements 54 -------------------------------------------------------------------------------- Table of Contents The majority of the concessions granted to our tenants as a result of the COVID-19 pandemic are rent deferrals or temporary rent abatements with the original lease term unchanged and collection of deferred rent deemed probable (see the "Overview - Management Update on the Impacts of the COVID-19 Pandemic" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information). As a result of relief granted by the FASB andSEC related to lease modification accounting, rental revenue used to calculate Net Income and NAREIT FFO has not been, and we do not expect it to be, significantly impacted by these types of deferrals. In addition, since we currently believe that these deferral amounts are collectable, we have excluded from the increase in straight-line rent for AFFO purposes the amounts recognized under GAAP relating to these types of rent deferrals. Conversely, for abatements where contractual rent has been reduced, the reduction in revenue is reflected over the remaining lease term for accounting purposes but represents a permanent reduction in revenue and we have, accordingly, reduced our AFFO. For a detailed discussion of our revenue recognition policy, including details related to the relief granted by the FASB and SEC, see Note 2 - Significant Accounting Polices to our consolidated financial statements included in the Quarterly Report on Form 10-Q. The table below reflects the items deducted from or added to net loss in our calculation of FFO and AFFO for the periods presented: Three Months Ended March 31, (In thousands) 2021 2020
Net loss attributable to common stockholders (in accordance with GAAP)
$ (9,411) $ (9,153) Impairment of real estate investments - - Depreciation and amortization 32,319 34,335 Gain on sale/exchange of real estate investments (286) (1,440)
Proportionate share of adjustments for non-controlling interests to arrive at FFO
(51) (52) FFO (as defined by NAREIT) attributable to common stockholders 22,571 23,690 Acquisition, transaction and other costs (1) 42 452 Litigation cost reimbursements related to the Merger (2) - (9) Legal fees and expenses - COVID-19 lease disputes (3) 69 - Accretion of market lease and other intangibles, net (935) (992) Straight-line rent (1,727) (2,265) Straight-line rent (rent deferral agreements) (4) (975) - Amortization of mortgage discounts (premiums) on borrowings, net (321) (560) Loss on non-designated derivatives - - Equity-based compensation 4,347 3,211
Amortization of deferred financing costs, net and change in accrued interest
2,469 1,712
Proportionate share of adjustments for non-controlling interests to arrive at AFFO
(5) (2) AFFO attributable to common stockholders $
25,535
___________
(1)Includes primarily prepayment costs incurred in connection with early debt extinguishment as well as litigation costs related to the Merger. (2)Included in "Other income" in our consolidated statement of operations and comprehensive loss. (3)Reflects legal costs incurred during the year endedDecember 31, 2020 related to disputes with tenants due to store closures or other challenges resulting from COVID-19. The tenants involved in these disputes had not recently defaulted on their rent and, prior to the second and third quarters of 2020, had recently exhibited a pattern of regular payment. Based on the tenants involved in these matters, their history of rent payments, and the impact of the pandemic on current economic conditions, we view these costs as COVID-19-related and separable from our ordinary general and administrative expenses related to tenant defaults. We engaged counsel in connection with these issues separate and distinct from counsel we typically engage for tenant defaults. The amount reflects what the we believe to be only those incremental legal costs above what we typically incur for tenant-related dispute issues. We may continue to incur these COVID-19 related legal costs in the future. (4)Represents the amount of deferred rent pursuant to lease negotiations which qualify for FASB relief for which rent was deferred but not reduced. These amounts are included in the straight-line rent receivable on our consolidated balance sheet but are considered to be earned revenue attributed to the current period for purposes of AFFO as they are expected to be collected. For rent abatements (including those qualified for FASB relief), where contractual rent has been reduced, the reduction in revenue is reflected over the remaining lease term for accounting purposes but represents a permanent reduction in revenue and we have, accordingly reduced our AFFO. Net Operating Income NOI is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate. NOI is equal to total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other items of expense and income included in the financial statements in calculating net income (loss). We believe 55 -------------------------------------------------------------------------------- Table of Contents NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unleveraged basis. We use NOI to assess and compare property level performance and to make decisions concerning the operation of the properties. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income (loss). NOI excludes certain items included in calculating net income (loss) in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to pay dividends. The following table reflects the items deducted from or added to net loss attributable to common stockholders in our calculation of NOI for the three months endedMarch 31, 2021 : Non-Property (In thousands) Same Store Acquisitions Disposals Specific Total Net income (loss) attributable to common stockholders (in accordance with GAAP)$ 13,212 $
2,875
- - - 7,321 7,321 Acquisition, transaction and other costs - - - 42 42 Equity-based compensation - - - 4,347 4,347 General and administrative 312 - - 6,137 6,449 Depreciation and amortization 30,336 1,877 106 - 32,319 Interest expense 16,897 - - 2,437 19,334 Gain on sale of real estate investments - - (286) - (286) Other income (18) - - (6) (24) Loss on non-designated derivatives - - - - - Allocation for preferred stock - - - 5,663 5,663 Net loss attributable to non-controlling interests - - - (6) (6) NOI$ 60,739 $ 4,752 $ 257 $ -$ 65,748 56
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Table of Contents The following table reflects the items deducted from or added to net loss attributable to stockholders in our calculation of NOI for the three months endedMarch 31, 2020 : Non-Property (In thousands) Same Store Acquisitions Disposals Specific Total Net income (loss) attributable to common stockholders (in accordance with GAAP)$ 11,658 $
227
- - - 6,905 6,905 Acquisition, transaction and other costs 97 - - 355 452 Equity-based compensation - - - 3,211 3,211 General and administrative 441 - - 4,887 5,328 Depreciation and amortization 34,184 129 22 - 34,335 Interest expense 15,449 - 3,657 19,106 Gain on sale of real estate investments - - (1,440) - (1,440) Other income (51) - - (21) (72) Allocation for preferred stock - - - 3,619 3,619 Net loss attributable to non-controlling interests - - - (9) (9) NOI$ 61,778 $ 356$ 148 $ -$ 62,282 Dividends and Distributions From the listing of our Class A common stock on Nasdaq inJuly 2018 throughMarch 31, 2020 , we paid dividends on our Class A common stock at an annualized rate equal to$1.10 per share, or$0.0916667 per share on a monthly basis. InMarch 2020 , our board of directors approved a reduction in our annualized dividend to$0.85 per share, or$0.0708333 per share on a monthly basis, due to the uncertain and rapidly changing environment caused by the COVID-19 pandemic. The new dividend rate became effective beginning with ourApril 1 dividend declaration. Historically, and throughSeptember 30, 2020 , we declared dividends based on monthly record dates and generally paid dividends, once declared, on or around the 15th day of each month (or, if not a business day, the next succeeding business day) to Class A common stock holders of record on the applicable record date. OnAugust 27, 2020 , our board of directors approved a change in our Class A common stock dividend policy. Subsequent dividends authorized by our board of directors on shares of our Class A common stock have been, and we anticipate will continue to be, paid on a quarterly basis in arrears on the 15th day of the first month following the end of each fiscal quarter (unless otherwise specified) to Class A common stockholders of record on the record date for such payment. This change affected the frequency of dividend payments only, and did not impact the annualized dividend rate on Class A common stock of$0.85 . The amount of dividends payable on our Class A common stock to our common stock holders is determined by our board of directors and is dependent on a number of factors, including funds available for dividends, our financial condition, provisions in our Credit Facility or other agreements that may restrict our ability to pay dividends, capital expenditure requirements, as applicable, requirements ofMaryland law and annual distribution requirements needed to maintain our status as a REIT. Dividends on our Series A Preferred Stock accrue in an amount equal to$1.875 per share each year, which is equivalent to the rate of 7.50% of the$25.00 liquidation preference per share per annum. Dividends on the Series A Preferred Stock are payable quarterly in arrears on the 15th day of each of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date. Dividends on our Series C Preferred Stock accrue in an amount equal to$1.844 per share each year, which is equivalent to the rate of 7.375% of the$25.00 liquidation preference per share per annum. Dividends on the Series C Preferred Stock are payable quarterly in arrears on the 15th day of each of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date. The first dividend for the Series C Preferred Stock was paid onApril 15, 2021 and represented an accrual for more than a full quarter, covering the period fromDecember 18, 2020 toMarch 31, 2021 . Our Credit Facility contains provisions restricting our ability to pay distributions, including paying cash dividends on equity securities (including the Series A Preferred Stock and Series C Preferred Stock). OnNovember 4, 2019 , we entered into an amendment to the Credit Facility easing these restrictions and the amendment to the Credit Facility we entered into inJuly 2020 also eased these restrictions during the Adjustment Period, which lasted fromApril 1, 2020 throughMarch 31, 2021 . During the Adjustment Period, (i) we were permitted to continue to pay dividends on the Series A Preferred Stock and Class A 57 -------------------------------------------------------------------------------- Table of Contents common stock at the current annualized per-share rates without satisfying any further tests for the fiscal quarters endedJune 30, 2020 andSeptember 30, 2020 , respectively, and (ii) we were generally permitted to pay dividends on the Series C Preferred Stock, the Series A Preferred Stock and Class A common stock and other distributions in an aggregate amount of up to 105% of annualized MFFO (as defined in the Credit Facility) for a look-back period of two consecutive fiscal quarters for the fiscal quarter endedDecember 31, 2020 and a look-back period of three consecutive fiscal quarters for the fiscal quarter endingMarch 31, 2021 if, as of the last day of the period, after giving effect to the payment of those dividends and distributions, we had a combination of cash, cash equivalents and amounts available for future borrowings under the Credit Facility of not less than$125.0 million . If we did not satisfy this requirement, the applicable threshold percentage of MFFO is 95% instead of 105%. AfterMarch 31, 2021 , we are generally permitted to pay dividends on the Series C Preferred Stock, Series A Preferred Stock, and Class A common stock and other distributions for any fiscal quarter in an aggregate amount of up to 105% of annualized MFFO for a look-back period of four consecutive fiscal quarters but only if, as of the last day of the period, after giving effect to the payment of those dividends and distributions, we are able to satisfy a maximum leverage ratio and maintain a combination of cash, cash equivalents and amounts available for future borrowings under the Credit Facility of not less than$60 million . If these conditions are not satisfied, the applicable threshold percentage of MFFO will be 95% instead of 105%. If applicable, during the continuance of an event of default under the Credit Facility, we may not pay dividends or other distributions in excess of the amount necessary for us to maintain our status as a REIT. During the Adjustment Period, we were not permitted to repurchase shares by tender offer or otherwise. AfterMarch 31, 2021 we may repurchase shares if we satisfy a maximum leverage ratio after giving effect to the repurchase and also have a combination of cash, cash equivalents and amounts available for future borrowings under the Credit Facility of not less than$40.0 million . Notwithstanding the previous amendments, there is no assurance that the lenders will consent to any additional amendments to the Credit Facility that may become necessary to maintain compliance with the Credit Facility. During the quarter endedMarch 31, 2021 , cash used to pay dividends on our Class A common stock, dividends on our Series A Preferred Stock, distributions on our LTIP Units and distributions for our limited partnership units designated as "Class A Units" ("Class A Units") was generated from cash flows provided by operations and cash on hand, which consisted of proceeds from financings and sales of real estate investments. We paid our first dividend on the Series C Preferred Stock inApril 2021 , which is therefore not included in the table below. If we need to continue to identify financing sources other than operating cash flows to fund dividends at their current level, there can be no assurance that other sources will be available on favorable terms, or at all. Complying with the restriction on the payment of dividends and other distributions in our Credit Facility may limit our ability to incur additional indebtedness and use cash that would otherwise be available to us. Funding dividends from borrowings restricts the amount we can borrow for property acquisitions and investments. Using proceeds from the sale of assets or the issuance of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock or other equity securities to fund dividends rather than invest in assets will likewise reduce the amount available to invest. Funding dividends from the sale of additional securities could also dilute our stockholders. The following table shows the sources for the payment of dividends to common stockholders, including dividends on unvested restricted shares and other dividends and distributions for the periods indicated:
Three Months Ended
Percentage of (In thousands) Amount Dividends Dividends and other cash distributions: Cash dividends paid to common stockholders$ 23,128 85.9 % Cash dividends paid to Series A preferred stockholders 3,691 13.7 % Cash distributions on LTIP Units 94 0.3 % Cash distributions on Class A Units 37 0.1 % Total dividends and other cash distributions paid$ 26,950 100.0 %
Source of dividend and other cash distributions coverage: Cash flows provided by operations
$ 26,950 100.0 % Available cash on hand - - %
Total sources of dividend and other cash distributions coverage
$ 26,950 100.0 % Cash flows provided by operations (GAAP basis)$ 34,422 Net loss attributable to common stockholders (in accordance with GAAP)$ (9,411) 58
-------------------------------------------------------------------------------- Table of Contents Loan Obligations The payment terms of certain of our mortgage loan obligations require principal and interest payments monthly, with all unpaid principal and interest due at maturity. Our loan agreements stipulate that we comply with specific reporting covenants. As ofMarch 31, 2021 , we were in compliance with the debt covenants under our loan agreements, including our Credit Facility. Contractual Obligations Except as disclosed in this Quarterly Report on Form 10-Q, there were no material changes in our contractual obligations atMarch 31, 2021 , as compared to those reported in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Election as a REIT We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year endedDecember 31, 2013 . We believe that, commencing with such taxable year, we have been organized and have operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but can provide no assurances that we will operate in a manner so as to remain qualified as a REIT. To continue to qualify for taxation as a REIT, we must distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on the portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties, as well as federal income and excise taxes on our undistributed income. Inflation Some of our leases with our tenants contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. However, our net leases require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation. Related-Party Transactions and Agreements Please see Note 10 - Related Party Transactions and Arrangements to our consolidated financial statements in this Quarterly Report on Form 10-Q. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There has been no material change in our exposure to market risk during the three months endedMarch 31, 2021 . For a discussion of our exposure to market risk, refer to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," contained in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective. Changes in Internal Control Over Financial Reporting No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months endedMarch 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 59
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