# CTO Realty Growth, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [CTO Realty Growth, Inc.](/companies/cto.md) (CIK 23795)
- Form: 10-Q
- Filed: 2023-10-26
- Accepted by EDGAR: Oct 26, 2023, 16:22 ET
- Period: 2023-09-30
- Accession: 0001558370-23-016868
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/23795/000155837023016868/cto-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/23795/000155837023016868/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $28.5m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $79.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $7.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $21.8m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $7.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $16.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$135.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $375.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $2.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$1.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 22,484,561 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 22,556,642 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $39.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $25.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-09-30 | $7.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $1.07bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $588.3m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $548.2m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $478.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 54,922 characters.

*When we refer to “we,” “us,” “our,” or “the Company,” we mean CTO Realty Growth, Inc. and its consolidated subsidiaries. References to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of CTO Realty Growth, Inc. included in this Quarterly Report on Form 10-Q.*

### Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Also, when the Company uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, the Company is making forward-looking statements. Management believes the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions. However, the Company’s actual results could differ materially from those set forth in the forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise such forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements, include, but are not limited to, the following:

- we are subject to risks related to the ownership of commercial real estate that could affect the performance and value of our properties;
- our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could materially and adversely affect us;
- competition that traditional retail tenants face from e-commerce retail sales, or the integration of brick and mortar stores with e-commerce retail operators, could adversely affect our business;
- we operate in a highly competitive market for the acquisition of income properties and more established entities or other investors may be able to compete more effectively for acquisition opportunities than we can;
- we may be unable to successfully execute on asset acquisitions or dispositions;
- the loss of revenues from our income property portfolio or certain tenants would adversely impact our results of operations and cash flows;
- our revenues include receipt of management fees and potentially incentive fees derived from our provision of management services to Alpine Income Property Trust, Inc. (“PINE”) and the loss or failure, or decline in the business or assets, of PINE could substantially reduce our revenues;
- there are various potential conflicts of interest in our relationship with PINE, including our executive officers and/or directors who are also officers and/or directors of PINE, which could result in decisions that are not in the best interest of our stockholders;
- a prolonged downturn in economic conditions could adversely impact our business, particularly with regard to our ability to maintain revenues from our income-producing assets;
- a part of our investment strategy is focused on investing in commercial loans and investments which may involve credit risk;
- we may suffer losses when a borrower defaults on a loan and the value of the underlying collateral is less than the amount due;
- the Company’s real estate investments are generally illiquid;
- if we are not successful in utilizing the like-kind exchange structure in deploying the proceeds from dispositions of income properties, or our like-kind exchange transactions are disqualified, we could incur significant taxes and our results of operations and cash flows could be adversely impacted;
- the Company may be unable to obtain debt or equity capital on favorable terms, if at all, or additional borrowings may impact our liquidity or ability to monetize any assets securing such borrowings;
- servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service or pay our debt;
- our operations and properties could be adversely affected in the event of natural disasters, pandemics, or other significant disruptions;
- we may encounter environmental problems which require remediation or the incurrence of significant costs to resolve, which could adversely impact our financial condition, results of operations, and cash flows;
- failure to remain qualified as real estate investment trust (“REIT”) for U.S. federal income tax purposes would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distribution to stockholders;
- the risk that the REIT requirements could limit our financial flexibility;
- our limited experience operating as a REIT;
- our ability to pay dividends consistent with the REIT requirements, and expectations as to timing and amounts of such dividends;
- the ability of our board of directors (the “Board”) to revoke our REIT status without stockholder approval;
- our exposure to changes in U.S. federal and state income tax laws, including changes to the REIT requirements;
- general business and economic conditions, including unstable macroeconomic conditions due to, among other things, political unrest and economic uncertainty due to terrorism or war, inflation, rising interest rates and distress in the banking sector; and
- an epidemic or pandemic (such as the COVID-19 pandemic), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, may precipitate or materially exacerbate one or more of the above-mentioned and/or other risks and may significantly disrupt or prevent us from operating our business in the ordinary course for an extended period.

The Company describes the risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors” (Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Quarterly Report on Form 10-Q), and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Part I, Item 2 of this Quarterly Report on Form 10-Q).

### OVERVIEW

We are a publicly traded, self-managed equity REIT that focuses on the ownership, management, and repositioning of high-quality retail and mixed-use properties located primarily in what we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies, outsized relative job and population growth, and retail demand that exceeds supply. We have pursued our investment strategy by investing primarily through fee simple ownership of our properties, commercial loans and preferred equity.

We own and manage, sometimes utilizing third-party property management companies, 23 commercial real estate properties in 9 states in the United States. As of September 30, 2023, we owned 7 single-tenant and 16 multi-tenant income-producing properties comprising 4.1 million square feet of gross leasable space.

In addition to our income property portfolio, as of September 30, 2023, our business included the following:

#### Management Services:

- A fee-based management business that is engaged in managing PINE, see Note 5, “Related Party Management Services Business”.

#### Commercial Loans and Investments:

- A portfolio of three commercial loan investments and one preferred equity investment which is classified as a commercial loan investment.

#### Real Estate Operations:

- A portfolio of subsurface mineral interests associated with approximately 352,000 surface acres in 19 counties in the State of Florida (“Subsurface Interests”); and
- An inventory of mitigation credits produced by the Company’s formerly owned mitigation bank.

Our business also includes our investment in PINE. As of September 30, 2023, the fair value of our investment totaled $38.2 million, or 15.1% of PINE’s outstanding equity, including the units of limited partnership interest (“OP Units”) we hold in Alpine Income Property OP, LP (the “PINE Operating Partnership”), which are redeemable for cash, based upon the value of an equivalent number of shares of PINE common stock at the time of the redemption, or shares of PINE common stock on a one-for-one basis, at PINE’s election. Our investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends we receive from PINE, our investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which our investment will increase in value, or the timing thereof. Any dividends received from PINE are included in investment and other income (loss) on the accompanying consolidated statements of operations.

Our strategy for investing in income-producing properties is focused on factors including, but not limited to, long-term real estate fundamentals and target markets, including markets we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies, outsized relative job and population growth. We employ a methodology for evaluating targeted investments in income-producing properties which includes an evaluation of: (i) the attributes of the real estate (e.g. location, market demographics, comparable properties in the market, etc.); (ii) an evaluation of the existing tenant(s) (e.g. creditworthiness, property level sales, tenant rent levels compared to the market, etc.); (iii) other market-specific conditions (e.g. tenant industry, job and population growth in the market, local economy, etc.); and (iv) considerations relating to the Company’s business and strategy (e.g. strategic fit of the asset type, property management needs, ability to use a Section 1031 like-kind exchange structure, etc.).

We believe investment in income-producing assets provides attractive opportunities for generally stable cash flows and increased returns over the long run through potential capital appreciation. Our focus on acquiring income-producing investments includes a continual review of our existing income property portfolio to identify opportunities to recycle our capital through the sale of income properties based on, among other possible factors, the current or expected performance of the property and favorable market conditions. During the nine months ended September 30, 2023, the Company sold three income properties for an aggregate sales price of $22.9 million and aggregate gains on sales of $3.3 million. The sales consisted of (i) an outparcel of the multi-tenant property known as Eastern Commons, located in Henderson, Nevada, for $2.1 million, resulting in a gain of $0.8 million, (ii) an outparcel of the multi-tenant property known as Crossroads Towne Center, located in Chandler, Arizona, for $2.3 million, resulting in a gain of $1.2 million, and (iii) a single tenant office property located in Reston, Virginia leased to General Dynamics for $18.5 million, resulting in a gain of $1.3 million. As a result of entering into the Exclusivity and Right of First Offer Agreement with PINE (the “ROFO Agreement”) which generally prevents us from investing in single-tenant net lease income properties, our income property investment strategy is focused on multi-tenant, primarily retail-oriented, properties. We may pursue this strategy by monetizing certain of our single-tenant properties, and should we do so, we would seek to utilize the 1031 like-kind exchange structure to preserve the tax-deferred gain on the original transaction(s) that pertains to the replacement asset.

Our current portfolio of 16 multi-tenant properties generates $71.8 million of revenue from annualized straight-line base lease payments and had a weighted average remaining lease term of 4.3 years as of September 30, 2023. Our current portfolio of 7 single-tenant income properties generates $7.7 million of revenues from annualized straight-line base lease payments and had a weighted average remaining lease term of 5.3 years as of September 30, 2023.

### COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

### Revenue

Total revenue for the three months ended September 30, 2023 is presented in the following summary and indicates the changes as compared to the three months ended September 30, 2022 (in thousands):

| ​ ​ Operating Segment | ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ ​ $ Variance | ​ ​ ​ | ​ ​ % Variance |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Income Properties | ​ | $25,183 | ​ | $17,694 | ​ | $7,489 | ​ | 42.3% |
| Management Services | ​ | ​ 1,094 | ​ | ​ 951 | ​ | ​ 143 | ​ | 15.0% |
| Commercial Loans and Investments | ​ | ​ 1,114 | ​ | ​ 1,323 | ​ | ​ (209) | ​ | (15.8)% |
| Real Estate Operations | ​ | ​ 1,079 | ​ | ​ 3,149 | ​ | ​ (2,070) | ​ | (65.7)% |
| Total Revenue | ​ | $28,470 | ​ | $23,117 | ​ | $5,353 | ​ | 23.2% |

Total revenue for the three months ended September 30, 2023 increased to $28.5 million, compared to $23.1 million during the three months ended September 30, 2022. The $5.4 million increase in total revenue is primarily attributable to $7.5 million of increased income produced by the Company’s recent income property acquisitions versus that of properties disposed of by the Company during the comparative period, partially offset by a $2.1 million decrease in revenue from real estate operations.

### Income Properties

Revenue and operating income from our income property operations totaled $25.2 million and $18.1 million, respectively, during the three months ended September 30, 2023, compared to total revenue and operating income of $17.7 million and $12.6 million, respectively, for the three months ended September 30, 2022. The direct costs of revenues for our income property operations totaled $7.1 million and $5.1 million for the three months ended September 30, 2023 and 2022, respectively. The increase in revenues of $7.5 million, or 42.3%, during the three months ended September 30, 2023 is primarily related to the overall growth of the Company’s income property portfolio, as well as the timing of acquisitions versus dispositions. The increase in operating income of $5.5 million from our income property operations reflects increased rent revenues, offset by an increase of $2.0 million in our direct costs of revenues which is also related to the overall growth of the Company’s income property portfolio.

### Management Services

Revenue from our management services from PINE totaled $1.1 million and $1.0 million during the three months ended September 30, 2023 and 2022, respectively, due to the increase in PINE’s total equity.

### Commercial Loans and Investments

Interest income from our commercial loans and investments totaled $1.1 million and $1.3 million during the three months ended September 30, 2023 and 2022, respectively. The decrease is primarily due to decreased income as a result of the timing of investments made and principal repayments during the previous fiscal year ended December 31, 2022, and during the nine months ended September 30, 2023.

### Real Estate Operations

During the three months ended September 30, 2023 and 2022, operating income from real estate operations was $0.9 million and $1.5 million on revenues totaling $1.1 million and $3.1 million, respectively. During the three months ended September 30, 2022, there was $2.2 million more mitigation credit sales as compared to the same period in 2023, which led to $1.5 million more in the cost of sales on mitigation credit sales during the three months ended September 30, 2022, as compared to the same period in 2023.

### General and Administrative Expenses

Total general and administrative expenses for the three months ended September 30, 2023 is presented in the following summary and indicates the changes as compared to the three months ended September 30, 2022 (in thousands):

| ​ ​ General and Administrative Expenses | ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ ​ $ Variance | ​ ​ ​ | ​ ​ % Variance |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Recurring General and Administrative Expenses | ​ | $2,571 | ​ | $2,441 | ​ | $130 | ​ | 5.3% |
| Non-Cash Stock Compensation | ​ | ​ 868 | ​ | ​ 812 | ​ | ​ 56 | ​ | 6.9% |
| Total General and Administrative Expenses | ​ | $3,439 | ​ | $3,253 | ​ | $186 | ​ | 5.7% |

The primary reason for the increase in total general and administrative expenses is the overall higher employee count as a result of the increased operating activity from the significant increase in managed income property assets.

### Depreciation and Amortization

Depreciation and amortization totaled $11.7 million and $7.3 million during the three months ended September 30, 2023 and 2022, respectively. The increase of $4.4 million is due to the overall growth in the Company’s income property portfolio.

### Gain on Disposition of Assets and Provision for Impairment

*2023 Dispositions.* During the three months ended September 30, 2023, the Company sold two income properties, including (i) an outparcel of the multi-tenant property known as Crossroads Towne Center, located in Chandler, Arizona, for $2.3 million and (ii) a single tenant office property located in Reston, Virginia leased to General Dynamics for $18.5 million. The sale of these two properties reflect a total disposition volume of $20.9 million, resulting in aggregate gains of $2.5 million.

*2022 Dispositions.* During the three months ended September 30, 2022, the Company sold four income properties, including (i) the multi-tenant Westland Gateway Plaza located in Hialeah, Florida, which was recorded as a commercial loan investment prior to its disposition, for $22.2 million, (ii) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (iii) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (iv) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of these four properties reflect a total disposition volume of $57.0 million, resulting in aggregate gains of $5.0 million.

*Provision for Impairment.* During the three months ended September 30, 2023, the Company recorded a $0.9 million impairment charge on the sale of the Westcliff Property which represents the sales price, less the book value of the asset as of September 30, 2023, less costs to sell. There were no impairment charges on the Company’s income property portfolio or other assets during the three months ended September 30, 2022.

### Investment and Other Income (Loss)

During the three months ended September 30, 2023, the closing stock price of PINE increased by $0.11 per share, with a closing price of $16.36 on September 30, 2023. During the three months ended September 30, 2022, the closing stock price of PINE decreased by $1.70 per share, with a closing price of $16.22 on September 30, 2022. The change in stock price resulted in an unrealized non-cash gain and unrealized non-cash loss on the Company’s investment in PINE in the amount of $0.3 million and $(3.7) million which is included in investment and other income (loss) in the consolidated statements of operations for the three months ended September 30, 2023 and 2022, respectively.

The Company earned dividend income from the investment in PINE of $0.6 million during each of the three months ended September 30, 2023 and 2022, respectively.

### Interest Expense

Interest expense totaled $6.3 million and $3.0 million for the three months ended September 30, 2023 and 2022, respectively. The increase of $3.3 million resulted primarily from (i) the higher balance outstanding on the Company’s Credit Facility as well as the increase in the variable interest rate under the Credit Facility during the three months ended September 30, 2023, prior to fixing the rate on $100.0 million of outstanding principal effective January 31, 2023, and (ii) the increase in debt related to the $100.0 million 2028 Term Loan.

### Net Income Attributable to the Company

Net income attributable to the Company totaled $2.7 million and $4.8 million during the three months ended September 30, 2023 and 2022, respectively. The $2.1 million decrease in net income is attributable to the factors described above.

### COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

### Revenue

Total revenue for the nine months ended September 30, 2023 is presented in the following summary and indicates the changes as compared to the nine months September 30, 2022 (in thousands):

| ​ ​ Operating Segment | ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ ​ $ Variance | ​ ​ ​ | ​ ​ % Variance |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Income Properties | ​ | $70,373 | ​ | $49,229 | ​ | $21,144 | ​ | 43.0% |
| Management Services | ​ | ​ 3,294 | ​ | ​ 2,835 | ​ | ​ 459 | ​ | 16.2% |
| Commercial Loans and Investments | ​ | ​ 2,965 | ​ | ​ 3,331 | ​ | ​ (366) | ​ | (11.0)% |
| Real Estate Operations | ​ | ​ 2,602 | ​ | ​ 4,395 | ​ | ​ (1,793) | ​ | (40.8)% |
| Total Revenue | ​ | $79,234 | ​ | $59,790 | ​ | $19,444 | ​ | 32.5% |

Total revenue for the nine months ended September 30, 2023 increased to $79.2 million, compared to $59.8 million during the nine months ended September 30, 2022. The $19.4 million increase in total revenue is primarily attributable to increased income produced by the Company’s recent income property acquisitions versus that of properties disposed of by the Company during the comparative period, partially offset by a $1.8 million decrease in revenue from real estate operations.

### Income Properties

Revenue and operating income from our income property operations totaled $70.4 million and $49.5 million, respectively, during the nine months ended September 30, 2023, compared to total revenue and operating income of $49.2 million and $35.3 million, respectively, for the nine months ended September 30, 2022. The direct costs of revenues for our income property operations totaled $20.9. million and $13.9 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in revenues of $21.1 million, or 43.0%, during the nine months ended September 30, 2023 is primarily related to the overall growth of the Company’s income property portfolio, as well as the timing of acquisitions versus dispositions. The increase in operating income of $14.2 million from our income property operations reflects increased rent revenues, offset by an increase of $7.0 million in our direct costs of revenues which is also related to the overall growth of the Company’s income property portfolio.

### Management Services

Revenue from our management services from PINE totaled $3.3 million and $2.8 million during the nine months ended September 30, 2023 and 2022, respectively, due to the increase in PINE’s total equity.

### Commercial Loans and Investments

Interest income from our commercial loans and investments totaled $3.0 million and $3.3 million during the nine months ended September 30, 2023 and 2022, respectively. The decrease is primarily due to decreased income as a result of the timing of investments made and principal repayments during the previous fiscal year ended December 31, 2022, and during the nine months ended September 30, 2023.

### Real Estate Operations

During the nine months ended September 30, 2023 and 2022, operating income from real estate operations was $1.7 million and $2.5 million on revenues totaling $2.6 million and $4.4 million, respectively. During the nine months ended September 30, 2022, there was $1.5 million more mitigation credit sales as compared to the same period in 2023, which led to $1.0 million more in the cost of sales on mitigation credit sales during the nine months ended September 30, 2022, as compared to the same period in 2023. Additionally, Subsurface Interest sales and cash payments for the release of surface entry rights decreased by $0.3 million, in the aggregate, during the nine months ended September 30, 2023, as compared to the same period in 2022.

### General and Administrative Expenses

Total general and administrative expenses for the nine months ended September 30, 2023 is presented in the following summary and indicates the changes as compared to the nine months ended September 30, 2022 (in thousands):

| ​ ​ General and Administrative Expenses | ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ ​ $ Variance | ​ ​ ​ | ​ ​ % Variance |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Recurring General and Administrative Expenses | ​ | $7,691 | ​ | $6,549 | ​ | $1,142 | ​ | 17.4% |
| Non-Cash Stock Compensation | ​ | ​ 2,802 | ​ | ​ 2,423 | ​ | ​ 379 | ​ | 15.6% |
| Total General and Administrative Expenses | ​ | $10,493 | ​ | $8,972 | ​ | $1,521 | ​ | 17.0% |

The primary reason for the increase in total general and administrative expenses is the overall higher employee count as a result of the increased operating activity from the significant increase in managed income property assets.

### Depreciation and Amortization

Depreciation and amortization totaled $32.8 million and $20.4 million during the nine months ended September 30, 2023 and 2022, respectively. The increase of $12.4 million is due to the overall growth in the Company’s income property portfolio.

### Gain on Disposition of Assets and Provision for Impairment

*2023 Dispositions.* During the nine months ended September 30, 2023, the Company sold three income properties, including (i) an outparcel of the multi-tenant property known as Eastern Commons, located in Henderson, Nevada, for $2.1 million, (ii) an outparcel of the multi-tenant property known as Crossroads Towne Center, located in Chandler, Arizona, for $2.3 million, and (iii) a single tenant office property located in Reston, Virginia leased to General Dynamics for $18.5 million. The sale of these three properties reflect a total disposition volume of $22.9 million, resulting in aggregate gains of $3.3 million.

*2022 Dispositions.* During the nine months ended September 30, 2022, the Company sold six income properties, including (i) Party City, a single-tenant income property located in Oceanside, New York for $6.9 million, (ii) the Carpenter Hotel ground lease, a single-tenant income property located in Austin, Texas, which was recorded as a commercial loan investment prior to its disposition, for $17.1 million, (iii) the multi-tenant Westland Gateway Plaza located in Hialeah, Florida, which was recorded as a commercial loan investment prior to its disposition, for $22.2 million, (iv) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (v) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (vi) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of these six properties reflect a total disposition volume of $81.1 million, resulting in aggregate gains of $4.7 million.

*Provision for Impairment.* In the aggregate, $1.4 million of impairment charges were recorded during the nine months ended September 30, 2023, with no such charges during the nine months ended September 30, 2022, as described below.

During the nine months ended September 30, 2023, the Company recorded a $0.9 million impairment charge on the sale of the Westcliff Property which represents the sales price, less the book value of the asset as of September 30, 2023, less costs to sell.

The Company recorded a $0.5 million impairment charge representing the provision for credit losses related to our commercial loans and investments, during the nine months ended September 30, 2023.

### Investment and Other Income (Loss)

During the nine months ended September 30, 2023, the closing stock price of PINE decreased by $2.72 per share, with a closing price of $16.36 on September 30, 2023. During the nine months ended September 30, 2022, the closing stock price of PINE decreased by $3.82 per share, with a closing price of $16.22 on September 30, 2022. The change in stock price resulted in unrealized, non-cash losses on the Company’s investment in PINE of $(6.0) million and $(8.1) million which is included in investment and other income (loss) in the consolidated statements of operations for the nine months ended September 30, 2023 and 2022, respectively.

The Company earned dividend income from the investment in PINE of $1.9 million and $1.7 million during the nine months ended September 30, 2023 and 2022, respectively.

The Company derecognized a contingent obligation through a $2.3 million increase in investment and other income (loss) during the nine months ended September 30, 2023, pursuant to a lease amendment whereby the Company’s obligation to fund certain tenant improvements was eliminated. The liability was previously included in Accrued and Other Liabilities on the Company’s consolidated balance sheets.

### Interest Expense

Interest expense totaled $16.1 million and $7.2 million for the nine months ended September 30, 2023 and 2022, respectively. The increase of $8.9 million resulted primarily from (i) the higher balance outstanding on the Company’s Credit Facility as well as the increase in the variable interest rate under the Credit Facility during the nine months ended September 30, 2023 prior to fixing the rate on $100.0 million of outstanding principal effective January 31, 2023, (ii) the increase in debt related to the $17.8 million mortgage loan assumed in connection with the acquisition of Price Plaza, and (iii) the increase in debt related to the $100.0 million 2028 Term Loan.

### Net Income (Loss) Attributable to the Company

Net loss attributable to the Company totaled $1.5 million during the nine months ended September 30, 2023, as compared to $6.2 million of net income during the nine months ended September 30, 2022. The $7.7 million decrease in net income is attributable to the factors described above, and most notably the increases in non-cash depreciation and amortization, non-cash unrealized loss on the investment in PINE, and interest expense, which are partially offset by increases in the operating income generated by the income property portfolio operations as well as the $2.3 million extinguishment of a contingent obligation.

### LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $7.0 million at September 30, 2023, while restricted cash totaled $22.6 million, see Note 2, “Summary of Significant Accounting Policies” under the heading Restricted Cash for the Company’s disclosure related to its restricted cash balance at September 30, 2023.

Our cash flows provided by operating activities totaled $40.0 million during the nine months ended September 30, 2023, as compared to $34.1 million during the nine months ended September 30, 2022, an increase of $5.9 million. The primary reason for the increase is from increased cash flows provided by income properties, which is the result of the overall growth of the Company’s income property portfolio, which is partially offset by an increase in cash paid for interest expense as the result of higher overall debt balances and rising variable interest rates on the un-hedged portion of debt.

Our cash flows used in investing activities totaled $98.3 million during the nine months ended September 30, 2023, as compared to $80.4 million during the nine months ended September 30, 2022, an increase in cash outflows of $17.9 million. The increase in cash used in investing activities is primarily the result of an increase in acquisition activity of income properties and commercial loan investments, net of principal repayments received on commercial loan investments and sales of income properties, for an increase in net cash used of $17.3 million during the nine months ended September 30, 2023 as compared to the same period in 2022.

Our cash flows provided by financing activities totaled $66.8 million for the nine months ended September 30, 2023, compared to $61.8 million for the nine months ended September 30, 2022, an increase in cash inflows of $5.0 million. The increase is primarily related to a $30.8 million increase in cash inflows provided by net debt activity offset by (i) an increase in cash outflows of $2.4 million related to repurchases of the Company’s common and preferred stock, (ii) a decrease in cash inflows of $20.7 million due to proceeds from the sale of shares of Company common stock during the nine months ended September 30, 2022 with no such activity during the nine months ended September 30, 2023, and (iii) an increase in cash outflows of $5.5 million related to the dividend paid on common stock as a result of the increased common stock outstanding as well as the increased dividend per share.

*Long-Term Debt.* At September 30, 2023, the current commitment level under the Credit Facility was $300.0 million. The undrawn commitment under the Credit Facility totaled $84.0 million. As of September 30, 2023, the Credit Facility had a $216.0 million balance outstanding. See Note 15, “Long-Term Debt” for the Company’s disclosure related to its long-term debt balance at September 30, 2023.

*Acquisitions and Investments.* During the nine months ended September 30, 2023, the Company acquired a vacant land parcel adjacent to the previously acquired Collection at Forsyth property, located in the Forsyth County submarket of Atlanta, Georgia, for a purchase price of $4.3 million. During the nine months ended September 30, 2023, the Company acquired the Plaza at Rockwall, a multi-tenant income property located in Rockwall, Texas for a purchase price of $61.2 million, or a total acquisition cost of $61.3 million including capitalized acquisition costs. The Plaza at Rockwall comprises 446,500 square feet, was 95% occupied at acquisition, and had a weighted average remaining lease term of 4.2 years at acquisition. Also, during the nine months ended September 30, 2023, the Company acquired four properties, totaling 24,100 square feet, within the 28,100 square foot retail portion of Phase II of The Exchange at Gwinnett located in Buford, Georgia (the “Gwinnett Property”), for an aggregate purchase price of $14.6 million, or a total acquisition cost of $14.7 million including capitalized acquisition costs. The four properties are leased to six different tenants with a weighted average remaining lease term of 9.9 years at acquisition. The Company is under contract to acquire the remaining 4,000 square-foot property that makes up the remaining retail portion of Phase II of The Exchange at Gwinnett for a purchase price of $2.3 million. The Company previously purchased the Sprouts-anchored Phase I portion of The Exchange at Gwinnett in December 2021. The Company also originated one structured investment, to provide $15.0 million of funding towards the acquisition of Founders Square in Dallas, Texas.

The Company’s guidance for 2023 investments in income-producing properties, including structured investments, ranges from $95.0 million to $100.0 million. We expect to fund future acquisitions utilizing cash on hand, cash from operations, proceeds from the dispositions of income properties through 1031 like-kind exchanges, and potentially the sale of all or a portion of our Subsurface Interests, and borrowings on our Credit Facility, if available. We expect dispositions of income properties and Subsurface Interests will qualify under the like-kind exchange deferred-tax structure, and additional financing sources.

*Dispositions.* During the nine months ended September 30, 2023, the Company sold three income properties for an aggregate sales price of $22.9 million and aggregate gains on sales of $3.3 million. The sales consisted of (i) an outparcel of the multi-tenant property known as Eastern Commons, located in Henderson, Nevada, for $2.1 million, resulting in a gain of $0.8 million, (ii) an outparcel of the multi-tenant property known as Crossroads Towne Center, located in Chandler, Arizona, for $2.3 million, resulting in a gain of $1.2 million, and (iii) a single tenant office property located in Reston, Virginia leased to General Dynamics for $18.5 million, resulting in a gain of $1.3 million.

*ATM Program.* The Company was not active under the 2022 ATM Program during the nine months ended September 30, 2023.

*Contractual Commitments – Expenditures.* The Company has committed to fund the following capital improvements. The improvements, which are related to several properties, are estimated to be generally completed within twelve months. These commitments, as of September 30, 2023, are as follows (in thousands):

| ​ ​ | ​ ​ | ​ ​ As of September 30, 2023 |
| --- | --- | ---: |
| Total Commitment (1) | ​ | $13,150 |
| Less Amount Funded | ​ | ​ (2,215) |
| Remaining Commitment | ​ | $10,935 |

(1) Commitment includes tenant improvements, leasing commissions, rebranding, facility expansion and other capital improvements.

*Off-Balance Sheet Arrangements*. None.

*Other Matters.* We believe we will have sufficient liquidity to fund our operations, capital requirements, maintenance, and debt service requirements over the next twelve months and into the foreseeable future, with cash on hand, cash flow from our operations, $137.7 million of availability remaining under the ATM Program, and $84.0 million undrawn commitment under the existing $300.0 million Credit Facility as of September 30, 2023.

Our Board and management consistently review the allocation of capital with the goal of providing the best long-term return for our stockholders. These reviews consider various alternatives, including increasing or decreasing regular dividends, repurchasing the Company’s securities, and retaining funds for reinvestment. Annually, the Board reviews our business plan and corporate strategies, and makes adjustments as circumstances warrant. Management’s focus is to continue our strategy to diversify our portfolio by redeploying proceeds from like-kind exchange transactions and utilizing our Credit Facility to increase our portfolio of income-producing properties, providing stabilized cash flows with strong risk-adjusted returns primarily in larger metropolitan areas and growth markets.

We believe that we currently have a reasonable level of leverage. Our strategy is to utilize leverage, when appropriate and necessary, and proceeds from sales of income properties, the disposition or payoffs on our commercial loan and master lease investments, and certain transactions in our Subsurface Interests, to acquire income properties. We may also acquire or originate commercial loan and master lease investments, invest in securities of real estate companies, or make other shorter-term investments. Our targeted investment classes may include the following:

- Multi-tenant, primarily retail-oriented, properties in major metropolitan areas and growth markets, typically stabilized;
- Single-tenant retail or other commercial, double or triple net leased, properties in major metropolitan areas and growth markets that are compliant with our commitments under the PINE ROFO Agreement;
- Ground leases, whether purchased or originated by the Company, that are compliant with our commitments under the ROFO Agreement;
- Self-developed retail or other commercial properties;
- Commercial loan and master lease investments, whether purchased or originated by the Company, with loan terms of 1-10 years with strong risk-adjusted yields secured by property types to include hotel, retail, residential, land and industrial;
- Select regional area investments using Company market knowledge and expertise to earn strong risk-adjusted yields; and
- Real estate-related investment securities, including commercial mortgage-backed securities, preferred or common stock, and corporate bonds.

Our investments in income-producing properties are typically subject to long-term leases. For multi-tenant properties, each tenant typically pays its proportionate share of the aforementioned operating expenses of the property, although for such properties we typically incur additional costs for property management services. Single-tenant leases are typically in the form of triple or double net leases and ground leases. Triple-net leases generally require the tenant to pay property operating expenses such as real estate taxes, insurance, assessments and other governmental fees, utilities, repairs and maintenance, and capital expenditures.

### Non-U.S. GAAP Financial Measures

Our reported results are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We also disclose Funds From Operations (“FFO”), Core Funds From Operations (“Core FFO”), and Adjusted Funds From Operations (“AFFO”), each of which are non-U.S. GAAP financial measures. We believe these non-U.S. GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.

FFO, Core FFO, and AFFO do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operating activities as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, U.S. GAAP financial measures.

We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as U.S. GAAP net income or loss adjusted to exclude extraordinary items (as defined by U.S. GAAP), net gain or loss from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets and real estate related depreciation and amortization, including the pro rata share of such adjustments of unconsolidated subsidiaries. The Company also excludes the gains or losses from sales of assets incidental to the primary business of the REIT which specifically include the sales of mitigation credits, impact fee credits, subsurface sales, and land sales, in addition to the mark-to-market of the Company’s investment securities and interest related to the 2025 Notes, if the effect is dilutive. To derive Core FFO, we modify the NAREIT computation of FFO to include other adjustments to U.S. GAAP net income related to gains and losses recognized on the extinguishment of debt, amortization of above- and below-market lease related intangibles, and other unforecastable market- or transaction-driven non-cash items. To derive AFFO, we further modify the NAREIT computation of FFO and Core FFO to include other adjustments to U.S. GAAP net income related to non-cash revenues and expenses such as straight-line rental revenue, non-cash compensation, and other non-cash amortization, as well as adding back the interest related to the 2025 Notes, if the effect is dilutive. Such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. We use AFFO as one measure of our performance when we formulate corporate goals.

FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains or losses on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that Core FFO and AFFO are additional useful supplemental measures for investors to consider because they will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other companies.

### Reconciliation of Non-U.S. GAAP Measures (in thousands, except share and dividend data):

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Net Income (Loss) Attributable to the Company | ​ | $2,686 | ​ | $4,817 | ​ | $(1,507) | ​ | $6,237 |
| Add Back: Effect of Dilutive Interest Related to 2025 Notes (1) | ​ | ​ — | ​ | ​ 539 | ​ | ​ — | ​ | ​ — |
| Net Income (Loss) Attributable to the Company, If-Converted | ​ | $2,686 | ​ | $5,356 | ​ | $(1,507) | ​ | $6,237 |
| Depreciation and Amortization of Real Estate | ​ | ​ 11,651 | ​ | ​ 7,283 | ​ | ​ 32,769 | ​ | ​ 20,359 |
| Loss (Gain) on Disposition of Assets, Net of Tax | ​ | ​ (2,741) | ​ | ​ (4,973) | ​ | ​ (3,565) | ​ | ​ (4,728) |
| Gain on Disposition of Other Assets | ​ | ​ (926) | ​ | ​ (1,509) | ​ | ​ (1,739) | ​ | ​ (2,473) |
| Provision for Impairment | ​ | ​ 929 | ​ | ​ — | ​ | ​ 1,408 | ​ | ​ — |
| Unrealized Loss (Gain) on Investment Securities | ​ | ​ (429) | ​ | ​ 3,754 | ​ | ​ 5,663 | ​ | ​ 8,102 |
| Extinguishment of Contingent Liability | ​ | ​ — | ​ | ​ — | ​ | ​ (2,300) | ​ | ​ — |
| Funds from Operations | ​ | $11,170 | ​ | $9,911 | ​ | $30,729 | ​ | $27,497 |
| Distributions to Preferred Stockholders | ​ | ​ (1,195) | ​ | ​ (1,195) | ​ | ​ (3,585) | ​ | ​ (3,586) |
| Funds From Operations Attributable to Common Stockholders | ​ | $9,975 | ​ | $8,716 | ​ | $27,144 | ​ | $23,911 |
| Amortization of Intangibles to Lease Income | ​ | ​ 487 | ​ | ​ 507 | ​ | ​ 1,793 | ​ | ​ 1,485 |
| Less: Effect of Dilutive Interest Related to 2025 Notes (1) | ​ | ​ — | ​ | ​ (539) | ​ | ​ — | ​ | ​ — |
| Core Funds From Operations Attributable to Common Stockholders | ​ | $10,462 | ​ | $8,684 | ​ | $28,937 | ​ | $25,396 |
| Adjustments: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Straight-Line Rent Adjustment | ​ | ​ (790) | ​ | ​ (600) | ​ | ​ (919) | ​ | ​ (1,645) |
| COVID-19 Rent Repayments | ​ | ​ 3 | ​ | ​ 26 | ​ | ​ 46 | ​ | ​ 79 |
| Other Depreciation and Amortization | ​ | ​ 24 | ​ | ​ (29) | ​ | ​ (92) | ​ | ​ (199) |
| Amortization of Loan Costs, Discount on Convertible Debt, and Capitalized Interest | ​ | ​ 199 | ​ | ​ 64 | ​ | ​ 636 | ​ | ​ 510 |
| Non-Cash Compensation | ​ | ​ 868 | ​ | ​ 812 | ​ | ​ 2,802 | ​ | ​ 2,423 |
| Adjusted Funds From Operations Attributable to Common Stockholders | ​ | $10,766 | ​ | $8,957 | ​ | $31,410 | ​ | $26,564 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Weighted Average Number of Common Shares: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Basic | ​ | ​ 22,484,561 | ​ | ​ 18,386,435 | ​ | ​ 22,556,642 | ​ | ​ 18,044,299 |
| Diluted (2) | ​ | ​ 22,484,561 | ​ | ​ 21,505,460 | ​ | ​ 22,556,642 | ​ | ​ 18,044,299 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Dividends Declared and Paid - Preferred Stock | ​ | $0.40 | ​ | $0.40 | ​ | $1.20 | ​ | $1.20 |
| Dividends Declared and Paid - Common Stock | ​ | $0.38 | ​ | $0.38 | ​ | $1.14 | ​ | $1.11 |

(1) As applicable, includes interest expense, amortization of discount, amortization of fees, and other changes in net income or loss that would result from the assumed conversion of the 2025 Convertible Senior Notes to derive FFO (as defined herein) effective January 1, 2022 due to the implementation of ASU 2020-06 which requires presentation on an if-converted basis. For the three and nine months ended September 30, 2023, a total of $0.5 million and $1.6 million of interest was not included, respectively, as the impact of the 2025 Notes, if-converted, would have been antidilutive to net income (loss) attributable to common stockholders for the respective periods. For the three months ended September 30 2022, a total of $0.5 million was included as the impact to earnings per share, if-converted, would have been dilutive to net income attributable to common stockholders for the period. For the nine months ended September 30, 2022, the impact of $1.6 million was not included as the impact to earnings per share, if-converted, would have been antidilutive to net income attributable to common stockholders for the period.

(2) A total of 3.4 million and 3.3 million shares, representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were not included in the computation of diluted net income (loss) attributable to common stockholders for each of the three and nine month periods ended September 30, 2023, respectively, because they were antidilutive to net income (loss) attributable to common stockholders for the respective periods. A total of 3.1 million shares, representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were included in the computation of diluted net income per share attributable to common stockholders for the three months ended September 30, 2022, because they were dilutive to net income attributable to common stockholders for the period. A total of 3.1 million shares, representing the dilutive impact of the 2025 Notes, were not included in the computation of diluted net income per share attributable to common stockholders for the nine months ended September 30, 2022, because they were antidilutive to net income attributable to common stockholders for the period.

### Other Data (in thousands, except per share data):

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| FFO Attributable to Common Stockholders | ​ | $9,975 | ​ | $8,716 | ​ | $27,144 | ​ | $23,911 |
| FFO Attributable to Common Stockholders per Common Share - Diluted | ​ | $0.44 | ​ | $0.41 | ​ | $1.20 | ​ | $1.33 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Core FFO Attributable to Common Stockholders | ​ | $10,462 | ​ | $8,684 | ​ | $28,937 | ​ | $25,396 |
| Core FFO Attributable to Common Stockholders per Common Share - Diluted (1) | ​ | $0.47 | ​ | $0.47 | ​ | $1.28 | ​ | $1.41 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| AFFO Attributable to Common Stockholders | ​ | $10,766 | ​ | $8,957 | ​ | $31,410 | ​ | $26,564 |
| AFFO Attributable to Common Stockholders per Common Share - Diluted (1) | ​ | $0.48 | ​ | $0.49 | ​ | $1.39 | ​ | $1.47 |

(1) A total of 3.3 million shares, representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were not included in the computation of diluted net income (loss) attributable to common stockholders for each of the three and nine month periods ended September 30, 2023, because they were antidilutive to net income (loss) attributable to common stockholders for the respective periods. A total of 3.1 million shares representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were included in the computation of diluted net income per share attributable to common stockholders for the three months ended September 30, 2022, because they were dilutive to net income attributable to common stockholders for the period. A total of 3.1 million shares representing the dilutive impact of the 2025 Notes, were not included in the computation of diluted net income per share attributable to common stockholders for the nine months ended September 30, 2022 because they were antidilutive to net income attributable to common stockholders for the period.

### CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates include those estimates made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company’s financial condition or results of operations. Our most significant estimate is as follows:

*Purchase Accounting for Acquisitions of Real Estate Subject to a Lease.* As required by U.S. GAAP, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value. The assumptions underlying the allocation of relative fair values are based on market information including, but not limited to: (i) the estimate of replacement cost of improvements under the cost approach, (ii) the estimate of land values based on comparable sales under the sales comparison approach, and (iii) the estimate of future benefits determined by either a reasonable rate of return over a single year’s net cash flow, or a forecast of net cash flows projected over a reasonable investment horizon under the income capitalization approach. The underlying assumptions are subject to uncertainty and thus any changes to the allocation of fair value to each of the various line items within the Company’s consolidated balance sheets could have an impact on the Company’s financial condition as well as results of operations due to resulting changes in depreciation and amortization as a result of the fair value allocation. The acquisitions of real estate subject to this estimate totaled four buildings within an existing multi-tenant income property, one multi-tenant property, and one vacant land parcel adjacent to an existing multi-tenant property for an aggregate purchase price of $80.0 million for the nine months ended September 30, 2023, and two multi-tenant income properties for a purchase price of $119.3 million for the nine months ended September 30, 2022.

See Note 2, “Summary of Significant Accounting Policies”, for further discussion of the Company’s accounting estimates and policies.

## Market risk

As filed, 2,069 characters.

The principal market risk (i.e. the risk of loss arising from adverse changes in market rates and prices), to which we are exposed is interest rate risk relating to our debt. We may utilize overnight sweep accounts and short-term investments as a means to minimize the interest rate risk. We do not believe that interest rate risk related to cash equivalents and short-term investments, if any, is material due to the nature of the investments.

We are primarily exposed to interest rate risk relating to our own debt in connection with our Credit Facility, as this facility carries a variable rate of interest. Our borrowings on the un-hedged portion of our $300.0 million revolving Credit Facility bear a variable rate of interest based on SOFR plus a rate of between 125 basis points and 220 basis points plus a 0.10% SOFR adjustment based on our level of borrowing as a percentage of our total asset value. Effective January 31, 2023, the interest rate on $100.0 million of the Credit Facility balance was fixed by virtue of three interest rate swaps. As of September 30, 2023 and 2022, the outstanding balance on our Credit Facility totaled $216.0 million and $38.5 million, of which $116.0 million and $38.5 million, respectively, were not fixed by virtue of an interest rate swap agreement. A hypothetical change in the interest rate of 100 basis points (i.e., 1%) would affect our financial position, results of operations, and cash flows by $1.2 million and $0.4 million as of September 30, 2023 and 2022, respectively. The Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from fluctuating interest rates related to certain of its debt borrowings, see Note 16, “Interest Rate Swaps.” By virtue of fixing the variable rate on certain debt borrowings, our exposure to changes in interest rates is minimal but for the impact on other comprehensive income and loss. Management’s objective is to limit the impact of interest rate changes on earnings and cash flows and to manage our overall borrowing costs.

## Controls and procedures

As filed, 1,501 characters.

As of the end of the period covered by this report, an evaluation, as required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based on that evaluation, the CEO and CFO have concluded that the design and operation of the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 662 characters.

For a discussion of the Company’s potential risks and uncertainties, see the information under the heading Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The risks described in the Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company. As of September 30, 2023, there have been no material changes in our risk factors from those set forth within the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Oct 26, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-016868. Last ingested by Listed: Oct 27, 2026, 19:10 ET. No prices; not investment advice.