American Strategic Investment Co.: Form 10-Q for the period ended Mar 31, 2025

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securites Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements regarding the intent, belief or current expectations of American Strategic Investment Co. (including, as required by context, New York City Operating Partnership, L.P. (the “OP”) and its subsidiaries, “we,” “our” or “us”) 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,” “projects,” “potential,” “predicts,” “intends,” “would,” “could,” “should” or similar expressions are intended to identify forward looking statements, although not all forward-looking statements contain these identifying words. Actual results may differ materially from those contemplated by such forward-looking statements. We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. 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. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA.

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. These risks and uncertainties include anticipated benefits of our election to terminate our status as a real estate investment trust; whether we will be able to successfully acquire new assets or businesses; our ability to execute on our business plan and sell certain of our properties on commercially practicable terms, if at all; the risks associated with the geopolitical instability due to the ongoing military conflicts between Russia and Ukraine and Israel and Hamas, including related sanctions and other penalties imposed by the U.S. and European Union, and the related impact on us, our tenants and the global economy and financial markets; the potential adverse effects on inflationary conditions and higher interest rate environment; economic uncertainties about the ultimate impact of tariffs imposed by, or imposed on, the United States and its trading relationships; the risk that any potential future acquisition or disposition by us is subject to market conditions and capital availability and may not be identified or completed on favorable terms, or at all; and the risk that we may not meet the listing requirements of the New York Stock Exchange. 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 in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (“SEC”) on March 19, 2025 (“the 2024 Annual Report”), this and our other Quarterly Reports on Form 10-Q and our other filings with the.

Overview

We are an externally managed company that owns a portfolio of commercial real estate located within the five boroughs of New York City, primarily Manhattan. Our real estate assets consist of office properties and certain real estate assets that accompany office properties, including retail spaces and amenities and parking garages that do not accompany office spaces. As of March 31, 2025, we owned six properties consisting of 1.0 million rentable square feet, acquired for an aggregate purchase price of $621.2 million with an overall occupancy of 82.0%.

Substantially all of our business is conducted through the OP and its wholly owned subsidiaries. New York City Advisors, LLC (our “Advisor”) manages our day-to-day business with the assistance of New York City Properties, LLC (our “Property Manager”). Our Advisor and Property Manager are under common control with AR 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.

Management Update on the Continuing Adverse Economic Impacts Since the COVID-19 Pandemic

New York City, where all of our properties are located, was among the hardest hit locations in the country and fully reopened from relevant restrictions and lockdowns on March 7, 2022. The pace of recovery in the New York City office market from the COVID-19 pandemic continues to be challenged as leasing and occupancy trends for the broader market have slowed, leading political, community, and business leaders to propose repositioning plans for many New York City office assets that are experiencing high vacancy rates.

The adverse economic impacts since the onset of the COVID-19 pandemic have caused us to experience challenges in leasing up available space and maintaining occupancy in our properties. These challenges with leasing activity have negatively impacted, and continue to impact, our results of operations, cash flows, and ability to comply with certain mortgage debt covenants. For additional information on our leasing activity for the three months ended March 31, 2025 and 2024, please see Results of Operations — Leasing Activity below.

As of March 31, 2025 two of our mortgages aggregating $149.0 million are in default and three of our mortgages aggregating $159.0 million in principal amount remained in a cash trap events, as described in detail further below in the Liquidity and Capital Resources section.

Our portfolio is primarily comprised of office and retail tenants. We have collected 99% of cash rent due across our entire portfolio for the three months ended March 31, 2025 (based on annualized straight-line rent as of March 31, 2025). We expect our cash rent collections will stay at that level, however there can be no assurance that we will be able to collect cash rent due in the future.

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 2024 Annual Report. 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

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.

Properties

The following table presents certain information about the investment properties we owned as of March 31, 2025:

(1) Calculated on a weighted-average basis as of March 31, 2025, as applicable.

(2) During the quarter ended September 30, 2024, we had a tenant vacate its current space, however, per their agreement with us, the tenant is required to pay rent for the remainder of the term of their existing lease, which is set to expire in the third quarter of 2025.

Results of Operations

Leasing Activity for the Three Months Ended March 31, 2025

The following table is a summary of our quarterly leasing activity during the three months ended March 31, 2025:

(1) 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) The weighted-average remaining lease term (years) is based on annualized straight-line rent.

Leasing Activity for the Three Months Ended March 31, 2024

The following table is a summary of our quarterly leasing activity during the three months ended March 31, 2024:

(1) 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) The weighted-average remaining lease term (years) is based on annualized straight-line rent.

Our total overall portfolio occupancy decreased as of March 31, 2025 to 82.0% from a total portfolio occupancy of 87.2% as of March 31, 2024 from the following:

• Occupancy at 1140 Avenue of the Americas remained consistent at 74.1% for the period ended March 31, 2025 as compared to 77.1% for period ended March 31, 2024.
• Occupancy at 400 E. 67th Street was at 44.3% for the period ended March 31, 2025 as compared to 100% for the period ended March 31, 2024. During the quarter ended September 30, 2024, a tenant located at our 400 E. 67th Street vacated its current space, however, per their agreement with us, the tenant is required to pay rent for the remainder of term of their existing lease which is set to expire in the third quarter of 2025.
• Occupancy at our property located at 200 Riverside remained the same at 100% for the period ended March 31, 2025 and 2024.
• Occupancy at our property located at 196 Orchard Street remained the same at 100% for the period ended March 31, 2025 and 2024.
• Occupancy at 8713 Fifth Avenue increased as of March 31, 2025 to 100.0% compared to 88.6% as of March 31, 2024. The increase in occupancy was due to an expansion of an existing lease.
• Occupancy at 123 William Street decreased to 84.4% as of March 31, 2025 compared to 92.5% as of March 31, 2024. The decrease in occupancy was due to a lease amendment and a tenant occupying less space and an early termination with a tenant during the quarter ended September 30, 2024.

We continue to focus on increasing occupancy of the portfolio by seeking new and replacement tenants for leases that expired or otherwise have been terminated. We believe that certain market tenant incentives we have used and expect to continue to use, including free rent periods and tenant improvements, will support our occupancy rate and extend the average duration of our leases upon commencement of executed leases. These incentives have delayed, and may delay or reduce cash flow in the future for some period. Our ability to generate net cash from our property operations depends, in part on the amount of additional cash we can generate through new or renewal leases, which is not assured, and on our ability to access any excess cash we are able to generate from properties that are encumbered by mortgages where a cash trap event has occurred (see below for more details), which also is not assured.

Comparison of Three Months Ended March 31, 2025 and 2024

As of March 31, 2025, we owned six properties, all of which were acquired prior to January 1, 2024. Our results of operations for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 primarily reflect changes due to leasing activity and occupancy.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders was $8.6 million for the quarter ended March 31, 2025, as compared to $7.6 million for the quarter ended March 31, 2024. The change in net loss income attributable to common stockholders is discussed in detail for each line item of the consolidated statements of operations in the sections that follow.

(in thousands)

31

Revenue from Tenants

Revenue from tenants decreased to $12.3 million for the three months ended March 31, 2025 as compared to $15.5 million for the three months ended March 31, 2024 primarily due to the sale of 9 Times Square during the three months ended December 31, 2024, resulting in a $3.2 million decrease in revenue from tenants.

Asset and Property Management Fees to Related Parties

We incurred $1.9 million and $1.9 million in fees for asset and property management services paid to our Advisor and Property Manager for the three months ended March 31, 2025 and 2024, respectively. See Note 9 — Related Party Transactions and Arrangements to our consolidated financial statements in this Quarterly Report on Form 10-Q for more information on fees incurred from our Advisor and Property Manager.

Property Operating Expenses

Property operating expenses decreased to $8.1 million for the three months ended March 31, 2025 as compared to $8.4 million for the three months ended March 31, 2024. The decrease in expenses is primarily related to the sale of 9 Times Square during the three months ended December 31, 2024.

Equity-Based Compensation

Equity-based compensation remained consistent at $0.1 million for the three months ended March 31, 2025 as compared to $0.1 million for the three months ended March 31, 2024. These amounts are comprised of restricted share amortization expense.

General and Administrative Expenses

General and administrative expenses increased to $3.1 million for the three months ended March 31, 2025 from $2.8 million for three months ended March 31, 2024. The increase in general and administrative expenses was primarily attributable to higher legal and external audit fees of approximately $0.5 million.

Total reimbursement expenses for administrative and personnel services provided by the Advisor, were $1.6 million during the three months ended March 31, 2025 and $1.2 million, during the three months ended March 31, 2024.

Pursuant to our Advisory Agreement, reimbursement for administrative and overhead expenses and reimbursements for salaries, wages, and benefits are subject to annual limits of $3.0 million ($2.6 million before the three months ended March 31, 2024) related to salaries, wages, and benefits and $0.4 million related to administrative and overhead expenses. See Note 9 — Related Party Transactions and Arrangements to our consolidated financial statements included in this Quarterly Report on Form 10-Q for further details.

Depreciation and Amortization

Depreciation and amortization expense decreased to $3.6 million for the three months ended March 31, 2025 as compared to $5.3 million for the three months ended March 31, 2024. The decrease was primarily due to a lower depreciable asset base between periods primarily relating to the sale of our 9 Times Square property in the fourth quarter of 2024. For more information, please see our 2024 Annual Report.

Interest Expense

Interest expense decreased to $4.1 million for the three months ended March 31, 2025, as compared to $4.7 million for the three months ended March 31, 2024. The decrease in interest expense can primarily be attributed to the sale of 9 Times Square during the three months ended December 31, 2024.

Cash Flows from Operating Activities

The following table represents a reconciliation of our net cash provided by (used in) operations from our net loss for the three months ended March 31, 2025 and 2024:

The level of cash flows used in or provided by operating activities is affected by the volume of the 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.

Cash Flows from Investing Activities

The following table represents a reconciliation of our net cash provided by (used in) investing activities for the three months ended March 31, 2025 and 2024:

Cash Flows from Financing Activities

There was no cash provided by or used in financing activities for the three months ended March 31, 2025 and 2024.

Liquidity and Capital Resources

Our principal demands for cash are to fund operating and administrative expenses, capital expenditures, tenant improvement and leasing commission costs related to our properties, our debt service obligations and, subject to capital availability, acquisitions. We did not make any new acquisitions or investments in the quarter ended March 31, 2025.

Cash, Cash Equivalents and Restricted Cash

As of March 31, 2025 we had cash and cash equivalents of $7.1 million as compared to $9.8 million for the year ended December 31, 2024. Under the guarantee of certain enumerated recourse liabilities of the borrower under one of our mortgage loans, we are required to maintain a minimum net worth in excess of $175.0 million and minimum liquid assets (i.e. cash and cash equivalents) of $10.0 million, which includes cash and cash equivalents and restricted cash, which totaled $15.8 million as of March 31, 2025.

We had restricted cash of $8.7 million as of March 31, 2025 as compared to $9.2 million as of December 31, 2024. Our restricted cash balance includes cash sweeps for 1140 Avenue of the Americas of $1.2 million and $1.6 million, and for 400 E 67th Street for $4.4 million and $4.2 million as of March 31, 2025 and December 31, 2024, respectively. The remaining balance of restricted cash is comprised of various escrow accounts and other cash accounts with restricted uses. We are able to use a portion of our restricted cash for certain property operating expenses and capital expenditures. For certain property operating expenses and capital expenditures specifically related to our 1140 Avenue of the Americas property, lender approval is required to use any of the cash that is held in restricted cash accounts resulting from the breach of covenants on the loan secured by that property (see below). As a result, some of the property operating expenses and capital expenditures that will be paid with restricted cash may reside in accounts payable and accrued expenses on our consolidated balance sheet as of March 31, 2025.

Segregated Cash Accounts - Loan Covenant Breaches

The New York City real estate market continues to be challenged as a result of the impacts of the COVID-19 pandemic and the related changing nature of in-office working arrangements, which previously caused, and may in the future cause certain of our tenants to be unable to make rent payments to us timely, or at all, and could continue to have, an adverse effect on the amount of cash we receive from our operations and therefore our ability to fund operating expenses and other capital requirements. Beginning in the third and fourth quarters of 2020, the operating results at some of our properties, including our 1140 Avenue of the Americas and 8713 Fifth Avenue properties, were negatively impacted by the COVID-19 pandemic causing cash trap events under the non-recourse mortgages, where excess operating cash flow from the property, if any, after debt service was held in restricted cash as additional collateral for the loan, for those properties to be triggered. Thus, we were not able to use excess cash flow, if any, from the properties while the cash trap events were active (see below), to fund operating expenses at our other properties and other capital requirements during the quarter ended March 31, 2025.

As of March 31, 2025, we are operating under three cash traps at 1140 Avenue of the Americas, 400 E. 67th Street and 8713 Fifth Avenue, which together, represent 33% of the rentable square feet in our portfolio as of March 31, 2025. As of March 31, 2025 and December 31, 2024, there was $1.2 million and $1.6 million, respectively, of cash maintained in a segregated and restricted cash account resulting from the breach of covenants on the loan secured by our 1140 Avenue of the Americas property. However, our 8713 Fifth Avenue property has not generated excess cash after debt service and as of March 31, 2025 there is no related cash maintained in a segregated and restricted cash account for that property. We may not access the cash from the 1140 Avenue of the Americas property without lender approval unless and until the various breaches have been cured. Excess cash generated by the 1140 Avenue of the Americas property continues to be deposited in a separate cash management account until the borrower under the loan is able to comply with all of the applicable covenants. Additionally, as of March 31, 2025, we are operating under one cash sweep at our 400 E. 67th Street/200 Riverside Blvd. properties. Under these lease sweep periods, any excess cash generated, if any, is to be held in a segregated reserve account controlled by the lender as additional collateral. This swept cash is classified as restricted cash on our consolidated balance sheet. As of March 31, 2025 we had $4.4 million retained by the lender in a restricted cash account for our 400 E. 67th Street/200 Riverside Blvd. property. For additional information please see Note 4 — Mortgage Notes Payable, Net to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Financings

We define our leverage as the ratio between our net debt, which is calculated as our gross debt of $350.0 million less cash and cash equivalents of $7.1 million divided by our gross asset value, which is calculated as the carrying value of our total assets of $499.4 million plus our accumulated depreciation and amortization of $92.5 million. As of March 31, 2025, our net debt was $342.9 million, our gross asset value was $591.9 million and our leverage was 57.9%.

As of March 31, 2025 our gross borrowings totaled $350.0 million, which bore interest at a weighted-average annual rate of 4.43% and had a weighted-average maturity of 2.3 years. All of our properties are encumbered under mortgage notes payable, and are not available to satisfy other debts and obligations, or to serve as collateral with respect to new indebtedness, as applicable, unless the existing indebtedness associated with the property is satisfied.

We do not currently have a commitment for a corporate-level revolving credit facility or any other corporate-level indebtedness, and there can be no assurance we would be able to obtain corporate-level financing on favorable terms, or at all.

Mortgage Notes Payable

We had five mortgage loans secured by our six properties with an aggregate balance of $350.0 million as of March 31, 2025 with a weighted-average effective interest rate of 4.43%. All our mortgage loans bear interest at a fixed rate.

There are no future scheduled principal payments on our mortgage notes payable for the remainder of 2025. The next future scheduled principal payments on our mortgage notes payable are in July 2026. In October 2024 we exercised the option in the 9 Times Square mortgage note to extend the maturity of this mortgage note payable to January 2025. This loan had a principal balance of $49.5 million at the time. On December 18, 2024, we sold 9 Times Square. For additional information please see Note 3 - Real Estate Investments to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Debt Covenant Non-Compliance

1140 Avenue of the Americas

We have breached both a debt service coverage provision and a reserve fund provision under our non-recourse mortgage secured by the 1140 Avenue of the Americas property in each of the last 19 quarters ended March 31, 2025. The principal amount of the loan was $99.0 million as of March 31, 2025. These breaches are not events of default, rather they require excess cash, if any, generated at the property (after paying operating costs, debt service and capital/tenant replacement reserves) to be held in a segregated account as additional collateral under the loan. The covenants for this loan may be cured if we satisfy the required debt service coverage ratio for two consecutive quarters, whereupon the additional collateral will be released. We can remain subject to this reserve requirement through maturity of the loan without further penalty or ramifications. As of March 31, 2025 and December 31, 2024 we had $1.2 million and $1.6 million in cash that is retained by the lender and maintained in restricted cash on our consolidated balance sheet as of those dates. In addition, the debt service payment for the month of April under this non-recourse mortgage was not made in full by the rental income from the property collected in the cash management accounts under control of the lender.

On April 7, 2025, the lender notified us that that the principal balance due under such loan agreement had been accelerated and all amounts under such loan agreement were due and payable as a result of a default described in a notice from the lender to us on February 19, 2025. For additional information with respect to such notices and our response thereto, see “—Notices of Default and Notice of Acceleration” below.

8713 Fifth Avenue

We have breached a debt service coverage ratio covenant under the non-recourse mortgage secured by 8713 Fifth Avenue in each of the last 19 quarters ended March 31, 2025. The principal amount for the loan was $10.0 million as of March 31, 2025. The breach of this covenant did not result in an event of default but rather triggered an excess cash flow sweep period. The excess cash flow sweep period will continue until the covenant breaches are cured in accordance with the terms of the loan agreement. This property has not generated any excess cash since the breach occurred and thus no cash has ever been trapped related to this property.

Additionally, in the event that the debt service coverage ratio covenant remains in breach at or below the current level for two consecutive calendar quarters and the lender reasonably determines that such breach is due to the property being imprudently managed by the current manager, the lender has the right, but not the obligation, to require that we replace the current manager with a third party manager chosen by us.

Cash Sweep Events

400 E. 67th Street/200 Riverside Blvd.

We entered a lease sweep period under the non-recourse mortgage secured by 400 E. 67th Street/200 Riverside Blvd. in the year ended December 31, 2024, resulting from a near-maturity lease with a major tenant at the property which expired in the third quarter of 2024. The principal amount for the loan was $50.0 million as of March 31, 2025. Under the loan agreement, a lease sweep period is triggered when (i) the date that is twelve months prior to the end of the term of the major lease, (ii) the date required by the major tenant to give notice of its exercise of a renewal option, (iii) any major tenant lease is surrendered or terminated prior to the expiration date, (iv) if the major tenant discontinues its operations and the major tenants long term debt is not rated lower than investment grade, (v) any material default under the major tenant’s lease, (vi) any major tenant insolvency proceeding.

Under the lease sweep period, any excess cash generated, if any, is to be held in a segregated reserve account controlled by the lender as additional collateral. As of March 31, 2025 we had $4.4 million retained by the lender in a restricted cash account on our consolidated balance sheet. We may exit the lease sweep period when the major tenant executes a renewal or extension option beyond the terms described above.

Other Debt Covenants

We were in compliance with the remaining covenants under our other mortgage notes payable as of March 31, 2025, and we continue to monitor compliance with those provisions. If we experience additional lease terminations, due to tenant bankruptcies or otherwise, or tenants placed on a cash basis revenue recognition continue to not pay rent, it is possible that certain of the covenants on other loans may be breached and we may also become restricted from accessing excess cash flows from those properties. Similar to the loans discussed above, our other mortgages also contain cash management provisions that are not considered events of default, and as such, acceleration of principal would only occur upon an event of default.

Notice of Defaults and Notice of Acceleration

1140 Avenue of the Americas

We were informed by the lender on February 19, 2025 that we were in default under the loan agreement governing the loan secured by the non-recourse mortgage on the property for failure to make certain scheduled interest payments. We made the payments in question in full on the same day the default notice was received by us. We believe this is a cure for the event of default. We have received no additional notices from the lender, which has neither charged us any default interest nor accelerated any portion of that debt.

On April 7, 2025, we were informed by the lender that the principal balance due under such loan agreement had been accelerated and all amounts under such loan agreement were due and payable, together with interest at the default rate set forth in the loan document which is a rate annum equal to the lesser of (i) the maximum nonusurious interest rate or (ii) five percent (5%) above the interest rate of 4.109% per annum. Such amounts include, but are not limited to, the $99.0 million principal amount of the mortgage note. We are evaluating its options with respect to the property and there can be no assurance as to the resolution of these matters with the lender.

400 E. 67th Street/200 Riverside Boulevard

On November 19, 2024, the lender sent a notice to us alleging that we were in default under the loan agreement governing the loan secured by the non-recourse mortgage on the property for events that occurred in the third and fourth quarters of 2023, specifically our failure to establish a cash management account for excess cash sweeps over monthly debt service requirements. The lender had been remitting excess cash on their own accord until the period of cash sweep was put into effect in 2024 as described above. In their notice of default, the lender asserted we owe an estimated $1.0 million in excess cash to be deposited into the loan reserve account. The lender sent additional notices to use on December 16, 2024 and January 31, 2025 reiterating the foregoing assertions. We responded to the notice of default rejecting the assertions made by the lender, which we believe are without merit as a result of the lender's failure to implement a cash management account and our inability to take such action unilaterally due to the mechanics for receipt of lease payments provided for by the loan agreement. We have not received a response or any additional notices from the lender, which has not accelerated any portion of the loan. We have made all other required payments in accordance with the loan agreement. Beginning in March 2025, the lender has charged default interest to us, currently totaling $3.3 million. While we cannot predict the ultimate outcome of legal matters, we currently believe that it is not probable a liability has been incurred with respect to the alleged defaults and intends to challenge the charge of default interest by the lender.

Dividend Policy

Through the six months ended June 30, 2022, we paid dividends to our common stockholders at our current annual rate of $3.20 per share of Class A common stock (adjusted for the Reverse Stock Split), or $0.80 per share (adjusted for the Reverse Stock Split) on a quarterly basis. The board subsequently decided not to declare any further dividends for the subsequent periods through March 31, 2025. There is no assurance as to when or if the board will declare future dividends or the amount of any future dividends that may be declared.

Capital Expenditures

For the three months ended March 31, 2025, we funded an aggregate of $0.1 million of capital expenditures primarily for tenant and building improvements at 123 William Street and 1140 Avenue of the Americas. We may invest in additional capital expenditures to further enhance the value of our properties. Additionally, many of our lease agreements with tenants include provisions for tenant improvement allowances.

We expect the amount we invest in capital expenditures during the full year ending December 31, 2025, including amounts we expect to fund under new or replacement leases, will be lower when compared to the amount invested during the year ended December 31, 2024. However, this could change if management deems necessary.

Acquisitions and Dispositions

We had no acquisitions or dispositions during the three months ended March 31, 2025 or 2024.

Non-GAAP Financial Measures

This section discusses the non-GAAP financial measures we use to evaluate our performance, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) as well as adjusted EBITDA.

EBITDA and adjusted EBITDA are both non-GAAP metrics and should not be construed to be more relevant or accurate than other metrics calculated and presented in accordance with GAAP, including net loss, in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than non-GAAP metrics.

We consider EBITDA and adjusted EBITDA useful indicators of our performance. Because these metrics’ calculations exclude such factors as depreciation and amortization of real estate assets, interest expense, impairment charges, equity-based compensation, gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), these metrics’ presentations facilitate comparisons of operating performance between periods and between other companies that use these measures.

As a result, we believe that the use of these non-GAAP metrics together with the required GAAP presentations, provide a more complete understanding of our performance, including relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. However, these non-GAAP metrics are not indicative of cash available to fund ongoing cash needs, including the ability to pay cash dividends and capital expenditures. Investors are cautioned that these non-GAAP metrics should only be used to assess the sustainability of our operating performance excluding these activities, as they exclude certain costs that have a negative effect on our operating performance during the periods in which these costs are incurred.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

We define adjusted EBITDA as net loss excluding (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization expense, (iv) impairment charges, (v) interest income and other income or expense, (vi) gains or losses on debt extinguishment, (vii) equity-based compensation expense, (vii) acquisition and transaction costs, (viii) gain or loss on asset sales and (ix) and expenses paid with issuances of our common stock in lieu of cash.

The below table presents a reconciliation of our EBITDA and our adjusted EBITDA from net loss for the three months ended March 31, 2025 and 2024:

(in thousands)

Previous Election as a REIT

We elected to be taxed as a REIT, effective commencing with our taxable year ended December 31, 2014. Our board subsequently authorized the termination of our REIT election which became effective on January 1, 2023. We believe that during the taxable year ended December 31, 2014 through December 31, 2022, we were organized and operated in a manner so that we qualified as a REIT. To qualify as a REIT during that period, we were required to 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 comply with several other organizational and operational requirements. As a REIT, we were generally not be subject to U.S. federal corporate income tax on the portion of our REIT taxable income that we distributed to our stockholders. A tax loss for a particular year eliminated the need to distribute REIT taxable income to meet the 90% distribution requirement for that year and minimized or eliminated the need to pay distributions to meet the distribution requirement in one or more subsequent years. We had a loss for tax purposes in the year ending December 31, 2022 and therefore there was no REIT taxable income requiring distribution to maintain our qualification as a REIT for the year ended December 31, 2022.

Inflation

We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions, or those leases which have escalations at rates which do not exceed or approximate current inflation rates. As of March 31, 2025, the increase to the 12-month CPI for all items, as published by the Bureau of Labor Statistics, was 2.4%. To help mitigate the adverse impact of inflation, approximately 82% of our leases with our tenants contain rent escalation provisions which increase the cash rent that is due under these leases over time by an average cumulative increase of 0.4% per year. These provisions generally increase rental rates during the terms of the leases either at fixed rates or other measures. As of March 31, 2025, based on straight-line rent, approximately 82% are fixed rate, scheduled escalation increases recorded on a straight-line basis, and 18% do not contain any escalation provisions.

In addition, we may be required to pay costs for maintenance and operation of properties which may adversely impact our results of operations due to potential increases in costs and operating expenses resulting from inflation. Currently, the impact of inflation has had an immaterial impact to operating costs. However, to the extent such costs exceed the tenants base year, certain but not all of our 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. As the costs of general goods and services continue to rise, we may be adversely impacted by increases in general and administrative costs due to overall inflation.

Related-Party Transactions and Agreements

Please see Note 9 — Related Party Transactions and Arrangements to our consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have had 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.

There has been no material change in our exposure to market risk during the three months ended March 31, 2025. For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our 2024 Annual Report.

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, 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 March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2025, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.

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 ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors disclosed in Part I, Item 1A. “Risk Factors” of our 2024 Annual Report, as amended and we direct your attention to those risk factors.