Form 10-Q Sila Realty Trust, Inc. For: Jun 30
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission File Number: 000-55435
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
( | ||||||||
| (Address of Principal Executive Offices; Zip Code) | (Registrant’s Telephone Number, Including Area Code) | |||||||
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| N/A | N/A | N/A | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
☒ | Smaller reporting company | |||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 4, 2022, there were approximately 168,138,000 shares of Class A common stock, 16,645,000 shares of Class I common stock, 40,790,000 shares of Class T common stock and 0 shares of Class T2 common stock of Sila Realty Trust, Inc. outstanding.
SILA REALTY TRUST, INC.
(A Maryland Corporation)
TABLE OF CONTENTS
| Page | ||||||||
| PART I. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
SILA REALTY TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| (Unaudited) June 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Real estate: | |||||||||||
| Land | $ | $ | |||||||||
Buildings and improvements, less accumulated depreciation of $ | |||||||||||
| Construction in progress | |||||||||||
| Total real estate, net | |||||||||||
| Cash and cash equivalents | |||||||||||
Acquired intangible assets, less accumulated amortization of $ | |||||||||||
| Goodwill | |||||||||||
| Right-of-use assets - operating leases | |||||||||||
| Right-of-use assets - finance lease | |||||||||||
| Other assets, net | |||||||||||
| Assets held for sale, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Liabilities: | |||||||||||
Credit facility, net of deferred financing costs of $ | |||||||||||
| Accounts payable and other liabilities | |||||||||||
Acquired intangible liabilities, less accumulated amortization of $ | |||||||||||
| Operating lease liabilities | |||||||||||
| Finance lease liabilities | |||||||||||
| Liabilities held for sale, net | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated distributions in excess of earnings | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SILA REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except share data and per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Rental revenue | $ | $ | $ | $ | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental expenses | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Impairment loss on real estate | |||||||||||||||||||||||
| Impairment loss on goodwill | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Gain on real estate disposition | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest and other expense, net | |||||||||||||||||||||||
| Income (loss) from continuing operations | ( | ( | |||||||||||||||||||||
| Income from discontinued operations | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Unrealized income on interest rate swaps, net | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Comprehensive income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Net income per common share attributable to common stockholders: | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Distributions declared per common share | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SILA REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
| Common Stock | |||||||||||||||||||||||||||||||||||
| No. of Shares | Par Value | Additional Paid-in Capital | Accumulated Distributions in Excess of Earnings | Accumulated Other Comprehensive Income | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of common stock under the distribution reinvestment plan | — | — | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Distributions to common stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| No. of Shares | Par Value | Additional Paid-in Capital | Accumulated Distributions in Excess of Earnings | Accumulated Other Comprehensive (Loss) Income | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock under the distribution reinvestment plan | — | — | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Distributions to common stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SILA REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
| Common Stock | |||||||||||||||||||||||||||||||||||
| No. of Shares | Par Value | Additional Paid-in Capital | Accumulated Distributions in Excess of Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock under the distribution reinvestment plan | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Distribution and servicing fees | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Distributions to common stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| No. of Shares | Par Value | Additional Paid-in Capital | Accumulated Distributions in Excess of Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock under the distribution reinvestment plan | — | — | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Distribution and servicing fees | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Distributions to common stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SILA REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income attributable to common stockholders | $ | $ | |||||||||
| Adjustments to reconcile net income attributable to common stockholders to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization - real estate including intangible assets | |||||||||||
| Depreciation - corporate assets | |||||||||||
| Amortization of deferred financing costs | |||||||||||
| Amortization of above- and below-market leases | ( | ||||||||||
| Amortization of origination fee | |||||||||||
| Amortization of discount of deferred liability | |||||||||||
| Amortization of interest rate swaps | |||||||||||
| Amortization of operating leases | |||||||||||
| Amortization of finance lease | |||||||||||
| Impairment loss on real estate | |||||||||||
| Impairment loss on goodwill | |||||||||||
| Gain on real estate disposition from continuing operations | ( | ||||||||||
| Loss on extinguishment of debt | |||||||||||
| Straight-line rent adjustments | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts payable and other liabilities | ( | ||||||||||
| Other assets | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Investment in real estate | ( | ( | |||||||||
| Consideration paid for the internalization transaction | ( | ||||||||||
| Proceeds from real estate disposition | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Payments of deal costs | ( | ||||||||||
| Real estate deposits, net | ( | ||||||||||
| Collection of notes receivable | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments on notes payable | ( | ||||||||||
| Proceeds from credit facility | |||||||||||
| Payments on credit facility | ( | ||||||||||
| Payments for extinguishment of debt | ( | ( | |||||||||
| Payments of deferred financing costs | ( | ( | |||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Offering costs on issuance of common stock | ( | ( | |||||||||
| Distributions to common stockholders | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash - Beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash - End of period | $ | $ | |||||||||
| Supplemental cash flow disclosure: | |||||||||||
Interest paid, net of interest capitalized of $ | $ | $ | |||||||||
| Supplemental disclosure of non-cash transactions: | |||||||||||
| Common stock issued through distribution reinvestment plan | $ | $ | |||||||||
| Change in accrued distributions to common stockholders | $ | $ | |||||||||
| Change in contingent consideration | $ | $ | |||||||||
| Change in accrued capital expenditures | $ | ( | $ | ||||||||
7
| Change in accrued acquisition costs | $ | $ | |||||||||
| Change in accrued deal costs | $ | $ | |||||||||
| Change in accrued deferred financing costs | $ | ( | $ | ||||||||
| Recognition of right-of-use assets - operating leases | $ | $ | |||||||||
| Recognition of operating lease liabilities | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
SILA REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2022
Note 1—Organization and Business Operations
Sila Realty Trust, Inc., or the Company, is a Maryland corporation that was formed on January 11, 2013. The Company elected, and currently qualifies, to be taxed as a real estate investment trust, or a REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes commencing with its taxable year ended December 31, 2014. Substantially all of the Company’s business is conducted through Sila Realty Operating Partnership, LP, a Delaware limited partnership, or the Operating Partnership, formed on January 10, 2013. The Company is the sole general partner of the Operating Partnership.
The Company was formed to invest primarily in high quality income-producing commercial real estate, with a focus on data centers and healthcare properties, preferably with long-term leases to creditworthy tenants, as well as to make other real estate-related investments in such property types, which may include equity or debt interests in other real estate entities.
During the second quarter of 2021, the Company's board of directors, or the Board, made a determination to sell the Company's data center properties. On May 19, 2021, the Company and certain of its wholly-owned subsidiaries entered into a purchase and sale agreement, or the PSA, for the sale of up to 29 data center properties owned by the Company, which constituted the entirety of the Company's data center segment. See Note 4—"Held for Sale and Discontinued Operations" for further discussion. The decision of the Board to sell the data center properties, as well as the execution of the PSA, represented a strategic shift that had a major effect on the Company's results and operations for the periods presented. As of December 31, 2021, the Company had no assets or liabilities related to the data center properties. The operations of the data center properties have been classified as income from discontinued operations on the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2021.
On July 22, 2021, the Company completed the sale of all 29 of its data centers, or the Data Center Sale, for an aggregate sale price of $1,320,000,000 , and generated net proceeds of approximately $1,295,367,000 . Concurrently, the Board declared a special cash distribution of $1.75 per share of Class A, Class I, Class T and Class T2 shares of common stock. The special cash distribution was funded with the proceeds from the Data Center Sale. The special cash distribution was paid on July 30, 2021 to stockholders of record at the close of business on July 26, 2021, in the aggregate amount of approximately $392,685,000 .
During the six months ended June 30, 2022, the Company acquired five healthcare properties and sold one land parcel that formerly contained a healthcare property. See Note 3—"Acquisitions and Dispositions" for more information. As of June 30, 2022, the Company owned 130 real estate healthcare properties and two undeveloped land parcels, in two micropolitan statistical areas, or µSA, and 55 metropolitan statistical areas, or MSAs.
The Company raised the equity capital for its real estate investments through two public offerings, or the Offerings, from May 2014 through November 2018, and the Company has offered shares pursuant to its distribution reinvestment plan, or the DRIP, pursuant to two Registration Statements on Form S-3, or each, a DRIP Offering and together the DRIP Offerings, since November 2017.
Except as the context otherwise requires, the “Company” refers to Sila Realty Trust, Inc., the Operating Partnership and all wholly-owned subsidiaries.
Note 2—Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the responsibility of management. These accounting policies conform to United States generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of a normal and recurring nature considered for a fair presentation, have been included. Operating results for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The condensed consolidated balance sheet at December 31, 2021, has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s
9
audited consolidated financial statements as of and for the year ended December 31, 2021, and related notes thereto set forth in the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2022.
Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, and all wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements and accompanying notes in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates are made and evaluated on an ongoing basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.
The following table presents a reconciliation of the beginning of period and end of period cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the totals shown in the condensed consolidated statements of cash flows (amounts in thousands):
| Six Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Beginning of period: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
| Restricted cash | (1) | ||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||||||||
| End of period: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
| Restricted cash | (2) | ||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||||||||
(1)Of this amount, $13,499,000 is attributable to continuing operations and $1,236,000 is attributable to discontinued operations.
(2)Of this amount, $21,390,000 is attributable to continuing operations and $1,236,000 is attributable to discontinued operations.
Held for Sale and Discontinued Operations
The Company classifies a real estate property as held for sale upon satisfaction of all of the following criteria: (i) management commits to a plan to sell a property; (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such properties; (iii) there is an active program to locate a buyer; (iv) the sale of the property is probable and transfer of the asset is expected to be completed within one year; (v) the property is being actively marketed for sale; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Upon the determination to classify a property as held for sale, the Company ceases depreciation and amortization on the real estate property held for sale, as well as the amortization of acquired in-place leases and right-of-use assets. The real estate property held for sale and associated liabilities are classified separately on the condensed consolidated balance sheets. Such properties are recorded at the lesser of the carrying value or estimated fair value less estimated costs to sell.
As of December 31, 2021, the Company classified one land parcel that formerly contained a healthcare property as held for sale, or the 2021 Land Held for Sale. The Company recorded the 2021 Land Held for Sale at its carrying value at December 31, 2021. See Note 4—"Held for Sale and Discontinued Operations" for further discussion. On February 10, 2022, the
10
Company sold the 2021 Land Held for Sale, for an aggregate sale price of $24,000,000 , and generated net proceeds of approximately $22,701,000 . See Note 3—"Acquisitions and Dispositions" for additional information.
The Company classified assets and liabilities of the 29 -property data center properties as discontinued operations for all the periods presented because they represented a strategic shift that had a major effect on the Company's results and operations. As of December 31, 2021, the Company had no assets or liabilities related to the data center properties. The operations of the data center properties are classified on the condensed consolidated statements of comprehensive income as income from discontinued operations for the three and six months ended June 30, 2021. On July 22, 2021, the Company completed the Data Center Sale, for an aggregate sale price of $1,320,000,000 , and generated net proceeds of approximately $1,295,367,000 . See Note 3—"Acquisitions and Dispositions" for additional information.
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate assets may not be recoverable, the Company assesses the recoverability of the asset group by estimating whether the Company will recover the carrying value of the asset group through its undiscounted future cash flows and their eventual disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the asset group, the Company will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset group.
When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental rates subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, probability weighting of the potential re-lease of the property versus sales scenarios, sale prices of comparable properties, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate assets.
In addition, the Company estimates the fair value of the assets by applying a market approach using comparable sales for certain properties. The use of alternative assumptions in the market approach analysis could result in a different determination of the property’s estimated fair value and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate assets.
Impairment of Real Estate
The Company determined that, during the three months ended March 31, 2022, real estate assets related to one healthcare property, or the First Quarter 2022 Impaired Property, were determined to be impaired. A healthcare tenant that occupies 90 % of the property, leases its space for administrative use and has historically been using the space as its central business office. As a result of pandemic related events, the tenant permanently modified its business operations to accommodate a reduction in on-site staff, significantly reducing its need for administrative space going forward. The tenant has continued to pay its rent in accordance with the lease agreement, however indicated it would not expect to renew the lease upon expiration. The Company entered into a signed letter of intent with a prospective buyer that is a county-owned, tax-exempt entity, and requires ownership (vs. leasing) of the property to conduct its intended business operations at the property. In addition to the signed letter of intent with the prospective buyer, the Company signed a letter of intent with the tenant for the payment of an early lease termination fee. The early lease termination is effective only upon consummating a sale of the property to the prospective buyer. The inclusion of this potential sale scenario in the Company’s step one impairment analysis resulted in the expected future cash flows from the property falling below its current carrying value. As a result, the carrying value of the property was reduced to its estimated fair value of $14,639,000 , resulting in an impairment charge of $7,109,000 .
The Company had no real estate impairment during the three months ended June 30, 2022.
During the three months ended March 31, 2021, real estate assets related to one healthcare property, or the First Quarter 2021 Impaired Property, were determined to be impaired. A tenant of the property that was experiencing financial difficulty vacated its space on June 19, 2020. During the fourth quarter of 2020, the Company entered into lease negotiations with a prospective tenant for the property, but the Company did not reach an agreement with the tenant. As such, the Company evaluated other strategic options, including a possible sale, and in April 2021, the Company received a letter of intent from a prospective buyer. The inclusion of a potential sale scenario in the Company’s step one impairment analysis resulted in the expected future cash flows from the property to fall below its current carrying value. As a result, the carrying value of the property was reduced to its estimated fair value of $17,145,000 , resulting in an impairment charge of $10,423,000 . The property was subsequently sold in the fourth quarter of 2021.
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During the three months ended June 30, 2021, real estate assets related to one healthcare property, or the Second Quarter 2021 Impaired Property One, were determined to be impaired. The tenant of the property was experiencing financial difficulty and vacated the space in March 2021. Subsequently, during the second quarter, the Company received a letter of intent from a prospective buyer. The inclusion of this new potential sale scenario in the Company's step one impairment analysis resulted in the expected future cash flows from the property falling below its current carrying value. The Company utilized a market approach, using comparable properties, to estimate the fair value of the property. As a result, the carrying value of the property was reduced to its estimated fair value of $5,957,000 , resulting in an impairment charge of $2,894,000 .
Additionally, during the three months ended June 30, 2021, real estate assets related to the 2021 Land Held for Sale, or the Second Quarter 2021 Impaired Property Two, were determined to be impaired. The last of the three tenants that occupied the building terminated its lease agreement and vacated the space on July 12, 2021. Subsequently, the Company received a letter of intent from a prospective buyer. The inclusion of this new potential sale scenario in the Company's step one impairment analysis resulted in the expected future cash flows from the property to fall below its current carrying value. As a result, the carrying value of the property was reduced to its estimated the fair value of $22,311,000 , resulting in an impairment charge of $3,608,000 .
Impairment charges are recorded as impairment loss on real estate in the condensed consolidated statements of comprehensive income.
During the three months ended June 30, 2021, the Company accelerated depreciation of equipment at the Second Quarter 2021 Impaired Property Two based on its anticipated sale. As a result, the Company accelerated the depreciation of the equipment in the amount of $296,000 in depreciation and amortization expense in the condensed consolidated statements of comprehensive income.
Impairment of Acquired Intangible Assets and Acquired Intangible Liabilities
During the three months ended June 30, 2022 and 2021, the Company did no
During the six months ended June 30, 2022, the Company recognized an impairment of one in-place lease intangible asset, or the First Quarter 2022 Impaired In-Place Lease, in the amount of approximately $380,000 , by accelerating the amortization of the acquired intangible asset related to a tenant of the First Quarter 2022 Impaired Property.
During the six months ended June 30, 2021, the Company recognized an impairment of one in-place lease intangible asset, or the First Quarter 2021 Impaired In-Place Lease, in the amount of approximately $1,120,000 , by accelerating the amortization of the acquired intangible asset related to one healthcare tenant of the Second Quarter 2021 Impaired Property One that was experiencing financial difficulties and vacated the property in March 2021. On April 5, 2021, the Company terminated its lease agreement and the tenant paid a lease termination fee of $400,000 , which was recorded in rental revenue in the condensed consolidated statements of comprehensive income.
During the three and six months ended June 30, 2022 and 2021, the Company did no
Impairment of Goodwill
Goodwill represents the excess of the amount paid over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is allocated to an entity's reporting units. Goodwill has an indefinite life and is not amortized. On July 28, 2020, the Company and the Operating Partnership entered into a Membership Interest Purchase Agreement to provide for the internalization of the external management functions previously performed for the Company and the Operating Partnership by its former advisor and its affiliates, or the Internalization Transaction. On September 30, 2020, the Company closed the Internalization Transaction. On September 30, 2020, the Company recorded $39,529,000 of goodwill related to the transaction, of which $15,574,000 was allocated to the data center properties and written off as a result of the Data Center Sale on July 22, 2021. The remaining $23,955,000 of goodwill was allocated to the healthcare segment.
The Company evaluates goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, and at least annually. Unless circumstances otherwise dictate, the annual impairment test is performed as of the last day of each year. The Company evaluates potential triggering events that may affect the estimated fair value of the Company’s reporting units to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions for certain reporting units may have a significant impact on the estimated fair value of these reporting units and could result in future impairments of goodwill. If the carrying value of a reporting unit exceeds its estimated fair value, then an impairment charge is recorded in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
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The Company has the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. Under a qualitative assessment, the impairment analysis for goodwill represents an evaluation of whether it is more-likely-than-not the reporting unit's fair value is less than its carrying value, including goodwill. If a qualitative analysis indicates that it is more-likely-than-not that the estimated carrying value of a reporting unit, including goodwill, exceeds its fair value, the Company performs the quantitative analysis as described below.
During the three months ended March 31, 2022, the Company recognized $278,000 of goodwill impairment. Impairment loss on the First Quarter 2022 Impaired Property recorded during such period (as discussed in the "Impairment of Real Estate" section above) triggered an evaluation of the reporting unit's fair value for goodwill impairment. The Company's reporting unit represents each individual operating real estate property. The carrying value of long-lived assets within the reporting unit with indicators of impairment was first tested for recoverability and resulted in recognition of impairment during such period. As a result, the fair value of the reporting unit was determined to be lower than its carrying value, including goodwill. Therefore, the Company recognized an impairment loss on goodwill in the amount of $278,000 for the amount that the carrying value of the reporting unit, including goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to the reporting unit and was recorded in impairment loss on goodwill in the condensed consolidated statements of comprehensive income. Fair value of the reporting unit was determined based on a market valuation approach. As of March 31, 2022, the Company did no t have any goodwill associated with the reporting unit.
The Company had no goodwill impairment during the three months ended June 30, 2022.
During the three months ended March 31, 2021, the Company recognized $240,000 of goodwill impairment. Impairment loss on the First Quarter 2021 Impaired Property recorded during such period (as discussed in the "Impairment of Real Estate" section above) triggered an evaluation of the reporting unit's fair value for goodwill impairment. As a result, the fair value of the reporting unit compared to its carrying value, including goodwill, was determined to be lower than its carrying value. Therefore, the Company recognized an impairment loss on goodwill in the amount of $240,000 for the amount that the carrying value of the reporting unit, including goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to the reporting unit and was recorded in impairment loss on goodwill in the condensed consolidated statements of comprehensive income. Fair value of the reporting unit was determined based on a market valuation approach, using comparable sales to estimate the fair value. As of March 31, 2021, the Company did no t have any goodwill associated with the reporting unit.
During the three months ended June 30, 2021, the Company recognized $431,000 of goodwill impairment. Impairment losses on the Second Quarter 2021 Impaired Property One and Second Quarter 2021 Impaired Property Two recorded during such period (as discussed in the "Impairment of Real Estate" section above) triggered evaluation of each reporting unit's fair value for goodwill impairment. As a result, the fair value of each reporting unit compared to its carrying value, including goodwill, was determined to be lower than its carrying value. Therefore, the Company recognized an impairment loss on goodwill for each of the two reporting units in the amounts of $112,000 and $319,000 , respectively, for the amount that the carrying value of each reporting unit, including goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to each reporting unit and was recorded in impairment loss on goodwill in the condensed consolidated statements of comprehensive income. Fair value of each reporting unit was determined based on a market approach model. As of June 30, 2021, the Company did not have any goodwill associated with these healthcare reporting units.
| Goodwill | ||||||||
| Balance as of December 31, 2021 | $ | |||||||
| Impairment losses | ( | |||||||
| Balance as of June 30, 2022 | $ | |||||||
Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts
The majority of the Company's revenue is derived from rental revenue, which is accounted for in accordance with ASC 842, Leases, or ASC 842. In accordance with ASC 842, rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). For lease arrangements when it is not probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis or the lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. Tenant reimbursements, which are comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, are recognized when the services are provided and the performance obligations are satisfied.
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The Company recognizes non-rental related revenue in accordance with Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, or ASC 606. The Company has identified its revenue streams as rental income from leasing arrangements and tenant reimbursements, which are outside the scope of ASC 606. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Non-rental revenue, subject to ASC 606, is immaterial to the Company's condensed consolidated financial statements.
On April 22, 2021, the Company entered into a settlement agreement with a data center property tenant that was experiencing financial difficulty due to deteriorating economic conditions driven by the impact of the COVID-19 pandemic and accelerating its modification of work strategy to a remote environment due to the pandemic. The tenant stopped paying rent in October 2020. Pursuant to the settlement agreement, the lease was terminated, effective immediately. The tenant surrendered the space on June 20, 2021. Additionally, in connection with the lease termination, the tenant paid the Company a $7,000,000 termination fee on April 23, 2021, which was recorded in income from discontinued operations in the accompanying condensed consolidated statements of comprehensive income during the second quarter of 2021.
Concentration of Credit Risk and Significant Leases
As of June 30, 2022, the Company had cash on deposit, including restricted cash, in certain financial institutions that had deposits in excess of current federally insured levels. The Company limits its cash investments to financial institutions with high credit standings; therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits. To date, the Company has not experienced a loss or lack of access to cash in its accounts.
As of June 30, 2022, the Company owned real estate investments in two µSAs and 55 MSAs, one MSA of which accounted for greater than 10.0% of rental revenue from continuing operations for the six months ended June 30, 2022. Real estate investments located in the Houston-The Woodlands-Sugar Land, Texas MSA accounted for 11.1 % of rental revenue from continuing operations for the six months ended June 30, 2022.
As of June 30, 2022, the Company had one exposure to tenant concentration that accounted for greater than 10.0% of rental revenue from continuing operations for the six months ended June 30, 2022. The leases with tenants at healthcare properties under common control of Post Acute Medical, LLC and its affiliates accounted for 15.3 % of rental revenue from continuing operations for the six months ended June 30, 2022.
Share Repurchase Program
The Company’s Amended and Restated Share Repurchase Program, or SRP, allows for repurchases of shares of the Company’s common stock upon meeting certain criteria. The SRP provides that all repurchases during any calendar year, including those redeemable upon death or a "Qualifying Disability" (as defined in the Company's SRP) of a stockholder, be limited to those that can be funded with equivalent proceeds raised from the DRIP during the prior calendar year and other operating funds, if any, as the Board, in its sole discretion, may reserve for this purpose.
Repurchases of shares of the Company’s common stock are at the sole discretion of the Board, provided, however, that the Company limits the number of shares repurchased during any calendar year to 5.0 % of the total number of shares of common stock outstanding as of December 31st of the previous calendar year. The SRP is subject to terms and limitations, including, but not limited to, quarterly share limitations, an annual 5.0 % share limitation and DRIP funding limitations and any amendments to the plan, as more fully described below. In addition, the Board, in its sole discretion, may suspend (in whole or in part) the SRP at any time, and may amend, reduce, terminate or otherwise change the SRP upon 30 days' prior notice to the Company’s stockholders for any reason it deems appropriate.
The Company will currently only repurchase shares due to death and involuntary exigent circumstances in accordance with the SRP, subject in each case to the terms and limitations of the SRP, including, but not limited to, quarterly share limitations, an annual 5.0 % share limitation, and DRIP funding limitations. Under the SRP, the Company may waive certain of the terms and requirements of the SRP in the event of the death of a stockholder who is a natural person, including shares held through an Individual Retirement Account or other retirement or profit-sharing plan, and certain trusts meeting the requirements of the SRP. The Company may also waive certain of the terms and requirements of the SRP in the event of an involuntary exigent circumstance, as determined by the Company or any of the executive officers thereof, in its or their sole discretion. See Part II, Item 2. "Unregistered Sales of Equity Securities" for more information on the Company's SRP.
During the six months ended June 30, 2022, the Company repurchased 561,725 Class A shares, Class I shares and Class T shares of common stock (476,551 Class A shares, 20,611 Class I shares and 64,563 Class T shares), for an aggregate purchase price of approximately $4,606,000 (an average of $8.20 per share). During the six months ended June 30, 2021, the Company repurchased 469,334 Class A shares, Class I shares and Class T shares of common stock (443,434 Class A shares, 2,504 Class I shares and 23,396 Class T shares), for an aggregate purchase price of approximately $4,078,000 (an average of $8.69 per share).
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Stock-based Compensation
On March 6, 2020, the Board approved the Amended and Restated 2014 Restricted Share Plan, or the A&R Incentive Plan, pursuant to which the Company has the authority and power to grant awards of restricted shares of its Class A common stock to its directors, officers and employees. The Company accounts for its stock awards in accordance with ASC 718-10, Compensation—Stock Compensation. ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). For performance-based awards, compensation costs are recognized over the service period if it is probable that the performance condition will be satisfied, with changes of the assessment at each reporting period and recording the effect of the change in the compensation cost as a cumulative catch-up adjustment. The compensation costs for restricted stock are recognized based on the fair value of the restricted stock awards at grant date less forfeitures (if applicable). Forfeitures are accounted for as they occur.
On January 3, 2022, the Company granted time-based awards to its executive officers, consisting of 217,988 in restricted shares of Class A common stock, or the Time-Based 2022 Awards. The Time-Based 2022 Awards will vest ratably over four years following the grant date, subject to each executive's employment through the applicable vesting dates, with certain exceptions.
In addition, on January 3, 2022, the Company's compensation committee approved performance-based deferred stock unit awards, or Performance DSUs, to be granted for performance-based awards, or the Performance-Based 2022 Awards. The Performance-Based 2022 Awards will be measured based on Company performance over a three-year performance period ending on December 31, 2024. The Performance-Based 2022 Awards vest after the last day of the performance period and are subject to continued employment through the applicable vesting date.
The Time-Based 2022 Awards and the Performance-Based 2022 Awards, or collectively, the 2022 Awards, were granted under and are subject to the terms of the A&R Incentive Plan and award agreements.
Stock-based compensation expense for the 2022 Awards for the three and six months ended June 30, 2022, was approximately $343,000 and $604,000 , respectively, which is reported in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive income. The Company recognized accelerated stock-based compensation expense of $326,000 92,000 1,278,000 and $563,000 , respectively, for the three months ended June 30, 2022 and 2021, and $2,174,000 and $1,119,000 , respectively, for the six months ended June 30, 2022 and 2021, which is reported in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive income.
Earnings Per Share
The Company calculates basic earnings per share by dividing net income attributable to common stockholders for the period by the weighted average shares of its common stock outstanding for that period. Diluted earnings per share is computed based on the weighted average number of shares outstanding and all potentially dilutive securities. Shares of non-vested restricted common stock and Performance DSUs give rise to potentially dilutive shares of common stock. For the three and six months ended June 30, 2022, diluted earnings per share reflected the effect of approximately 1,355,000 and 1,360,000 , respectively, of non-vested shares of restricted common stock and Performance DSUs that were outstanding. For the three and six months ended June 30, 2021, diluted earnings per share was computed the same as basic earnings per share, because the Company recorded a loss from continuing operations, which would make potentially dilutive shares of 964,000 and 952,000 , respectively, related to non-vested shares of restricted common stock and Performance DSUs, anti-dilutive.
Derivative Instruments and Hedging Activities
As required by ASC 815, Derivatives and Hedging, or ASC 815, the Company records all derivative instruments at fair value as assets and liabilities on its condensed consolidated balance sheets. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
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In accordance with the fair value measurement guidance Accounting Standards Update, or ASU, 2011-04, Fair Value Measurement, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
The Company is exposed to variability in expected future cash flows that are attributable to interest rate changes in the normal course of business. The Company’s primary strategy in entering into derivative contracts is to add stability to future cash flows by managing its exposure to interest rate movements. The Company utilizes derivative instruments, including interest rate swaps, to effectively convert some of its variable rate debt to fixed rate debt. The Company does not enter into derivative instruments for speculative purposes.
In accordance with ASC 815, the Company designates interest rate swap contracts as cash flow hedges of floating-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, the gains or losses on the derivative instruments are reported as a component of other comprehensive income in the condensed consolidated statements of comprehensive income and are reclassified into earnings in the same line item associated with the forecasted transaction in the same period during which the hedged transactions affect earnings. See additional discussion in Note 12—"Derivative Instruments and Hedging Activities."
Note 3—Acquisitions and Dispositions
2022 Real Estate Property Acquisition
During the six months ended June 30, 2022, the Company purchased five real estate properties, or the 2022 Acquisitions, which were determined to be asset acquisitions. Upon the completion of the 2022 Acquisitions, the Company allocated the purchase price to acquired tangible assets, consisting of land, building and improvements and tenant improvements, and acquired intangible assets, consisting of in-place leases and above-market leases, and acquired intangible liabilities, consisting of below-market leases, based on the relative fair value method of allocating all accumulated costs.
The following table summarizes the consideration transferred for the 2022 Acquisitions during the six months ended June 30, 2022:
| Property Description | Date Acquired | Ownership Percentage | Purchase Price (amount in thousands) | |||||||||||||||||
| Yukon Healthcare Facility | 03/10/2022 | $ | ||||||||||||||||||
| Pleasant Hills Healthcare Facility | 05/12/2022 | |||||||||||||||||||
Prosser Healthcare Facilities (1) | 05/20/2022 | |||||||||||||||||||
| Total | $ | |||||||||||||||||||
(1) The Prosser Healthcare Facilities consist of three healthcare properties.
The following table summarizes the Company's purchase price allocation of the 2022 Acquisitions during the six months ended June 30, 2022 (amounts in thousands):
| Total | ||||||||
| Land | $ | |||||||
| Building and improvements | ||||||||
| Tenant improvements | ||||||||
| In-place leases | ||||||||
| Above-market leases | ||||||||
| Total assets acquired | ||||||||
| Below-market leases | ( | |||||||
| Total liabilities acquired | ( | |||||||
| Net assets acquired | $ | |||||||
Acquisition costs associated with transactions determined to be asset acquisitions are capitalized. The Company capitalized acquisition costs of approximately $454,000 related to the 2022 Acquisitions, which are included in the Company's allocation of the real estate acquisitions presented above. The total amount of all acquisition costs is limited to 6.0 % of the contract purchase price of a property, unless the Board determines a higher transaction fee to be commercially competitive, fair and reasonable to the Company. The contract purchase price is the amount actually paid or allocated in respect of the purchase,
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development, construction or improvement of a property exclusive of acquisition costs. During the six months ended June 30, 2022, acquisition costs did not exceed 6.0 % of the contract purchase price of the 2022 Acquisitions during such period.
2022 Real Estate Property Disposition
The Company sold one land parcel that formerly contained a healthcare property, or the 2022 Disposition, during the six months ended June 30, 2022, for an aggregate sale price of $24,000,000 and generated net proceeds of $22,701,000 . For the six months ended June 30, 2022, the Company recognized an aggregate gain on sale of $460,000 in gain on real estate disposition in the condensed consolidated statements of comprehensive income.
The following table summarizes the 2022 Disposition:
| Property Description | Disposition Date | Sale Price (amounts in thousands) | Net Proceeds (amounts in thousands) | |||||||||||||||||
| Houston Healthcare Facility II | 02/10/2022 | $ | $ | |||||||||||||||||
Note 4—Held for Sale and Discontinued Operations
As of December 31, 2021, the Company had no assets or liabilities related to the data center properties. The operations of the data center properties have been classified as income from discontinued operations on the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2021.
On August 30, 2021, the Company entered into a purchase and sale agreement for the sale of the 2021 Land Held for Sale. The purchase and sale agreement required that the structures on the healthcare property be demolished prior to the sale. The structures on the property were demolished and the property consisted solely of land as of December 31, 2021. The Company classified the land as held for sale as of December 31, 2021, because the land met the held for sale criteria as outlined in Note 2—"Summary of Significant Accounting Policies -Held for Sale and Discontinued Operations." The Company sold the 2021 Land Held for Sale on February 10, 2022. See Note 3—"Acquisitions and Dispositions" for additional information.
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The following table presents the major classes of assets and liabilities of the 2021 Land Held for Sale, classified as assets and liabilities held for sale, net, presented separately in the condensed consolidated balance sheet as of December 31, 2021 (amounts in thousands):
| December 31, 2021 | |||||
| Assets: | |||||
| Real estate: | |||||
| Land | $ | ||||
| Total real estate, net | |||||
| Other assets, net | |||||
| Assets held for sale, net | $ | ||||
| Liabilities: | |||||
| Accounts payable and other liabilities | |||||
| Liabilities held for sale, net | $ | ||||
The operations reflected in income from discontinued operations on the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2021, were as follows (amounts in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2021 | 2021 | ||||||||||
| Revenue: | |||||||||||
| Rental revenue | $ | $ | |||||||||
| Lease termination revenue | |||||||||||
| Total revenue | |||||||||||
| Expenses: | |||||||||||
| Rental expenses | |||||||||||
| Depreciation and amortization | |||||||||||
| Total expenses | |||||||||||
Interest and other expense, net (1) | |||||||||||
| Income from discontinued operations | |||||||||||
| Net income from discontinued operations attributable to common stockholders | $ | $ | |||||||||
(1) Interest expense attributable to discontinued operations for the three and six months ended June 30, 2021 was $3,402,000 and $6,771,000 , respectively, which related to notes payable on certain data center properties. On July 22, 2021, in connection with the Data Center Sale, the Company paid off all data center and healthcare related notes payable, with an outstanding principal balance of $450,806,000 at the time of repayment.
Capital expenditures on a cash basis for the six months ended June 30, 2021, were $2,017,000 , related to properties classified within discontinued operations.
The Company had no discontinued operations for the six months ended June 30, 2022 and therefore had no significant non-cash operating or investing activities for the properties classified within discontinued operations. There were no significant non-cash operating or investing activities for the properties classified within discontinued operations for the six months ended June 30, 2021.
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Note 5—Acquired Intangible Assets, Net
Acquired intangible assets, net, consisted of the following as of June 30, 2022 and December 31, 2021 (amounts in thousands, except weighted average remaining life amounts):
| June 30, 2022 | December 31, 2021 | ||||||||||
In-place leases, net of accumulated amortization of $ | $ | $ | |||||||||
Above-market leases, net of accumulated amortization of $ | |||||||||||
| $ | $ | ||||||||||
The aggregate weighted average remaining life of the acquired intangible assets was 9.1 years and 9.5 years as of June 30, 2022 and December 31, 2021, respectively.
Amortization of the acquired intangible assets was $5,676,000 and $5,499,000 for the three months ended June 30, 2022 and 2021, respectively, and $11,718,000 and $12,117,000 for the six months ended June 30, 2022 and 2021, respectively. Of the $11,718,000 recorded for the six months ended June 30, 2022, $380,000 was attributable to accelerated amortization due to the First Quarter 2022 Impaired In-Place Lease. Of the $12,117,000 recorded for the six months ended June 30, 2021, $1,120,000 was attributable to accelerated amortization due to the First Quarter 2021 Impaired In-Place Lease. Amortization of the in-place leases is included in depreciation and amortization, and amortization of above-market leases is recorded as an adjustment to rental revenue in the accompanying condensed consolidated statements of comprehensive income.
Note 6—Acquired Intangible Liabilities, Net
Acquired intangible liabilities, net, consisted of the following as of June 30, 2022 and December 31, 2021 (amounts in thousands, except weighted average remaining life amounts):
| June 30, 2022 | December 31, 2021 | ||||||||||
Below-market leases, net of accumulated amortization of $ | $ | $ | |||||||||
Amortization of the below-market leases was $369,000 and $333,000 for the three months ended June 30, 2022 and 2021, respectively, and $733,000 and $641,000 for the six months ended June 30, 2022 and 2021, respectively. Amortization of below-market leases is recorded as an adjustment to rental revenue in the accompanying condensed consolidated statements of comprehensive income.
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Note 7—Leases
Lessor
Rental Revenue
The Company’s real estate properties are leased to tenants under operating leases with varying terms. Typically, the leases have provisions to extend the terms of the lease agreements. The Company retains substantially all of the risks and benefits of ownership of the real estate properties leased to tenants.
Future rent to be received from the Company's investments in real estate assets under the terms of non-cancellable operating leases in effect as of June 30, 2022, for the six months ending December 31, 2022, and for each of the next four years ending December 31 and thereafter, are as follows (amounts in thousands):
| Year | Amount | |||||||
| Six months ending December 31, 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Lessee
The Company is subject to various non-cancellable operating and finance lease agreements, inclusive of 16 ground operating leases, one corporate-related operating lease, one ground finance lease and one office operating lease related to the Company’s principal executive office in Tampa, Florida, or the Corporate Office Lease. Of the 16 ground operating leases, four do not have corresponding operating lease liabilities, because the Company did not have future payment obligations at the acquisition of these leases.
The Company has one non-cancellable lease agreement that is classified as a finance lease, as defined in ASC 842, Leases, related to a ground lease of a healthcare property. Ground lease expenses for finance lease payments are recognized as amortization expense of the right-of-use asset - finance lease and interest expense on the finance lease liability over the lease term.
The Company's operating leases and the finance lease do not provide an implicit interest rate. In order to calculate the present value of the remaining operating and finance lease payments, the Company used incremental borrowing rates, or IBRs, adjusted for a number of factors. The determination of an appropriate IBR involves multiple inputs and judgments. The Company determined its IBRs considering the general economic environment, the Company's credit rating and various financing and asset specific adjustments to ensure the IBRs are appropriate for the intended use of the underlying operating or finance leases.
On January 22, 2022, the Company's rent obligation for its new principal executive office in Tampa, Florida commenced. Pursuant to the office operating lease agreement, the aggregate present value of future rent payments is $3,440,000 , which was recorded in right-of-use assets - operating leases on the condensed consolidated balance sheets.
On March 1, 2022, the Company's rent commenced on a ground operating lease agreement for a development property that was placed in service during the three months ended March 31, 2022, for an aggregate present value of future rent payments of $309,000 , which was recorded in right-of-use assets - operating leases on the condensed consolidated balance sheets.
As of June 30, 2022, the Company's IBRs for its operating leases were between 2.5 % and 6.4 %, with a weighted average IBR of 5.1 %. The weighted average remaining lease term for the Company's operating leases attributable to continuing operations was 33.9 years and 36.1 years as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022, the Company's IBR for its finance lease was 5.3 %. The remaining lease term for the Company's finance lease was 41.9 years and 42.4 years as of June 30, 2022 and December 31, 2021, respectively.
20
The future rent payments, discounted by the Company's IBRs, under non-cancellable leases in effect as of June 30, 2022, for the six months ending December 31, 2022, and for each of the next four years ending December 31 and thereafter, are as follows (amounts in thousands):
| Year | Operating | Finance | ||||||||||||
| Six months ending December 31, 2022 | $ | $ | ||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total undiscounted rental payments | ||||||||||||||
| Less imputed interest | ( | ( | ||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||
The following table provides details of the Company's total lease costs and reimbursements for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| Location in Condensed Consolidated Statements of Comprehensive Income | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||
| Operating lease costs: | |||||||||||||||||||||||||||||||||||
| Ground lease costs | Rental expenses | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Ground lease reimbursements (1) | Rental revenue | ||||||||||||||||||||||||||||||||||
Ground lease costs (2) | Income from discontinued operations | ||||||||||||||||||||||||||||||||||
Ground lease reimbursements (1),(2) | Income from discontinued operations | ||||||||||||||||||||||||||||||||||
| Corporate Office Lease costs | General and administrative expenses | ||||||||||||||||||||||||||||||||||
| Corporate-related operating lease costs | General and administrative expenses | ||||||||||||||||||||||||||||||||||
| Finance lease costs: | |||||||||||||||||||||||||||||||||||
| Amortization of right-of-use asset | Depreciation and amortization | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Interest on lease liability | Interest and other expense, net | ||||||||||||||||||||||||||||||||||
(1)The Company is reimbursed by tenants who sublease the ground leases.
(2)Amounts relate to lease costs and reimbursements attributable to two operating ground leases related to data center properties disposed of in the Data Center Sale on July 22, 2021.
Note 8—Other Assets, Net
Other assets, net, consisted of the following as of June 30, 2022 and other assets, net, excluding assets held for sale, net, consisted of the following as of December 31, 2021 (amounts in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
Deferred financing costs, related to the revolver portion of the credit facility, net of accumulated amortization of $ | $ | $ | |||||||||
Leasing commissions, net of accumulated amortization of $ | |||||||||||
| Restricted cash | |||||||||||
| Tenant receivables | |||||||||||
| Straight-line rent receivable | |||||||||||
| Real estate deposits | |||||||||||
| Prepaid and other assets | |||||||||||
| Derivative assets | |||||||||||
| $ | $ | ||||||||||
21
Note 9—Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following as of June 30, 2022 and accounts payable and other liabilities, excluding liabilities held for sale, net, consisted of the following as of December 31, 2021 (amounts in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Accrued interest expense | |||||||||||
| Accrued property taxes | |||||||||||
| Accrued personnel costs | |||||||||||
| Distribution and servicing fees | |||||||||||
| Distributions payable to stockholders | |||||||||||
| Performance DSUs distributions payable | |||||||||||
| Tenant deposits | |||||||||||
| Deferred rental income | |||||||||||
| Contingent consideration | |||||||||||
| Derivative liabilities | |||||||||||
| $ | $ | ||||||||||
Note 10—Credit Facility
The Company's outstanding credit facility as of June 30, 2022 and December 31, 2021 consisted of the following (amounts in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Variable rate term loans fixed through interest rate swaps | |||||||||||
| Variable rate term loans | |||||||||||
| Total credit facility, principal amount outstanding | |||||||||||
| Unamortized deferred financing costs related to the term loan credit facility | ( | ( | |||||||||
| Total credit facility, net of deferred financing costs | $ | $ | |||||||||
Significant activities regarding the credit facility during the six months ended June 30, 2022, and subsequent, include:
•On February 15, 2022, the Company, the Operating Partnership and certain of the Company's subsidiaries, entered into a senior unsecured revolving credit agreement, or the Revolving Credit Agreement, with Truist Bank, as Administrative Agent for the lenders, for aggregate commitments available of up to $500,000,000 , which may be increased, subject to lender approval, through incremental term loans and/or revolving loan commitments in an aggregate amount not to exceed $1,000,000,000 . The maturity date for the Revolving Credit Agreement is February 15, 2026, which, at the Company's election, may be extended for a period of six-months on no more than two occasions, subject to certain conditions, including the payment of an extension fee. The Revolving Credit Agreement was entered into to replace the Company's prior $500,000,000 revolving line of credit, which had a maturity date of April 27, 2022, with the option to extend for one twelve-month period. The Company did not exercise the option to extend. Upon closing of the Revolving Credit Agreement, the Company extinguished all commitments associated with the prior revolving line of credit. Simultaneously with the Revolving Credit Agreement’s execution, on February 15, 2022, the Company, the Operating Partnership, and certain of the Company's subsidiaries, entered into the senior unsecured term loan agreement, or the 2024 Term Loan Agreement, with Truist Bank, as Administrative Agent for the lenders. The 2024 Term Loan Agreement was fully funded at closing, and is made up of aggregate commitments of $300,000,000 , which may be increased, subject to lender approval, to an aggregate amount not to exceed $600,000,000 . The 2024 Term Loan Agreement has a maturity date of December 31, 2024, and, at the Company's election, may be extended for a period of six-months on no more than two occasions, subject to the satisfaction of certain conditions, including the payment of an extension fee. The 2024 Term Loan Agreement was entered into to replace the Company's prior term loan, which was paid off in its entirety upon closing of the Revolving Credit Agreement and the 2024 Term Loan Agreement.
•In connection with the repayment of our prior credit facility, the Company recognized a loss on extinguishment of debt of $3,367,000 during the three months ended March 31, 2022, which included loan costs in the amount of $4,000 and
22
accelerated unamortized debt issuance costs of $3,363,000 . The loss on extinguishment of debt was recognized in interest and other expense, net, in the accompanying condensed consolidated statements of comprehensive income.
•On February 28, 2022, the Company repaid $30,000,000 on its Revolving Credit Agreement primarily with proceeds from the 2022 Disposition.
•On March 10, 2022, the Company drew $15,000,000 on its Revolving Credit Agreement related to the 2022 Acquisitions.
•On April 8, 2022, the Company entered into five interest rate swap agreements, two of which have an effective date of May 2, 2022 and an aggregate notional amount of $85,000,000 , and three of which have an effective date of May 1, 2023 and an aggregate notional amount of $150,000,000 .
•On May 12, 2022, the Company drew $20,000,000 on its Revolving Credit Agreement related to the 2022 Acquisitions.
•On May 17, 2022, the Company, the Operating Partnership and certain of the Company’s subsidiaries, entered into a new senior unsecured term loan agreement, or the 2028 Term Loan Agreement, with Truist Bank, as Administrative Agent for the lenders, for aggregate commitments of up to $275,000,000 , of which $205,000,000 was drawn at closing to pay down the Company’s Revolving Credit Agreement in its entirety. The remainder of the commitments were available for three months following the closing date, or the Availability Period, and were available in no more than three subsequent draws with a minimum of $20,000,000 per draw, or the remaining commitments available. After the Availability Period, the undrawn portion was no longer available. If the committed amount was not fully drawn within 60 days of closing, the Company was required to pay a fee to the lenders, calculated as 0.25 % per annum on the average daily amount of the undrawn portion, payable quarterly in arrears, until the earlier of (i) the date when the commitments have been funded in full, or (ii) August 17, 2022. The 2028 Term Loan Agreement may be increased, subject to lender approval, to an aggregate amount not to exceed $500,000,000 and has a maturity date of January 31, 2028. The 2028 Term Loan Agreement is pari passu with the Company’s Revolving Credit Agreement and 2024 Term Loan Agreement. The Company refers to the 2028 Term Loan Agreement, the Revolving Credit Agreement and the 2024 Term Loan Agreement, collectively, as the “Unsecured Credit Facility,” which has aggregate commitments available of $1,075,000,000 . At the Company’s election, loans under the Unsecured Credit Facility may be made as Base Rate Loans or Secured Overnight Financing Rate, or SOFR, Loans. The applicable margin for loans that are Base Rate Loans is adjustable based on a total leverage ratio, ranging from 0.25 % to 0.90 %. The applicable margin for loans that are SOFR Loans is adjustable based on a total leverage ratio, ranging from 1.25 % to 1.90 %. In addition to interest, the Company is required to pay a fee on the unused portion of the lenders’ commitments under the Revolving Credit Agreement at a rate per annum equal to 0.20 % if the average daily amount outstanding under the Revolving Credit Agreement is less than 50% of the aggregate commitments, or 0.15 % if the average daily amount outstanding under the Revolving Credit Agreement is equal to or greater than 50% of the aggregate commitments. The unused fee is payable quarterly in arrears.
•On July 12, 2022 and July 20, 2022, the Company drew $50,000,000 and $20,000,000 , respectively, on the 2028 Term Loan Agreement, to fund two acquisitions in July 2022. See Note 15—"Subsequent Events" for additional information. As of July 20, 2022, the 2028 Term Loan Agreement commitments were fully funded.
The principal payments due on the Unsecured Credit Facility as of June 30, 2022, for the six months ending December 31, 2022, and for each of the next four years ending December 31 and thereafter, are as follows (amounts in thousands):
| Year | Amount | |||||||
| Six months ending December 31, 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
Note 11—Fair Value
Credit facility—The estimated fair value of the credit facility (Level 2) was approximately $474,402,000 and $492,360,000 as of June 30, 2022 and December 31, 2021, respectively, as compared to the outstanding principal of $505,000,000 and $500,000,000 as of June 30, 2022 and December 31, 2021, respectively.
The fair value of the Company's credit facility is estimated based on the interest rates currently offered to the Company by its financial institutions.
23
Derivative instruments—Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amount the Company could realize, or be liable for, on disposition of the financial instruments. The Company determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. The credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and the respective counterparty. However, as of June 30, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy. See Note 12—"Derivative Instruments and Hedging Activities" for further discussion of the Company's derivative instruments.
The following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 (amounts in thousands):
| June 30, 2022 | |||||||||||||||||||||||
| Fair Value Hierarchy | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Derivative assets | $ | $ | $ | $ | |||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Fair Value Hierarchy | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Derivative assets | $ | $ | $ | $ | |||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
Derivative assets and liabilities are reported in the condensed consolidated balance sheets as other assets, net, and accounts payable and other liabilities, respectively.
Real estate assets—As discussed in Note 2—"Summary of Significant Accounting Policies," during the first quarter of 2022, real estate assets related to the First Quarter 2022 Impaired Property were determined to be impaired. The carrying value of the property was reduced to its estimated fair value of $14,639,000 , resulting in an impairment charge of $7,109,000 . The fair value of the First Quarter 2022 Impaired Property was determined based on a market approach model using a signed letter of intent to estimate the fair value and classified within Level 2 of the fair value hierarchy.
During the first quarter of 2021, real estate assets related to the First Quarter 2021 Impaired Property were determined to be impaired. The carrying value of the property was reduced to its estimated fair value of $17,145,000 , resulting in an impairment charge of $10,423,000 . The property was subsequently sold in the fourth quarter of 2021.
During the second quarter of 2021, real estate assets related to the Second Quarter 2021 Impaired Property One were determined to be impaired. The tenant of the property was experiencing financial difficulty and vacated the space in March 2021. Subsequently, during the second quarter the Company received a letter of intent from a prospective buyer. The inclusion of this new potential sale scenario in the Company's step one impairment analysis resulted in the expected future cash flows from the property falling below its current carrying value. As a result, the carrying value of the property was reduced to its estimated fair value of $5,957,000 , resulting in an impairment charge of $2,894,000 .
24
Additionally, during the second quarter of 2021, real estate assets related to Second Quarter 2021 Impaired Property Two were determined to be impaired. The last of the three tenants that occupied the building terminated its lease agreement and vacated the space on July 12, 2021. Subsequently, the Company received a letter of intent from a prospective buyer. The inclusion of this new potential sale scenario in the Company's step one impairment analysis resulted in the expected future cash flows from the property to fall below its current carrying value. As a result, the carrying value of the property was reduced to its estimated fair value of $22,311,000 , resulting in an impairment charge of $3,608,000 .
The fair value of the First Quarter 2021 Impaired Property, Second Quarter 2021 Impaired Property One and Second Quarter 2021 Impaired Property Two were determined based on a market approach model using comparable properties adjusted for differences in characteristics to estimate the fair value and classified within Level 2 of the fair value hierarchy.
Impairment charges are recorded as impairment loss on real estate in the condensed consolidated statements of comprehensive income.
The following table shows the fair value of the Company's real estate assets measured at fair value on a non-recurring basis as of March 31, 2022 (amounts in thousands):
| March 31, 2022 | |||||||||||||||||||||||||||||
| Fair Value Hierarchy | |||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | Total Losses | |||||||||||||||||||||||||
| Real estate assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Goodwill—As discussed in Note 2—"Summary of Significant Accounting Policies," during the first quarter of 2022, the Company recorded $278,000 of goodwill impairment related to the First Quarter 2022 Impaired Property. Impairment loss on goodwill represented the carrying value of the reporting unit, including goodwill, that exceeded its fair value, limited to the total amount of goodwill allocated to that reporting unit and was recorded in impairment loss on goodwill in the condensed consolidated statements of comprehensive income. Fair value of the reporting unit was determined based on a market valuation approach. The Company determined that its valuation using a market approach model was classified within Level 2 of the fair value hierarchy. As of March 31, 2022, the Company did not have any goodwill associated with this healthcare reporting unit.
During the first quarter of 2021, the Company recorded $240,000 of goodwill impairment related to the First Quarter 2021 Impaired Property. Impairment loss on goodwill represented the carrying value of the reporting unit, including goodwill, that exceeded its fair value, limited to the total amount of goodwill allocated to that reporting unit and was recorded in impairment loss on goodwill in the condensed consolidated statements of comprehensive income. Fair value of the reporting unit was determined based on a market valuation approach, using comparable sales. The Company determined that its valuation using a market approach model was classified within Level 2 of the fair value hierarchy. As of March 31, 2021, the Company did not have any goodwill associated with this healthcare reporting unit.
During the second quarter of 2021, the Company recorded an aggregate amount of $431,000 of goodwill impairment related to the Second Quarter 2021 Impaired Property One and the Second Quarter 2021 Impaired Property Two. Impairment loss on goodwill represented the carrying value of each reporting unit, including goodwill, that exceeded its fair value, limited to the total amount of goodwill allocated to each reporting unit and is recorded in impairment loss on goodwill in the condensed consolidated statements of comprehensive income. Fair value of each reporting unit was determined based on a market approach model. The Company determined that its valuation using a market approach model is classified within Level 2 of the fair value hierarchy. As of June 30, 2021, the Company did not have any goodwill associated with these healthcare reporting units.
Note 12—Derivative Instruments and Hedging Activities
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreements without exchange of the underlying notional amount.
Changes in the fair value of derivatives designated, and that qualify, as cash flow hedges are recorded in accumulated other comprehensive income (loss) in the accompanying condensed consolidated statements of stockholders' equity and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
25
In connection with the Data Center Sale on July 22, 2021, the Company terminated eight interest rate swap agreements related to mortgage notes fixed through interest rate swaps. Prior to the termination of the eight interest rate swaps, the Company de-designated and then formally re-designated these hedged transactions. During the three and six months ended June 30, 2022, as the hedged forecasted transactions affected earnings, the Company reclassified approximately $357,000 and $995,000 , respectively, from accumulated other comprehensive income (loss) to interest and other expense, net, related to the swap terminations, in the accompanying condensed consolidated statements of comprehensive income.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest and other expense, net, as interest payments are made on the Company’s variable rate debt. During the next twelve months, the Company estimates that an additional $6,055,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to earnings.
See Note 11—"Fair Value" for further discussion of the fair value of the Company’s derivative instruments.
The following table summarizes the notional amount and fair value of the Company’s derivative instruments (amounts in thousands):
| Derivatives Designated as Hedging Instruments | Balance Sheet Location | Effective Dates (2), (3) | Maturity Dates (2) | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding Notional Amount (2) | Fair Value of | Outstanding Notional Amount | Fair Value of | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | (Liabilities) | Assets | (Liabilities) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | (1) | 05/01/2022 to 05/01/2023 | 04/27/2023 to 01/31/2028 | $ | $ | $ | ( | $ | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||
(1) Derivative assets and liabilities are reported in the condensed consolidated balance sheets as other assets, net, and accounts payable and other liabilities, respectively.
(2) On April 8, 2022, the Company entered into three interest rate swap agreements with an aggregate notional amount of $150,000,000 , that have an effective date of May 1, 2023, to replace two interest rate swaps with an aggregate notional amount of $150,000,000 that have a maturity date of April 27, 2023.
The notional amount under the agreements is an indication of the extent of the Company’s involvement in each instrument at the time, but does not represent exposure to credit, interest rate or market risks.
Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company designated the interest rate swaps as cash flow hedges to hedge the variability of the anticipated cash flows on its variable rate credit facility. The change in fair value of the derivative instruments that are designated as hedges are recorded in other comprehensive income in the accompanying condensed consolidated statements of comprehensive income.
26
The table below summarizes the amount of income and losses recognized on the interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):
| Derivatives in Cash Flow Hedging Relationships | Amount of Income (Loss) Recognized in Other Comprehensive Income on Derivatives | Location of Loss Reclassified From Accumulated Other Comprehensive Income (Loss) to Net Income | Amount of Loss Reclassified From Accumulated Other Comprehensive Income (Loss) to Net Income | Total Amount of Line Item in Condensed Consolidated Statements of Comprehensive Income | ||||||||||||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||
| Interest rate swaps - continuing operations | $ | Interest and other expense, net | $ | ( | $ | |||||||||||||||||||||
| Total | $ | $ | ( | |||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Interest rate swaps - continuing operations | $ | ( | Interest and other expense, net | $ | ( | $ | ||||||||||||||||||||
| Interest rate swaps - discontinued operations | ( | Income from discontinued operations | ( | |||||||||||||||||||||||
| Total | $ | ( | $ | ( | ||||||||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||
| Interest rate swaps - continuing operations | $ | Interest and other expense, net | $ | ( | $ | |||||||||||||||||||||
| Total | $ | $ | ( | |||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Interest rate swaps - continuing operations | $ | Interest and other expense, net | $ | ( | $ | |||||||||||||||||||||
| Interest rate swaps - discontinued operations | ( | Income from discontinued operations | ( | |||||||||||||||||||||||
| Total | $ | $ | ( | |||||||||||||||||||||||
Credit Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The Company records credit risk valuation adjustments on its interest rate swaps based on the respective credit quality of the Company and the counterparty. The Company believes it mitigates its credit risk by entering into agreements with creditworthy counterparties. As of June 30, 2022, the fair value of derivatives in a net liability position was $16,000 , inclusive of accrued interest but excluding any adjustment for nonperformance risk related to the agreement. As of June 30, 2022, there were no termination events or events of default related to the interest rate swaps.
27
Tabular Disclosure Offsetting Derivatives
The Company has elected not to offset derivative positions in its condensed consolidated financial statements. The following tables present the effect on the Company’s financial position had the Company made the election to offset its derivative positions as of June 30, 2022 and December 31, 2021 (amounts in thousands):
| Offsetting of Derivative Assets | ||||||||||||||||||||||||||||||||||||||
| Gross Amounts Not Offset in the Balance Sheet | ||||||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Assets | Gross Amounts Offset in the Balance Sheet | Net Amounts of Assets Presented in the Balance Sheet | Financial Instruments Collateral | Cash Collateral | Net Amount | |||||||||||||||||||||||||||||||||
| June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
| Offsetting of Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||
| Gross Amounts Not Offset in the Balance Sheet | ||||||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Balance Sheet | Net Amounts of Liabilities Presented in the Balance Sheet | Financial Instruments Collateral | Cash Collateral | Net Amount | |||||||||||||||||||||||||||||||||
| June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
The Company reports derivative assets and liabilities in the condensed consolidated balance sheets as other assets, net, and accounts payable and other liabilities, respectively.
Note 13—Accumulated Other Comprehensive Income (Loss)
The following table presents a rollforward of amounts recognized in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2022 and 2021 (amounts in thousands):
| Unrealized Income on Derivative Instruments | ||||||||
| Balance as of December 31, 2021 | $ | ( | ||||||
| Other comprehensive income before reclassification | ||||||||
| Amount of loss reclassified from accumulated other comprehensive income (loss) to net income | ||||||||
| Other comprehensive income | ||||||||
| Balance as of June 30, 2022 | $ | |||||||
| Unrealized Income on Derivative Instruments | ||||||||
| Balance as of December 31, 2020 | $ | ( | ||||||
| Other comprehensive income before reclassification | ||||||||
| Amount of loss reclassified from accumulated other comprehensive loss to net income | ||||||||
| Other comprehensive income | ||||||||
| Balance as of June 30, 2021 | $ | ( | ||||||
28
The following table presents reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2022 and 2021 (amounts in thousands):
| Details about Accumulated Other Comprehensive Income (Loss) Components | Loss Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Net Income | Affected Line Items in the Condensed Consolidated Statements of Comprehensive Income | ||||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||
| Interest rate swap contracts - continuing operations | $ | $ | Interest and other expense, net | |||||||||||||||||
| Interest rate swap contracts - discontinued operations | Income from discontinued operations | |||||||||||||||||||
| Interest rate swap contracts | $ | $ | ||||||||||||||||||
Note 14—Commitments and Contingencies
Legal Proceedings
In the ordinary course of business, the Company may become subject to litigation or claims. As of June 30, 2022, there were, and currently there are, no material pending legal proceedings to which the Company is a party. While the resolution of a lawsuit or proceeding may have an impact to the Company's financial results for the period in which it is resolved, the Company believes that the final resolution of the lawsuits or proceedings in which it is currently involved, either individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations or liquidity.
Contingent Consideration
During the fourth quarter of 2020, the Company acquired a development property subject to an earnout provision, obligating the Company to pay additional consideration to the developer contingent upon the future leasing and occupancy of vacant space at the property. The developer will have 18 months from completion of the development property to earn the additional consideration. During the 18-month earnout agreement, the developer will be responsible for the pro-rata share of operating expenses associated with the unoccupied space. As of June 30, 2022, the Company recorded a contingent consideration accrual related to the earnout provision in the amount of $1,160,000 , which is reported in accounts payable and other liabilities in the accompanying condensed consolidated balance sheets. The Company used a probability-weighted future cash flows approach to estimate contingent consideration. Changes in assumptions could have an impact on the payout of contingent consideration with a maximum payout of $1,701,000 in cash and a minimum payout of $742,000 . During the three months ended June 30, 2022, the contingent consideration accrual decreased by $373,000 , due to the developer completing the buildout and the tenant taking occupancy of a unit at the property. The amount accrued was capitalized to building and improvements in the accompanying condensed consolidated balance sheets, as the original purchase was accounted for as an asset acquisition.
Note 15—Subsequent Events
Distributions Paid to Stockholders
The following table summarizes the Company's distributions paid to stockholders on July 8, 2022, for the period from June 1, 2022 through June 30, 2022 (amounts in thousands):
| Payment Date | Common Stock | Cash | DRIP | Total Distribution | ||||||||||||||||||||||
| July 8, 2022 | Class A | $ | $ | $ | ||||||||||||||||||||||
| July 8, 2022 | Class I | |||||||||||||||||||||||||
| July 8, 2022 | Class T | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
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The following table summarizes the Company's distributions paid to stockholders on August 4, 2022, for the period from July 1, 2022 through July 31, 2022 (amounts in thousands):
| Payment Date | Common Stock | Cash | DRIP | Total Distribution | ||||||||||||||||||||||
| August 4, 2022 | Class A | $ | $ | $ | ||||||||||||||||||||||
| August 4, 2022 | Class I | |||||||||||||||||||||||||
| August 4, 2022 | Class T | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
Distributions Authorized
The following tables summarize the daily distributions approved and authorized by the Board subsequent to June 30, 2022:
Authorization Date (1) | Common Stock | Daily Distribution Rate (1) | Annualized Distribution Per Share | |||||||||||||||||
| July 22, 2022 | Class A | $ | $ | |||||||||||||||||
| July 22, 2022 | Class I | $ | $ | |||||||||||||||||
| July 22, 2022 | Class T | $ | $ | |||||||||||||||||
Authorization Date (2) | Common Stock | Daily Distribution Rate (2) | Annualized Distribution Per Share | |||||||||||||||||
| August 4, 2022 | Class A | $ | $ | |||||||||||||||||
| August 4, 2022 | Class I | $ | $ | |||||||||||||||||
| August 4, 2022 | Class T | $ | $ | |||||||||||||||||
(1)Distributions approved and authorized to stockholders of record as of the close of business on each day of the period commencing on August 1, 2022 and ending on August 31, 2022. The distributions are calculated based on 365 days in the calendar year. The distributions declared for each record date in August 2022 will be paid in September 2022. The distributions are payable to stockholders from legally available funds therefor.
(2)Distributions approved and authorized to stockholders of record as of the close of business on each day of the period commencing on September 1, 2022 and ending on September 30, 2022. The distributions will be calculated based on 365 days in the calendar year. The distributions declared for each record date in September 2022 will be paid in October 2022. The distributions will be payable to stockholders from legally available funds therefor.
Subsequent Acquisitions
The following table summarizes the property acquired subsequent to June 30, 2022 and through August 9, 2022:
| Property | Date Acquired | Contract Purchase Price (2) | Ownership | |||||||||||||||||
Tampa Healthcare Facility II (1) | 07/20/2022 | $ | ||||||||||||||||||
Escondido Healthcare Facility (1) | 07/21/2022 | $ | ||||||||||||||||||
(1)The property is leased to a single tenant.
(2)The Company drew $105,000,000 on the Unsecured Credit Facility to fund the acquisitions.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.
The following discussion should also be read in conjunction with our audited consolidated financial statements, and the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission, or the SEC, on March 29, 2022, or the 2021 Annual Report on Form 10-K.
The terms “we,” “our,” "us," and the “Company” refer to Sila Realty Trust, Inc., Sila Realty Operating Partnership, LP, or our Operating Partnership, and all wholly-owned subsidiaries.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q, other than historical facts, include forward-looking statements that reflect our expectations and projections about our future results, performance, prospects and opportunities. Such statements include, in particular, our liquidity and capital resources, capital expenditures, material cash requirements, debt service requirements, term loan requirements, plans, leases, dividends, distributions, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Forward-looking statements are subject to various risks and uncertainties, and factors that could cause actual results to differ materially from our expectations, and investors should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We make no representation or warranty (express or implied) about the accuracy of any such forward-looking statements contained in this Quarterly Report on Form 10-Q, and we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. See Part I, Item 1A. “Risk Factors” of our 2021 Annual Report on Form 10-K, for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.
Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates on a regular basis. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
Overview
We were formed on January 11, 2013, under the laws of Maryland to acquire and operate a diversified portfolio of income-producing commercial real estate properties, with a focus on data centers and healthcare properties, generally with long-term net leases to creditworthy tenants, as well as to make real estate-related investments that relate to such property types.
On July 28, 2020, we and our Operating Partnership entered into a Membership Interest Purchase Agreement to provide for the internalization of the external management functions previously performed for us and our Operating Partnership by our former advisor and its affiliates, or the Internalization Transaction.
During the three months ended June 30, 2021, our board of directors, or the Board made a determination to sell our data center properties. On May 19, 2021, we and certain of our wholly-owned subsidiaries entered into a Purchase and Sale Agreement, or the PSA for the sale of up to 29 data center properties owned by us. See Note 4—"Held for Sale and Discontinued Operations" within this Quarterly Report on Form 10-Q for further discussion. The Board's determination to sell the data center properties, as well as the execution of the PSA, represented a strategic shift that had a major effect on our results and operations for the periods presented. On July 22, 2021, we completed the sale of all 29 of our data center properties, or the Data Center Sale, comprised of approximately 3,298,000 rentable square feet, for an aggregate sale price of $1,320,000,000, and generated net proceeds of approximately $1,295,367,000. As of December 31, 2021, we had no assets or liabilities related to the data center properties. The operations of the data center properties have been classified as income from discontinued
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operations on the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2021.
As of June 30, 2022, we owned 130 real estate healthcare properties and two undeveloped land parcels in two µSAs and 55 MSAs.
On July 20, 2021, the Board, at the recommendation of our audit committee, approved the estimated per share net asset value, or Estimated Per Share NAV, calculated as of May 31, 2021, of $9.95. Upon the declaration of a special cash distribution of $1.75 per share to stockholders of record on July 26, 2021, the Estimated Per Share NAV is $8.20. We intend to publish an updated Estimated Per Share NAV on an annual basis.
The Estimated Per Share NAV was calculated for purposes of assisting broker-dealers participating in public offerings in meeting their customer account statement reporting obligations under the National Association of Securities Dealers Conduct Rule 2340. The Estimated Per Share NAV was declared by the Board after consultation with management and an independent third-party valuation firm. The Estimated Per Share NAV is not subject to audit by our independent registered public accounting firm.
We raised the equity capital for our real estate investments through two public offerings, or our Offerings, from May 2014 through November 2018, and we have offered shares pursuant to our distribution reinvestment plan, or the DRIP, pursuant to two Registration Statements on Form S-3, or each, a DRIP Offering and together the DRIP Offerings, since November 2017. As of June 30, 2022, we had accepted investors’ subscriptions for and issued approximately 155,980,000 shares of Class A, Class I, Class T and Class T2 common stock in our Offerings, resulting in receipt of gross proceeds of approximately $1,507,542,000, before share repurchases of approximately $131,090,000, selling commissions and dealer manager fees of approximately $96,734,000 and other offering costs of approximately $27,627,000.
Critical Accounting Estimates
Our critical accounting estimates were disclosed in our 2021 Annual Report on Form 10-K. There have been no material changes to our critical accounting estimates as disclosed therein.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable. Our accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our 2021 Annual Report on Form 10-K.
Qualification as a REIT
We elected, and qualify, to be taxed as a REIT for federal income tax purposes and we intend to continue to be taxed as a REIT. To maintain our qualification as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to distribute at least 90.0% of our REIT taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.
If we fail to maintain our qualification as a REIT in any taxable year, we would then be subject to federal income taxes on our taxable income at regular corporate rates and would not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our net income and net cash available for distribution to our stockholders.
Recently Issued Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see Note 2—“Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” to our condensed consolidated financial statements that are a part of this Quarterly Report on Form 10-Q.
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Segment Reporting
See Note 2—"Summary of Significant Accounting Policies" to our condensed consolidated financial statements that are a part of this Quarterly Report on Form 10-Q for additional information about our healthcare reporting segment. We report our financial performance based on one reporting segment—commercial real estate investments in healthcare. As of June 30, 2022 and December 31, 2021, 100% of our consolidated revenues from continuing operations were generated from real estate investments in healthcare properties. Our chief operating decision maker evaluates operating performance of healthcare properties on an individual property level, which are aggregated into one reportable segment due to their similar economic characteristics.
Factors That May Influence Results of Operations
We are not aware at this time of any material trends or uncertainties, other than national economic conditions and those discussed below, affecting our real estate properties, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of our properties other than those set forth in our 2021 Annual Report on Form 10-K.
Rental Revenue
The amount of rental revenue generated by our healthcare properties depends principally on our ability to maintain the occupancy rates of leased space and to lease available space at the then-existing rental rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. As of June 30, 2022, our operating healthcare real estate properties were 99.4% leased.
Results of Operations
The results of operations discussed below reflect the data centers segment presented as discontinued operations.
Our results of operations are influenced by the timing of acquisitions and the operating performance of our operating healthcare real estate properties. The following table shows the property statistics of our operating healthcare real estate properties as of June 30, 2022 and 2021:
| June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
Number of operating real estate properties (1) | 130 | 124 | |||||||||
| Leased square feet | 5,359,000 | 5,095,000 | |||||||||
| Weighted average percentage of rentable square feet leased | 99.4 | % | 96.2 | % | |||||||
(1)As of June 30, 2022, we owned 130 operating healthcare real estate properties and two undeveloped land parcels. As of June 30, 2021, we owned 125 healthcare real estate properties, one of which was under construction.
The following table summarizes our healthcare real estate activity for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating real estate properties acquired | 4 | 1 | 5 | 1 | |||||||||||||||||||
| Operating real estate properties disposed | — | — | — | (2) | — | ||||||||||||||||||
| Operating real estate properties placed into service | — | — | 1 | 1 | |||||||||||||||||||
Aggregate purchase price of operating real estate properties acquired (1) | $ | 22,896,000 | $ | 25,048,000 | $ | 42,450,000 | $ | 25,048,000 | |||||||||||||||
| Aggregate cost of operating real estate properties placed into service | $ | — | $ | — | $ | 15,713,000 | $ | 22,140,000 | |||||||||||||||
| Net book value of operating real estate properties disposed | $ | — | $ | — | $ | — | (2) | $ | — | ||||||||||||||
| Leased square feet of operating real estate property additions | 54,000 | 54,000 | 140,000 | 115,000 | |||||||||||||||||||
| Leased square feet of operating real estate property dispositions | — | — | — | (2) | — | ||||||||||||||||||
(1)Includes capitalized acquisition costs associated with transactions determined to be asset acquisitions.
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(2)As of December 31, 2021, one land parcel that formerly contained a healthcare property, or the 2021 Land Held for Sale, had a net book value of $22,241,000. On August 30, 2021, we entered into a purchase and sale agreement for the sale of the property. The purchase and sale agreement required that the structures located on the property be demolished prior to the sale. The structures located on the property were demolished and it consisted solely of land as of December 31, 2021. The land attributable to the property was sold on February 10, 2022.
This section describes and compares our results of operations for the three and six months ended June 30, 2022 and 2021. We generate substantially all of our revenue from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of same store properties. We define "same store properties" as operating properties that were owned and operated for the entirety of both calendar periods being compared and exclude properties under development and properties or land classified as held for sale.
By evaluating the revenue and expenses of our same store properties, management is able to monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and determine the expected effects of our new acquisitions and dispositions on net income.
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
The following table represents the breakdown of total rental revenue for the three months ended June 30, 2022 compared to the comparable periods in 2021 (amounts in thousands).
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Same store rental revenue | $ | 40,207 | $ | 40,235 | $ | (28) | (0.1) | % | |||||||||||||||
| Same store tenant reimbursements | 2,380 | 2,426 | (46) | (1.9) | % | ||||||||||||||||||
| Non-same store rental revenue | 2,076 | 929 | 1,147 | 123.5 | % | ||||||||||||||||||
| Non-same store tenant reimbursements | 254 | 155 | 99 | 63.9 | % | ||||||||||||||||||
| Other operating income | 1 | 2 | (1) | (50.0) | % | ||||||||||||||||||
| Total rental revenue | $ | 44,918 | $ | 43,747 | $ | 1,171 | 2.7 | % | |||||||||||||||
•Non-same store rental and tenant reimbursement revenue increased due to the acquisition of nine operating properties and the placement of one development property in service since April 1, 2021, partially offset by a decrease in non-same store rental and tenant reimbursement revenue due to the sale of three operating properties since April 1, 2021.
Changes in our expenses are summarized in the following table (amounts in thousands):
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Same store rental expenses | $ | 2,748 | $ | 2,799 | $ | (51) | (1.8) | % | |||||||||||||||
| Non-same store rental expenses | 262 | 476 | (214) | (45.0) | % | ||||||||||||||||||
| General and administrative expenses | 7,744 | 6,639 | 1,105 | 16.6 | % | ||||||||||||||||||
| Depreciation and amortization | 17,814 | 17,615 | 199 | 1.1 | % | ||||||||||||||||||
| Impairment loss on real estate | — | 6,502 | (6,502) | (100.0) | % | ||||||||||||||||||
| Impairment loss on goodwill | — | 431 | (431) | (100.0) | % | ||||||||||||||||||
| Total expenses | $ | 28,568 | $ | 34,462 | $ | (5,894) | (17.1) | % | |||||||||||||||
•Non-same store rental expenses decreased due to the sale of three operating properties since April 1, 2021, partially offset by the acquisition of nine operating properties and the placement of one development property in service since April 1, 2021.
•General and administrative expenses increased primarily due to a severance payment to our former chief accounting officer and an increase in stock-based compensation, partially offset by a decrease in corporate legal and transfer agent expenses.
•Impairment loss on real estate and impairment loss on goodwill were recorded in the amounts of $6,502,000 and $431,000, respectively, related to two healthcare properties, or the Second Quarter 2021 Impaired Properties, during the three months ended June 30, 2021. There were no impairments recorded during the three months ended June 30, 2022.
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Changes in interest and other expense, net, are summarized in the following table (amounts in thousands):
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Interest and other expense, net: | |||||||||||||||||||||||
| Interest on notes payable | $ | — | $ | 1,836 | $ | (1,836) | (100.0) | % | |||||||||||||||
| Interest on credit facility | 4,078 | 7,250 | (3,172) | (43.8) | % | ||||||||||||||||||
| Other expense | 251 | 448 | (197) | (44.0) | % | ||||||||||||||||||
| Total interest and other expense, net | $ | 4,329 | $ | 9,534 | $ | (5,205) | (54.6) | % | |||||||||||||||
| Income from discontinued operations | $ | — | $ | 16,305 | $ | (16,305) | (100.0) | % | |||||||||||||||
•Interest on notes payable decreased due to the pay-off of all our notes payable on July 22, 2021, in connection with the Data Center Sale.
•Interest on credit facility decreased due to a decrease in the outstanding principal balance on our credit facility due to the pay-down in connection with the Data Center Sale and lower interest rates as a result of entering into the Unsecured Credit Facility (as defined below).
•There was no income from discontinued operations during the three months ended June 30, 2022, due to the Data Center Sale in July 2021.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The following table represents the breakdown of total rental revenue for the six months ended June 30, 2022 compared to the comparable periods in 2021 (amounts in thousands).
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Same store rental revenue | $ | 79,236 | $ | 79,235 | $ | 1 | — | % | |||||||||||||||
| Same store tenant reimbursements | 4,612 | 4,385 | 227 | 5.2 | % | ||||||||||||||||||
| Non-same store rental revenue | 4,795 | 1,961 | 2,834 | 144.5 | % | ||||||||||||||||||
| Non-same store tenant reimbursements | 555 | 586 | (31) | (5.3) | % | ||||||||||||||||||
| Other operating income | 2 | 2 | — | — | % | ||||||||||||||||||
| Total rental revenue | $ | 89,200 | $ | 86,169 | $ | 3,031 | 3.5 | % | |||||||||||||||
•Non-same store rental revenue increased due to the acquisition of nine operating properties and the placement of two development properties in service since January 1, 2021, partially offset by a decrease in non-same store rental revenue due to the sale of three operating properties since January 1, 2021.
Changes in our expenses are summarized in the following table (amounts in thousands):
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Same store rental expenses | $ | 5,292 | $ | 5,180 | $ | 112 | 2.2 | % | |||||||||||||||
| Non-same store rental expenses | 743 | 1,309 | (566) | (43.2) | % | ||||||||||||||||||
| General and administrative expenses | 14,600 | 13,262 | 1,338 | 10.1 | % | ||||||||||||||||||
| Depreciation and amortization | 35,802 | 35,839 | (37) | (0.1) | % | ||||||||||||||||||
| Impairment loss on real estate | 7,109 | 16,925 | (9,816) | (58.0) | % | ||||||||||||||||||
| Impairment loss on goodwill | 278 | 671 | (393) | (58.6) | % | ||||||||||||||||||
| Total expenses | $ | 63,824 | $ | 73,186 | $ | (9,362) | (12.8) | % | |||||||||||||||
| Gain on real estate dispositions | $ | 460 | $ | — | $ | 460 | 100.0 | % | |||||||||||||||
•Non-same store rental expenses decreased due to the sale of three operating properties since January 1, 2021, partially offset by the acquisition of nine operating properties and the placement of two development properties in service since January 1, 2021.
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•General and administrative expenses increased primarily due to a severance payment to our former chief accounting officer and an increase in stock-based compensation, partially offset by a decrease in corporate legal and transfer agent expenses.
•Depreciation and amortization decreased primarily due to an impairment of one in-place lease intangible asset during the six months ended June 30, 2021, or the First Quarter 2021 Impaired In-Place Lease, in the amount of approximately $1,120,000, by accelerating the amortization of the acquired intangible asset related to one of our healthcare tenants that was experiencing financial difficulties and vacated the property in March 2021. During the six months ended June 30, 2022, we recognized an impairment of one in-place lease intangible asset, or the First Quarter 2022 Impaired In-Place Lease, in the amount of approximately $380,000, by accelerating the amortization of the acquired intangible asset related to a tenant of the First Quarter 2022 Impaired Property (as defined below).
•Impairment loss on real estate and impairment loss on goodwill were recorded in the amounts of $7,109,000 and $278,000, respectively, related to one healthcare property, or the First Quarter 2022 Impaired Property, during the three months ended March 31, 2022. Impairment loss on real estate and impairment loss on goodwill were recorded in the amounts of $16,925,000 and $671,000, respectively, related to one healthcare property, or the First Quarter 2021 Impaired Property, during the three months ended March 31, 2021 and the Second Quarter 2021 Impaired Properties.
Changes in interest and other expense, net, are summarized in the following table (amounts in thousands):
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Interest and other expense, net: | |||||||||||||||||||||||
| Interest on notes payable | $ | — | $ | 3,655 | $ | (3,655) | (100.0) | % | |||||||||||||||
| Interest on credit facility | 8,418 | 14,454 | (6,036) | (41.8) | % | ||||||||||||||||||
| Other expense | 4,026 | 189 | 3,837 | 2,030.2 | % | ||||||||||||||||||
| Total interest and other expense, net | $ | 12,444 | $ | 18,298 | $ | (5,854) | (32.0) | % | |||||||||||||||
| Income from discontinued operations | $ | — | $ | 24,253 | $ | (24,253) | (100.0) | % | |||||||||||||||
•Interest on notes payable decreased due to the pay-off of all our notes payable on July 22, 2021, in connection with the Data Center Sale.
•Interest on credit facility decreased due to a decrease in the outstanding principal balance on our credit facility due to the pay-down in connection with the Data Center Sale and lower interest rates as a result of entering into the Unsecured Credit Facility (as defined below).
•Other expense increased primarily due to loss on debt extinguishment related to the repayment of our prior credit facility and consisted of loan costs of $4,000 and accelerated unamortized debt issuance costs of $3,363,000.
•There was no income from discontinued operations during the six months ended June 30, 2022, due to the Data Center Sale in July 2021.
Liquidity and Capital Resources
Our principal uses of funds are for acquisitions of real estate and real estate-related investments, capital expenditures, operating expenses, distributions to and share repurchases from stockholders and principal and interest on any current and future indebtedness. Generally, cash for these items is generated from operations of our current and future investments. Our sources of funds are primarily operating cash flows, funds equal to amounts reinvested in the DRIP, our credit facility and other potential borrowings.
When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include, by way of example, costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit, operating cash generated by the investment, additional equity investments from us, and when necessary, capital reserves. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or, as necessary, to respond to unanticipated additional capital needs.
Short-term Liquidity and Capital Resources
For at least the next twelve months, we expect our principal demands for funds will be for operating expenses, including our general and administrative expenses, as well as the acquisition of real estate and real estate-related investments and funding of capital improvements and tenant improvements, distributions to and repurchases from stockholders, and interest payments on
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our credit facility. We expect to meet our short-term liquidity requirements through net cash flows provided by operations, funds equal to amounts reinvested in the DRIP and borrowings on our credit facility and potential other borrowings.
We believe we will have sufficient liquidity available to meet our obligations in a timely manner, under both normal and stressed conditions, for the next twelve months.
Long-term Liquidity and Capital Resources
Beyond the next twelve months, we expect our principal demands for funds will be for costs to acquire additional real estate properties, interest and principal payments on our credit facility, long-term capital investment demands for our real estate properties and our distributions necessary to maintain our REIT status.
We currently expect to meet our long-term liquidity requirements through proceeds from cash flows from operations and borrowings on our credit facility and potential other borrowings.
We expect to pay distributions to our stockholders from cash flows from operations; however, we have used, and may continue to use, other sources to fund distributions, as necessary, such as funds equal to amounts reinvested in the DRIP and borrowings on our credit facility. To the extent cash flows from operations are lower due to less-than-expected returns on the properties held or the disposition of properties, distributions paid to stockholders may be lower. We currently expect that substantially all net cash flows from our operations will be used to fund acquisitions, certain capital expenditures identified at acquisition, ongoing capital expenditures, interest and principal on outstanding debt and distributions to our stockholders.
Material Cash Requirements
We expect to require approximately $23,755,000 in cash over the next twelve months, of which $14,900,000 will be required for the payment of estimated interest on our outstanding debt, $742,000 related to contingent consideration from Note 14—"Commitments and Contingencies" that resulted from an earn-out arrangement, $1,988,000 related to our various lease obligations and approximately $6,125,000 will be required to fund capital improvement expenditures on our healthcare properties. We cannot provide assurances, however, that actual expenditures will not exceed these estimates.
As of June 30, 2022, we had approximately $23,077,000 in cash and cash equivalents. For the six months ended June 30, 2022, we paid capital expenditures of $6,477,000 that primarily related to the completion of one development property, which was placed into service, and re-developing another operating real estate property.
As of June 30, 2022, we had material obligations beyond 12 months in the amount of approximately $642,156,000, inclusive of $546,601,000 related to principal and estimated interest on our outstanding debt, $12,648,000 related to capital improvement expenditures on our healthcare properties, $418,000 related to contingent consideration from Note 14—"Commitments and Contingencies" that resulted from an earn-out arrangement and $82,489,000 related to our various lease obligations.
One of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness. As of June 30, 2022, we had $505,000,000 of principal outstanding under our Unsecured Credit Facility (as defined below). We are required by the terms of certain loan documents to meet certain covenants, such as financial ratios and reporting requirements. As of June 30, 2022, we were in compliance with all such covenants and requirements on our Unsecured Credit Facility (as defined below).
As of June 30, 2022, the aggregate notional amount under our derivative instruments was $485,000,000. We have agreements with each derivative counterparty that contain cross-default provisions; if we default on our indebtedness, then we could also be declared in default on our derivative obligations, resulting in an acceleration of payment. As of June 30, 2022, we were in compliance with all such cross-default provisions.
Debt Service Requirements
Credit Facility
As of June 30, 2022, the maximum commitments available under our senior unsecured revolving line of credit with Truist Bank, as Administrative Agent for the lenders, or the Revolving Credit Agreement, were $500,000,000, which may be increased, subject to lender approval, through incremental term loans and/or revolving loan commitments in an aggregate amount not to exceed $1,000,000,000. The maturity date for the Revolving Credit Agreement is February 15, 2026, which, at our election, may be extended for a period of six-months on no more than two occasions, subject to certain conditions, including the payment of an extension fee. The Revolving Credit Agreement was entered into on February 15, 2022, to replace our prior $500,000,000 revolving line of credit, which had a maturity date of April 27, 2022, with the option to extend for one twelve-month period. We did not exercise the option to extend. Upon closing of the Revolving Credit Agreement, we extinguished all commitments associated with the prior revolving line of credit.
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As of June 30, 2022, the maximum commitments available under our senior unsecured term loan with Truist Bank, as Administrative Agent for the lenders, or the 2024 Term Loan Agreement, were $300,000,000, which may be increased, subject to lender approval, to an aggregate amount not to exceed $600,000,000. The 2024 Term Loan Agreement has a maturity date of December 31, 2024, and, at our election, may be extended for a period of six-months on no more than two occasions, subject to the satisfaction of certain conditions, including the payment of an extension fee. The 2024 Term Loan Agreement was entered into simultaneously with the Revolving Credit Agreement’s execution, on February 15, 2022, to replace our prior term loan, which was paid off in its entirety upon closing of the Revolving Credit Agreement and the 2024 Term Loan Agreement.
As of June 30, 2022, the maximum commitments available under our senior unsecured term loan with Truist Bank, as Administrative Agent for the lenders, or the 2028 Term Loan Agreement, were $275,000,000, of which $205,000,000 was drawn at closing to pay down our Revolving Credit Agreement in its entirety. The remainder of the commitments were available for three months following the closing date, or the Availability Period, and were available in no more than three subsequent draws with a minimum of $20,000,000 per draw, or the remaining commitments available. After the Availability Period, the undrawn portion was no longer available. If the committed amount was not fully drawn within 60 days of closing, we were required to pay a fee to the lenders, calculated as 0.25% per annum on the average daily amount of the undrawn portion, payable quarterly in arrears, until the earlier of (i) the date when the commitments have been funded in full, or (ii) August 17, 2022. The 2028 Term Loan Agreement may be increased, subject to lender approval, to an aggregate amount not to exceed $500,000,000 and has a maturity date of January 31, 2028. The 2028 Term Loan Agreement is pari passu with our Revolving Credit Agreement and 2024 Term Loan Agreement. On July 12, 2022 and July 20, 2022, we drew $50,000,000 and $20,000,000, respectively, on the 2028 Term Loan Agreement. As of July 20, 2022, the 2028 Term Loan Agreement commitments were fully funded.
We refer to the 2028 Term Loan Agreement, the Revolving Credit Agreement and the 2024 Term Loan Agreement, collectively, as the “Unsecured Credit Facility,” which has aggregate commitments available of $1,075,000,000, as of June 30, 2022. Generally, the proceeds of loans made under our Unsecured Credit Facility may be used for the acquisition of real estate investments, tenant improvements and leasing commissions with respect to real estate, repayment of indebtedness, capital expenditures with respect to real estate, and general corporate and working capital purposes.
During the six months ended June 30, 2022, we drew $35,000,000 on the Revolving Credit Agreement related to five property acquisitions, or the 2022 Acquisitions, we repaid $30,000,000 on the Revolving Credit Agreement, primarily with proceeds from one property disposition, or the 2022 Disposition, and repaid $205,000,000 on the Revolving Credit Agreement in its entirety with the proceeds drawn at closing of the 2028 Term Loan Agreement.
As of June 30, 2022, we had a total pool availability under our Unsecured Credit Facility of $1,075,000,000 and an aggregate outstanding principal balance of $505,000,000; therefore, $570,000,000 was available to be drawn under our Unsecured Credit Facility. We were in compliance with all financial covenant requirements as of June 30, 2022.
Cash Flows
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
| Six Months Ended June 30, | |||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | Change | % Change | |||||||||||||||||||
| Net cash provided by operating activities | $ | 56,753 | $ | 81,119 | $ | (24,366) | (30.0) | % | |||||||||||||||
| Net cash used in investing activities | $ | (27,249) | $ | (46,791) | $ | 19,542 | (41.8) | % | |||||||||||||||
| Net cash used in financing activities | $ | (39,140) | $ | (31,690) | $ | (7,450) | 23.5 | % | |||||||||||||||
Operating Activities
•Net cash provided by operating activities decreased primarily due to the Company owning a smaller portfolio of properties subsequent to the Data Center Sale on July 22, 2021, partially offset by an increase in rental revenues resulting from the acquisition of nine operating properties and placement of two development properties in service since January 1, 2021 and a decrease in interest paid as a result of entering into the Unsecured Credit Facility and the pay-off of all our notes payable on July 22, 2021, in connection with the Data Center Sale.
Investing Activities
•Net cash used in investing activities decreased due to the proceeds from the 2022 Disposition, no consideration paid in 2022 for the Internalization Transaction and a decrease in capital expenditures, partially offset by the 2022 Acquisitions.
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Financing Activities
•Net cash used in financing activities increased primarily due to an increase in payments of deferred financing costs as a result of entering into the 2024 Term Loan Agreement and Revolving Credit Agreement on February 15, 2022 and the 2028 Term Loan Agreement on May 17, 2022, and an increase in repurchases of our common stock under our share repurchase program, partially offset by a decrease in distributions to our common stockholders, a decrease in proceeds from our credit facility, a decrease in payment of offering costs on issuance of common stock and a decrease in payments on notes payable due to the pay-off of all our notes payable on July 22, 2021.
Distributions to Stockholders
The amount of distributions payable to our stockholders is determined by the Board and is dependent on a number of factors, including our funds available for distribution, financial condition, lenders' restrictions and limitations, capital expenditure requirements, corporate law restrictions and the annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. The Board must authorize each distribution and may, in the future, authorize lower amounts of distributions or not authorize additional distributions and, therefore, distribution payments are not guaranteed. Additionally, our organizational documents permit us to pay distributions from unlimited amounts of any source, and we may use sources other than operating cash flows to fund distributions, including funds equal to amounts reinvested in the DRIP, which may reduce the amount of capital we ultimately invest in properties or other permitted investments. We have funded distributions with operating cash flows from our properties and funds equal to amounts reinvested in the DRIP. To the extent that we do not have taxable income, distributions paid will be considered a return of capital to stockholders.
The following table shows the sources of distributions paid during the six months ended June 30, 2022 and 2021 (amounts in thousands):
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Distributions paid in cash - common stockholders | $ | 32,401 | $ | 38,955 | |||||||||||||||||||
| Distributions reinvested (shares issued) | 12,290 | 14,833 | |||||||||||||||||||||
| Total distributions | $ | 44,691 | $ | 53,788 | |||||||||||||||||||
| Source of distributions: | |||||||||||||||||||||||
Cash flows provided by operations (1) | $ | 32,401 | 73 | % | $ | 38,955 | 72 | % | |||||||||||||||
Offering proceeds from issuance of common stock pursuant to the DRIP (1) | 12,290 | 27 | % | 14,833 | 28 | % | |||||||||||||||||
| Total sources | $ | 44,691 | 100 | % | $ | 53,788 | 100 | % | |||||||||||||||
(1)Percentages were calculated by dividing the respective source amount by the total sources of distributions.
Total distributions declared but not paid on Class A shares, Class I shares and Class T shares as of June 30, 2022, were approximately $7,435,000 for common stockholders. These distributions were paid on July 8, 2022.
For the six months ended June 30, 2022, we declared and paid distributions of approximately $44,691,000 to Class A stockholders, Class I stockholders, Class T stockholders and Class T2 stockholders, collectively, including shares issued pursuant to the DRIP, as compared to FFO and AFFO (which are Non-GAAP measures defined and reconciled below under "Non-GAAP Financial Measures") for the six months ended June 30, 2022, of approximately $55,795,000 and $58,293,000, respectively.
For a discussion of distributions paid subsequent to June 30, 2022, see Note 15—"Subsequent Events" to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use funds from operations, or FFO, and adjusted funds from operations, or AFFO, which are non-GAAP measures defined by management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies.
A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, are provided below.
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Funds from Operations and Adjusted Funds from Operations
One of our objectives is to provide cash distributions to our stockholders from cash flows generated by our operations. The purchase of real estate assets and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate cash flows from operations. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as FFO, which we believe is an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income as determined under GAAP.
We define FFO, consistent with NAREIT’s definition, as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property and asset impairment write-downs, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. To date, we have not had any unconsolidated partnerships or joint ventures.
We, along with others in the real estate industry, consider FFO to be an appropriate supplemental measure of a REIT’s operating performance, because it is based on a net income (loss) analysis of property portfolio performance that excludes non-cash items such as depreciation and amortization and asset impairment write-downs, which we believe provides a more complete understanding of our performance to investors and to our management, and when compared year over year, FFO reflects the impact on our operations from trends in occupancy.
Historical accounting convention (in accordance with GAAP) for real estate assets requires companies to report their investment in real estate at its carrying value, which consists of capitalizing the cost of acquisitions, development, construction, improvements and significant replacements, less depreciation and amortization and asset impairment write-downs, if any, which is not necessarily equivalent to the fair value of their investment in real estate assets.
The historical accounting convention requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which could be the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since the fair value of real estate assets historically rises and falls with market conditions including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation could be less informative.
In addition, we believe it is appropriate to disregard asset impairment write-downs as they are non-cash adjustments to recognize losses on prospective sales of real estate assets. Since losses from sales of real estate assets are excluded from FFO, we believe it is appropriate that asset impairment write-downs in advance of realization of losses should be excluded. Impairment write-downs are based on negative market fluctuations and underlying assessments of general market conditions, which are independent of our operating performance, including, but not limited to, a significant adverse change in the financial condition of our tenants, changes in supply and demand for similar or competing properties, and changes in tax, real estate, environmental and zoning laws, which can change over time. When indicators of potential impairment suggest that the carrying value of real estate and related assets may not be recoverable, we assess the recoverability by estimating whether we will recover the carrying value of the asset through undiscounted future cash flows and eventual disposition (including, but not limited to, net rental and lease revenues, net proceeds on the sale of property and any other ancillary cash flows at a property or group level under GAAP). If based on this analysis, we do not believe that we will be able to recover the carrying value of the real estate asset, we will record an impairment write-down to the extent that the carrying value exceeds the estimated fair value of the real estate asset. Testing for indicators of impairment is a continuous process and is analyzed on a quarterly basis or when indicators of impairment exist. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that identifying impairments is based on estimated future undiscounted cash flows, it could be difficult to recover any impairment charges through the eventual sale of the property.
We calculate AFFO, a non-GAAP measure, by further adjusting FFO for the following items included in the determination of GAAP net income: amortization of above- and below-market leases, along with the amortization of operating leases and the finance lease, resulting from above-and below-market leases, straight-line rent adjustments, discount amortization related to the deferred liability in connection with the Internalization Transaction, impairment loss on goodwill, (gain) loss on extinguishment of debt, amortization of deferred financing costs and stock-based compensation. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market
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conditions but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.
AFFO is a metric used by management to evaluate our dividend policy. Additionally, we consider AFFO to be an appropriate supplemental measure of our operating performance because it provides to investors a more complete understanding of our sustainable performance.
Presentation of this information is intended to assist management and investors in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and AFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and AFFO are not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance, as an indication of our liquidity, or indicative of funds available for our cash needs, including our ability to make distributions to our stockholders. FFO and AFFO should be reviewed in conjunction with other measurements as an indication of our performance. FFO and AFFO have limitations as performance measures. However, FFO and AFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods. FFO and AFFO are not useful measures in evaluating net asset value since impairment write-downs are taken into account in determining net asset value but not in determining FFO and AFFO.
FFO and AFFO, as described above, should not be considered to be more relevant or accurate than the GAAP methodology in calculating net income or in its applicability in evaluating our operational performance. The method used to evaluate the value and performance of real estate under GAAP should be considered as a more relevant measure of operating performance and considered more prominent than the non-GAAP FFO and AFFO measures and the adjustments to GAAP in calculating FFO and AFFO.
Reconciliation of FFO and AFFO
The following is a reconciliation of net income attributable to common stockholders, which is the most directly comparable GAAP financial measure, to FFO and AFFO for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income attributable to common stockholders | $ | 12,021 | $ | 16,056 | $ | 13,392 | $ | 18,938 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
Depreciation and amortization (1) | 17,788 | 21,592 | 35,754 | 47,554 | |||||||||||||||||||
| Gain on real estate disposition from continuing operations | — | — | (460) | — | |||||||||||||||||||
| Impairment loss on real estate | — | 6,502 | 7,109 | 16,925 | |||||||||||||||||||
| FFO attributable to common stockholders | $ | 29,809 | $ | 44,150 | $ | 55,795 | $ | 83,417 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
Amortization of intangible assets and liabilities (2) | 121 | (639) | 240 | (1,252) | |||||||||||||||||||
| Amortization of operating leases and finance lease | 272 | 216 | 526 | 485 | |||||||||||||||||||
Straight-line rent adjustments (3) | (2,431) | (4,452) | (4,941) | (9,078) | |||||||||||||||||||
| Amortization of discount of deferred liability | — | 55 | — | 109 | |||||||||||||||||||
Impairment loss on goodwill (4) | — | 431 | 278 | 671 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 3,367 | — | |||||||||||||||||||
| Amortization of deferred financing costs | 364 | 1,011 | 854 | 2,007 | |||||||||||||||||||
| Stock-based compensation | 1,278 | 563 | 2,174 | 1,119 | |||||||||||||||||||
| AFFO attributable to common stockholders | $ | 29,413 | $ | 41,335 | $ | 58,293 | $ | 77,478 | |||||||||||||||
(1)During the six months ended June 30, 2022 and 2021, we accelerated the amortization of certain in-place lease intangible assets in the amounts of approximately $380,000 and $1,120,000, respectively.
(2)Represents the amortization of above-and below-market leases.
(3)Under GAAP, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays, if applicable). This may result in income recognition that is different than the underlying contractual terms. By adjusting for the change in straight-line rent receivable, AFFO may provide useful supplemental information on the
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realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, which aligns with our analysis of operating performance.
(4)During the six months ended June 30, 2022, we wrote off goodwill related to one reporting unit in the amount of approximately $278,000. During the three months ended June 30, 2021, we wrote off goodwill related to two reporting units in the amount of approximately $431,000 and during the six months ended June 30, 2021, we wrote off goodwill related to three reporting units in the amount of approximately $671,000. The goodwill was originally recognized as a part of the Internalization Transaction on September 30, 2020. We believe that adjusting for such non-recurring items provides useful supplemental information because such adjustments may not be reflective of ongoing operations and aligns with our analysis of operating performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk.
We have obtained variable rate debt financing to fund certain property acquisitions, and we were exposed to changes in the one-month LIBOR and, effective February 15, 2022, we are now exposed to such changes in the one-month Term SOFR (as defined below). Our objectives in managing interest rate risk are to seek to limit the impact of interest rate changes on operations and cash flows, and to lower overall borrowing costs. To achieve these objectives, we will borrow primarily at interest rates with the lowest margins available and, in some cases, with the ability to convert variable interest rates to fixed rates.
In July 2017, the Financial Conduct Authority, or FCA, which regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate, or SOFR, as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. Subsequently, on March 5, 2021, the FCA announced that USD-LIBOR will no longer be published after June 30, 2023. Effective February 15, 2022, we have no LIBOR-rate debt. Loans under the Unsecured Credit Facility may be made as Base Rate Loans or SOFR Loans, at our election. On May 2, 2022, we entered into bilateral agreements with our swap counterparties to transition all of our swap agreements to SOFR. As of June 30, 2022, all of our interest rate swap agreements were indexed to SOFR.
As of June 30, 2022, we had 12 interest rate swap agreements outstanding, which mature on various dates from April 2023 to January 2028, with an aggregate notional amount under the swap agreements of $485,000,000. Of the 12 interest rate swap agreements outstanding, three interest rate swap agreements with an aggregate notional amount of $150,000,000 have an effective date of May 1, 2023, and will replace two interest rate swaps with an aggregate notional amount of $150,000,000 that have a maturity date of April 27, 2023. As of June 30, 2022, the aggregate settlement asset value was $13,454,000. The settlement value of these interest rate swap agreements is dependent upon existing market interest rates and swap spreads. As of June 30, 2022, an increase of 50 basis points in the market rates of interest would have resulted in an increase to the settlement asset value of these interest rate swaps to a value of $22,029,000. These interest rate swap agreements were designated as hedging instruments.
On April 8, 2022, we entered into two interest rate swap agreements, which have an effective date of May 2, 2022 and an aggregate notional amount of $85,000,000.
As of June 30, 2022, of the $505,000,000 total principal debt outstanding, $20,000,000 was subject to variable interest rates, indexed to Term SOFR, with an interest rate of 2.4% per annum. As of June 30, 2022, an increase of 50 basis points in the market rates of interest would have resulted in an increase in interest expense of approximately $100,000 per year.
We have entered, and may continue to enter, into additional derivative financial instruments, such as interest rate swaps, in order to mitigate our interest rate risk on a given variable rate financial instrument. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We manage the market risk associated with interest rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes. We may also enter into rate-lock arrangements to lock interest rates on future borrowings.
In addition to changes in interest rates, the value of our future investments will be subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt, if necessary.
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We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
The following table summarizes our principal debt outstanding related to our credit facility as of June 30, 2022 (amounts in thousands):
| June 30, 2022 | |||||
| Variable rate term loans fixed through interest rate swaps | 485,000 | ||||
| Variable rate term loans | 20,000 | ||||
Total principal debt outstanding (1) | $ | 505,000 | |||
(1)As of June 30, 2022, the weighted average interest rate on our total debt outstanding was 2.9%.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we conducted an evaluation as of June 30, 2022, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of June 30, 2022, were effective at a reasonable assurance level.
(b) Changes in internal control over financial reporting. There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are not aware of any material pending legal proceedings to which we are a party or to which our properties are the subject. See Note 14—"Commitments and Contingencies" to the condensed consolidated financial statements that are a part of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 29, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
On March 18, 2022, the Board appointed Z. Jamie Behar and Verett Mims as directors, effective June 1, 2022. On June 1, 2022, we granted Ms. Behar and Ms. Mims each approximately 702 restricted shares of Class A common stock that vests over a one-year period from the date of grant. The awards were granted under and subject to the terms of our Amended and Restated 2014 Restricted Share Plan and award agreements.
On June 16, 2022, our former chief accounting officer was issued approximately 5,387 shares of Class A common stock in connection with the pro-rated and immediate vesting of his performance-based equity incentive awards, consistent with our Severance Plan.
During the three months ended June 30, 2022, we fulfilled the following repurchase requests pursuant to our Share Repurchase Program:
| Period | Total Number of Shares Repurchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans and Programs | Approximate Dollar Value of Shares Available that may yet be Repurchased under the Program | ||||||||||||||||||||||
| April 2022 | 182,237 | $ | 8.20 | — | $ | — | ||||||||||||||||||||
| May 2022 | — | $ | — | — | $ | — | ||||||||||||||||||||
| June 2022 | 34,797 | $ | 8.20 | — | $ | — | ||||||||||||||||||||
| Total | 217,034 | — | ||||||||||||||||||||||||
During the three months ended June 30, 2022, we repurchased approximately $1,779,000 of Class A shares, Class I shares and Class T shares of common stock.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
Effective September 30, 2020, Carter Validus Mission Critical REIT II, Inc., Carter Validus Operating Partnership II, LP, CVMC REIT II, LLC, CVOP Partner, LLC, Carter/Validus Operating Partnership, LP and CV Manager, LLC changed their names to Sila Realty Trust, Inc., Sila Realty Operating Partnership, LP, Sila REIT, LLC, Sila Partner, LLC, Sila Operating Partnership, LP and Sila Realty Management Company, LLC, respectively. With respect to documents executed prior to the name change, the following Exhibit List refers to the entity names used prior to the name changes in order to accurately reflect the names of the entities that appear on such documents.
| Exhibit No: | ||||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | ||||||||
| 3.7 | ||||||||
| 3.8 | ||||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 4.3 | ||||||||
| 4.4 | ||||||||
| 4.5 | ||||||||
| 4.6 | ||||||||
| 4.7 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 10.4 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101.INS* | XBRL Instance Document | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). | |||||||
| * | Filed herewith. | ||||
| ** | Furnished herewith in accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act, except to the extent that the registrant specifically incorporates it by reference. | ||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SILA REALTY TRUST, INC. | |||||||||||
| (Registrant) | |||||||||||
| Date: August 9, 2022 | By: | /s/ MICHAEL A. SETON | |||||||||
| Michael A. Seton | |||||||||||
| Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Date: August 9, 2022 | By: | /s/ KAY C. NEELY | |||||||||
| Kay C. Neely | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer and Principal Accounting Officer) | |||||||||||
Exhibit 31.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael A. Seton, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Sila Realty Trust, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2022
| /s/ Michael A. Seton | ||
| Michael A. Seton | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
Exhibit 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kay C. Neely, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Sila Realty Trust, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2022
| /s/ Kay C. Neely | ||
| Kay C. Neely | ||
| Chief Financial Officer, Executive Vice President and Treasurer | ||
| (Principal Financial Officer) | ||
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C 1350)
In connection with the Quarterly Report on Form 10-Q of Sila Realty Trust, Inc., or the Company, for the period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof, or the Report, Michael A. Seton, as Chief Executive Officer of the Company hereby certifies, to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The accompanying Report of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 9, 2022 | ||||||||||||||
| By: | /s/ Michael A. Seton | |||||||||||||
| Name: | Michael A. Seton | |||||||||||||
| Title: | Chief Executive Officer and President | |||||||||||||
| (Principal Executive Officer) | ||||||||||||||
The foregoing certification is being furnished with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general information language in such filing, except to the extent that the Company specifically incorporates by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C 1350)
In connection with the Quarterly Report on Form 10-Q of Sila Realty Trust, Inc., or the Company, for the period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof, or the Report, Kay C. Neely, as Chief Financial Officer of the Company hereby certifies, to the best of her knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The accompanying Report of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 9, 2022 | ||||||||||||||
| By: | /s/ Kay C. Neely | |||||||||||||
| Name: | Kay C. Neely | |||||||||||||
| Title: | Chief Financial Officer and Executive Vice President | |||||||||||||
| (Principal Financial Officer) | ||||||||||||||
The foregoing certification is being furnished with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general information language in such filing, except to the extent that the Company specifically incorporates by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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