# Sila Realty Trust, Inc. (SILA) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Sila Realty Trust, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1567925/000156792522000015/cik0001567925-20211231.htm
Accession: 0001567925-22-000015
Filing date: 2022-03-29
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/SILA/
All MD&A years: /company/SILA/mda/
Next year: /company/SILA/mda/fy2022/ (FY 2022)

Item 7. 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 consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under “Risk Factors” and “Forward-Looking Statements.” All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

This section of the Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. A discussion of the changes in our financial condition and results of operations for the years ended December 31, 2020, and 2019 may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal years ended December 31, 2020 and December 31, 2019.

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, preferably with long-term net leases to creditworthy tenants, as well as to make real estate-related investments that relate to such property types.

During the three months ended June 30, 2021, the Board made a determination to sell our data center assets. On May 19, 2021, we and certain of our wholly-owned subsidiaries entered into the PSA for the sale of 29 data center properties owned by us. See Note 4—"Held for Sale and Discontinued Operations" within this Annual Report on Form 10-K for further discussion. The Board's determination to sell the data center assets, as well as the execution of the PSA, represented a strategic shift that had a major effect on our results and operations and assets and liabilities for the periods presented. As a result, the assets and liabilities related to the data center properties are separately classified on the consolidated balance sheets as assets held for sale, net, and liabilities held for sale, net as of December 31, 2020. As of December 31, 2021, we had no assets or liabilities held for sale related to the data center properties. The operations of the data center properties have been classified as income from discontinued operations on the consolidated statements of comprehensive income (loss) for all years presented.

On July 22, 2021, we completed the sale of all 29 of our data center properties, 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. See Note 3—"Acquisitions and Dispositions" to the consolidated financial statements that are a part of this Annual Report on Form 10-K for additional information.

As of December 31, 2021, we classified one land parcel as held for sale that formerly contained a healthcare property, or the Land Held for Sale. The land does not meet the criteria of discontinued operations. On August 30, 2021, we entered into a purchase and sale agreement for the sale of the property, which was vacant. The purchase and sale agreement contained a clause that the structures on the healthcare property had to 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. We 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" within this Annual Report on Form 10-K. We sold the land attributable to the healthcare property on February 10, 2022. See Note 22—"Subsequent Events" to the consolidated financial statements that are a part of this Annual Report on Form 10-K for additional information.

As of December 31, 2021, we owned 125 real estate healthcare properties, one land parcel held for sale that formerly contained a healthcare property and two undeveloped land parcels in two µSAs and 54 MSAs.

In connection with the Data Center Sale, we repaid approximately $853,806,000 in property and corporate level principal debt at the time of closing, including $403,000,000 on our credit facility. The outstanding principal balance on data center notes payable in the amount of $305,161,000 was required to be paid off in order to consummate the Data Center Sale. The outstanding principal balance on healthcare notes payable in the amount of $145,645,000 was paid off at our sole discretion in order to reduce leverage and with a goal to position us for future growth.

In connection with the Data Center Sale, the Board declared a special cash distribution of $1.75 per share for our Class A, Class I, Class T and Class T2 shares. The special cash distribution was funded with the proceeds from the Data Center Sale.

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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.

On July 20, 2021, the Board, at the recommendation of the Audit Committee, approved the 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 new Estimated Per Share NAV is $8.20. We intend to publish an updated Estimated Per Share NAV on at least 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. Refer to our Current Report on Form 8-K/A, filed on July 23, 2021, and incorporated herein by reference for details.

On August 16, 2021, we entered into a Transfer Agency and Service Agreement appointing Computershare Trust Company, N.A. and Computershare Inc. (together, “Computershare”) as our new stock transfer agent, administrator and registrar.

We raised the equity capital for our real estate investments through our Offerings, from May 2014 through November 2018, and we have offered shares pursuant to the DRIP Offerings since November 2017. As of December 31, 2021, we had accepted investors’ subscriptions for and issued approximately 154,482,000 shares of Class A, Class I, Class T and Class T2 common stock in our Offerings, resulting in receipt of gross proceeds of approximately $1,495,252,000, before share repurchases of approximately $126,484,000, selling commissions and dealer manager fees of approximately $96,734,000 and other offering costs of approximately $27,627,000.

COVID-19 Updates to Our Corporate Work Environment

While the global economy appears to be entering a recovery and operating conditions appear to be improving, we continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies. We continue to successfully maintain our operations, financial reporting and internal and disclosure controls and procedures. If there is another surge in COVID-19 infection rates or other negative impacts of the global pandemic increase, we do not anticipate that our hybrid or fully remote (if necessary) work environment will have a material adverse impact on our internal controls over financial reporting.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. Changes in these estimates and assumptions could have a significant effect on the financial statements. From time to time, we evaluate our estimates based on historical experience and various assumptions that we believe are reasonable under the circumstances. Although our actual results historically have not deviated materially from those determined using estimates, our results of operations or financial condition could differ materially from these estimates under different assumptions or conditions. Those accounting policies that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments are described in Note 2 of the Notes to Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K.

We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:

•Allocation of Purchase Price of Real Estate

•Impairment of Long-Lived Assets

•Impairment of Goodwill

Allocation of Purchase Price of Real Estate

Primarily all our acquisitions of real estate assets and liabilities are accounted for as asset acquisitions. As such, the purchase prices of acquired tangible and intangible assets and liabilities are recorded and allocated at fair value on a relative basis. The recorded allocations of tangible assets are based on the “as-if-vacant” value using estimated cash flow projections of the properties acquired which incorporates discount, capitalization and interest rates as well as available comparable market information. Allocations of intangible assets includes management’s estimates of current market rents and leasing costs.

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We use considerable judgement in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods and costs to execute similar leases. While our methodology for purchase price allocation did not change during the year ended December 31, 2021, the real estate market is fluid, and our assumptions are based on information currently available in the market at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being acquired.

Impairment of Long-Lived Assets

We review our real estate assets on an asset group basis for impairment. Typically, an individual property constitutes an asset group. We identify an asset group based on the lowest level of identifiable cash flows. In the impairment analysis we must determine whether there are indicators of impairment. For operating properties, these indicators could include a reduction in our estimated hold period, a significant decline in a property’s leasing percentage, a current period operating loss or negative cash flows combined with a history of losses at the property, a significant decline in lease rates for that property or others in the property’s market, a significant change in the market value of the property, or an adverse change in the financial condition of significant tenants.

If we determine that an asset has indicators of impairment, we must determine whether the undiscounted cash flows associated with the asset exceed the carrying amount of the asset. In calculating the undiscounted net cash flows of an asset, we use considerable judgement to estimate several inputs. We must estimate future rental rates, future capital expenditures, future operating expenses, and market capitalization rates for residual values, among other things. In addition, if there are alternative strategies for the future use of the asset, we assess the probability of each alternative strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset.

In determining the fair value of an asset, we exercise considerable judgment on several factors. We may determine fair value by using a discounted cash flow calculation or by utilizing comparable market information. We use judgement to determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation. We also use judgment in analyzing comparable market information because no two real estate assets are identical in location and price.

The estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed. Additionally, changes in economic and operating conditions, including changes in the financial condition of our tenants, and changes to our intent and ability to hold the related asset, that occur after our impairment assessment could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

Impairment of Goodwill

The excess of the cost of an acquired entity (i.e. those that met the definition of an acquired business), over the net of the fair values assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill has been recognized and allocated to specific properties. We test goodwill for impairment annually or more frequently if events or changes in circumstances indicate impairment.

We evaluate goodwill for impairment when an event occurs, or circumstances change that indicate the carrying value may not be recoverable, or at least annually. Unless circumstances otherwise dictate, the annual impairment test is performed as of the last day of each year. We evaluate potential triggering events that may affect the estimated fair value of our 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.

We have 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, we perform the quantitative analysis. The fair value of goodwill is based on either the direct capitalization or the discounted cash flow valuation method. The direct capitalization method is based on a capitalization rate applied to the underlying reporting unit's most recent stabilized trailing twelve-month net operating income at the time of the fair value analysis. The discounted cash flow method is based on estimated future cash flow projections utilizing discount rates, terminal capitalization rates, and planned capital expenditures. These estimates approximate the inputs we believe would be utilized by market participants in assessing fair value. If the carrying amount of the reporting unit’s assets, including goodwill, exceeds its estimated fair value an impairment charge is recorded in an amount equal to that excess but only to the extent the value of goodwill is reduced to zero.

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In the evaluation of impairment of goodwill, we make many assumptions and estimates including valuation approach, projected cash flows, growth rates, eventual disposition, expected useful life and holding period, future capital expenditures, and fair values, which includes consideration of capitalization rates, discount rates, and comparable selling prices. The valuation and possible subsequent impairment of goodwill is a significant estimate that can and does change based on our continuous process of analyzing each reporting unit and goodwill and reviewing assumptions about uncertain inherent factors, as well as the economic condition of the reporting unit at a particular point in time. If we misjudge or estimate incorrectly or if future operating profitability, market or industry factors differ from our expectations, we may record an impairment charge which is inappropriate, fail to record a charge when we should have done so or the amount of such charges may be inaccurate.

Real Estate Acquisitions and Dispositions in 2021

•We purchased four operating healthcare properties, comprising approximately 186,000 of rentable square feet and two undeveloped land parcels for an aggregate purchase price of approximately $71,472,000. The two undeveloped land parcels are an aggregate of 1.52 acres and up to 73,829 square feet of space could be developed. In addition, we placed one operating healthcare property into service.

•We sold two healthcare properties for an aggregate sale price of $13,120,000 and generated net proceeds of $12,642,000.

•We sold 29 data center properties, 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.

For further discussion of our 2021 acquisitions and dispositions, see Note 3—"Acquisitions and Dispositions" and Note 4—"Held for Sale and Discontinued Operations" to our consolidated financial statements that are a part of this Annual Report on Form 10-K.

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 and in Part I. Item 1A. “Risk Factors” of this Annual Report on Form 10-K, 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.

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 December 31, 2021, our operating healthcare real estate properties were 99.5% 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 December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["Number of operating real estate properties (1)","124","","","122"],["Leased square feet","5,219,000","","","4,990,000"],["Weighted average percentage of rentable square feet leased","99.5","%","","96.3","%"]]
[[/GREPCENT_TABLE]]

(1)As of December 31, 2021, we owned 125 healthcare real estate properties, one of which was under construction. As of December 31, 2021, we had one land parcel classified as held for sale that formerly contained a healthcare property. On August 30, 2021, we entered into a purchase and sale agreement for the sale of the property. The purchase and sale agreement contained a clause that the structures located on the property had to 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. As of December 31, 2020, we owned 124 healthcare real estate properties, two of which were under construction.

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The following table summarizes our healthcare real estate activity for the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","","","2021","","2020"],["Operating real estate properties acquired","","","","","4","","(1)","2","","(2)"],["Operating real estate properties disposed","","","","","2","","","2"],["Operating real estate properties placed into service","","","","","1","","","1"],["Aggregate purchase price of operating real estate properties acquired","","","","","$","69,951,000","","(1)","$","16,077,000","","(2)"],["Aggregate cost of operating real estate properties placed into service","","","","","$","22,140,000","","","$","7,795,000"],["Net book value of properties disposed","","","","","$","12,553,000","","","$","53,959,000"],["Leased square feet of operating real estate property additions","","","","","247,000","","","69,000"],["Leased square feet of operating real estate property dispositions","","","","","\u2014","","","82,000"]]
[[/GREPCENT_TABLE]]

(1)During the year ended December 31, 2021, we acquired four real estate properties and two undeveloped land parcels.

(2)During the year ended December 31, 2020, we acquired three real estate properties, one of which was under construction.

This section describes and compares our results of operations for the years ended December 31, 2021 and 2020. 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. Activities of the Land Held for Sale (as defined above) represent amounts recorded for one healthcare property classified as held for sale that did not meet the criteria of discontinued operations as of December 31, 2021.

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.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following table represents the breakdown of total rental revenue for the year ended December 31, 2021 and compares with 2020 amounts for the comparable periods (amounts in thousands). We believe that the below presentation of total rental revenue, is not, and is not intended to be, a presentation in accordance with GAAP and is intended to allow investors and management to evaluate our performance.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","$ Change","","% Change"],["Same store rental revenue","$","156,555","","","$","153,957","","","$","2,598","","","1.7","%"],["Same store tenant reimbursements","8,316","","","7,896","","","420","","","5.3","%"],["Non-same store rental revenue","6,367","","","1,944","","","4,423","","","227.5","%"],["Non-same store tenant reimbursements","901","","","1,131","","","(230)","","","(20.3)","%"],["Land Held for Sale rental revenue","164","","","513","","","(349)","","","(68.0)","%"],["Land Held for Sale tenant reimbursements","433","","","231","","","202","","","87.4","%"],["Other operating income","102","","","109","","","(7)","","","(6.4)","%"],["Total rental revenue","$","172,838","","","$","165,781","","","$","7,057","","","4.3","%"]]
[[/GREPCENT_TABLE]]

•Same store rental revenue increased primarily due to the Company receiving and recognizing higher rent in 2021 from two tenants impacted by the COVID-19 pandemic that had rent concessions during 2020, consumer price index base rent escalations at certain same store properties during the year ended December 31, 2021, income received from an expansion of an existing tenant and a new tenant at a same store property.

•Same store tenant reimbursements increased primarily due to recoveries received from a new tenant at a healthcare property during the year ended December 31, 2021.

•Non-same store rental revenue increased due to the acquisition of six operating properties and the placement of two development properties in service since January 1, 2020, coupled with lease termination fee income, partially offset by a decrease in non-same store rental revenue due to the sale of four operating properties since January 1, 2020.

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•Non-same store tenant reimbursements decreased due to the sale of four operating properties since January 1, 2020.

•Land Held for Sale rental revenue decreased because tenants at one healthcare property, prior to the demolition of the property, vacated their respective spaces since January 1, 2020.

•Land Held for Sale tenant reimbursements increased as a result of a restructured lease with a former tenant at the healthcare property, prior to the demolition of the property. Based on the restructured lease, the tenant was obligated to reimburse the majority of the property's operating expense. The tenant vacated the property in July 2021.

Changes in our expenses are summarized in the following table (amounts in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","$ Change","","% Change"],["Same store rental expenses","$","9,831","","","$","12,174","","","$","(2,343)","","","(19.2)","%"],["Non-same store rental expenses","1,751","","","1,702","","","49","","","2.9","%"],["Land Held for Sale rental expenses","1,123","","","1,311","","","(188)","","","(14.3)","%"],["General and administrative expenses","26,395","","","16,681","","","9,714","","","58.2","%"],["Internalization Transaction expenses","\u2014","","","3,640","","","(3,640)","","","(100.0)","%"],["Asset management fees","\u2014","","","12,604","","","(12,604)","","","(100.0)","%"],["Depreciation and amortization","70,259","","","69,849","","","410","","","0.6","%"],["Impairment loss on real estate","27,166","","","\u2014","","","27,166","","","100.0","%"],["Impairment loss on goodwill","671","","","\u2014","","","671","","","100.0","%"],["Total expenses","$","137,196","","","$","117,961","","","$","19,235","","","16.3","%"],["Gain on real estate dispositions","$","89","","","$","3,142","","","$","(3,053)","","","(97.2)","%"]]
[[/GREPCENT_TABLE]]

•Same store rental expenses decreased primarily due to a decrease in property management fees, partially offset by an increase due to a new tenant at a healthcare property during the year ended December 31, 2021. Effective September 30, 2020, as an internally managed company, we no longer pay our Former Property Manager property management fees or any other fees arising from the property management and leasing agreement.

•Land Held for Sale rental expenses decreased because tenants at one healthcare property vacated their respective spaces since January 1, 2020.

•General and administrative expenses increased primarily due to an increase in payroll-related expenses as a result of the Internalization Transaction and an increase in stock-based compensation. Upon completion of the Internalization Transaction, individuals who were previously employed by an affiliate of our Former Advisor became our employees, and the functions previously performed by our Former Advisor were internalized by us. As an internally managed company, we no longer pay our Former Advisor and its affiliates any fees or expense reimbursements arising from the advisory agreement that was terminated prior to the Closing.

•Internalization Transaction expenses, which consisted primarily of legal fees and fees for other professional and financial advisors, were not incurred in 2021 as a result of the Internalization Transaction closing in 2020.

•Asset management fees were not incurred in 2021 as a result of the Internalization Transaction. Effective September 30, 2020, we no longer pay fees to our Former Advisor and its affiliates arising from the advisory agreement.

•Impairment loss on real estate and impairment loss on goodwill were recorded in the amounts of $27,166,000 and $671,000, respectively, related to three healthcare properties during the year ended December 31, 2021.

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Changes in interest and other expense, net, are summarized in the following table (amounts in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","$ Change","","% Change"],["Interest and other expense, net:"],["Interest on notes payable","$","4,162","","","$","7,344","","","$","(3,182)","","","(43.3)","%"],["Interest on credit facility","25,565","","","33,618","","","(8,053)","","","(24.0)","%"],["Interest on finance lease","137","","","47","","","90","","","191.5","%"],["Amortization of deferred financing costs","3,126","","","3,347","","","(221)","","","(6.6)","%"],["Amortization of discount of deferred liability","272","","","54","","","218","","","403.7","%"],["Notes receivable interest income","(1,146)","","","(1,187)","","","41","","","(3.5)","%"],["Amortization of origination fee","394","","","166","","","228","","","137.3","%"],["Other income","(2,616)","","","(619)","","","(1,997)","","","322.6","%"],["Cash deposits interest","(15)","","","(178)","","","163","","","(91.6)","%"],["Capitalized interest","(377)","","","(567)","","","190","","","(33.5)","%"],["Loss on debt extinguishment","5,013","","","\u2014","","","5,013","","","100.0","%"],["Total interest and other expense, net","$","34,515","","","$","42,025","","","$","(7,510)","","","(17.9)","%"],["Income from discontinued operations","$","401,444","","","$","27,839","","","$","373,605","","","1342.0","%"]]
[[/GREPCENT_TABLE]]

•Interest on notes payable decreased due to the pay-off of all our notes payable on July 22, 2021.

•Interest on credit facility decreased due to a decrease in LIBOR interest rates and in the outstanding principal balance on our credit facility.

•Amortization of discount of deferred liability increased due to the early repayment of the deferred internalization transaction liability of $7,500,000 that was originally payable on March 31, 2022. Due to the early repayment, we accelerated the amortization of discount of deferred liability in the amount of $145,000 during the year ended December 31, 2021.

•Amortization of origination fee increased due to the origination of a $28,000,000 note receivable on May 28, 2020, that was repaid on July 14, 2021. Amortization of origination fee includes accelerated amortization recorded due to early repayment of the note receivable.

•Other income increased primarily due to an execution of a transaction services agreement to provide property management and asset management services to a third-party in order to manage certain of their properties on July 22, 2021, in connection with the Data Center Sale. Effective December 31, 2021, the agreement with the third-party was terminated.

•Loss on debt extinguishment increased due to the payoff of all our healthcare notes payable in the amount of $145,645,000 and a term loan of the credit facility in the amount of $280,000,000 on July 22, 2021 and consisted of loan costs of $3,187,000 and accelerated unamortized debt issuance costs of $1,826,000.

•Income from discontinued operations, which includes revenue, operating expenses, interest expense, debt extinguishment expenses incurred on notes payable repayment on certain data center properties, including defeasance, and gain on sale of the data center properties, increased primarily due to a gain of $395,801,000 on the Data Center Sale during the year ended December 31, 2021.

Liquidity and Capital Resources

Our principal demands for funds are for acquisitions of real estate and real estate-related investments, capital expenditures, operating expenses, distributions to and 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 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,

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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 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.

On July 22, 2021, we 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. We paid down our credit facility in the amount of $403,000,000 and repaid all our notes payable (seven data center notes payable and five healthcare notes payable) prior to their maturity for approximately $450,806,000 ($305,161,000 of data center notes payable and $145,645,000 of healthcare notes payable), plus accrued interest and other loan costs, using the proceeds from the dispositions. We believe the material reduction in debt puts us in a strategic position with a flexible balance sheet to use the liquidity available to continue to grow and further diversify our healthcare properties portfolio.

In connection with the Data Center Sale, the Board declared a special cash distribution of $1.75 per share of Class A, Class I, Class T and Class T2 common stock. The special cash distribution was funded with the proceeds from the Data Center Sale on July 22, 2021. 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.

In connection with the Data Center Sale, on July 27, 2021, we paid the Former Advisor $7,500,000 regarding the Internalization Transaction deferred cash consideration, per the purchase agreement's acceleration provisions. Originally, per the agreement, $7,500,000 was due and payable on March 31, 2022. As a result, we do not have any further contractual obligations to the Former Advisor under the Internalization Transaction Purchase Agreement.

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 and other borrowings, 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 flow 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 lower-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 or distributions to our stockholders.

Material Cash Requirements

With the net proceeds generated from the Data Center Sale on July 22, 2021, in the amount of $1,295,367,000, we paid down approximately $853,806,000 in debt, plus accrued interest and other loan costs, which included the extinguishment of all property level mortgages, as well as a portion of our term loans and all of the outstanding principal balance of the revolver of our credit facility. After the debt pay down, we had a $520,000,000 term loan outstanding on our credit facility, which was to mature on December 31, 2024 (it has been replaced by our current credit facility). As of December 31, 2021, the outstanding principal balance on the term loan on our credit facility was $500,000,000. Additionally, on July 27, 2021, we paid the Former Advisor $7,500,000 regarding the Internalization Transaction deferred cash consideration per the purchase agreement's acceleration provisions.

We expect to require approximately $34,065,000 in cash over the next twelve months, of which $13,888,000 will be required for the payment of estimated interest on our outstanding debt, $4,275,000 related to derivative instruments, $373,000 related to contingent consideration that resulted from an earn-out arrangement, $1,807,000 related to our various lease obligations and approximately $13,722,000 will be required to fund capital improvement expenditures on our healthcare properties, including one development project that we completed in February 2022. We funded $1,532,000 in capital

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improvement expenditures for this development project during the two months ended February 28, 2022. We cannot provide assurances, however, that actual expenditures will not exceed these estimates.

As of December 31, 2021, we had approximately $32,359,000 in cash and cash equivalents. For the year ended December 31, 2021, we paid capital expenditures of $25,285,000 that primarily related to one data center property and three healthcare properties.

As of December 31, 2021, we had material obligations beyond 12 months in the amount of approximately $619,644,000, inclusive of $527,918,000 related to principal and estimated interest on our outstanding debt, $9,057,000 related to capital improvement expenditures on our healthcare properties, $605,000 related to contingent consideration that resulted from an earn-out arrangement and $82,064,000 related to our various lease obligations.

One of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness. As of December 31, 2021, we had $500,000,000 of principal outstanding under our credit facility. We are required by the terms of certain loan documents to meet certain covenants, such as financial ratios and reporting requirements. As of December 31, 2021, we were in compliance with all such covenants and requirements on our credit facility. This facility has since been retired and replaced by our current credit facility.

In connection with the Data Center Sale, we terminated eight interest rate swap agreements related to mortgage notes fixed through interest rate swaps. As of December 31, 2021, the aggregate notional amount under our derivative instruments was $400,000,000. 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 December 31, 2021, we were in compliance with all such cross-default provisions.

Credit Facility

As of December 31, 2021, the maximum commitments available under our revolving line of credit with KeyBank National Association as Administrative Agent for the lenders, or the KeyBank Credit Facility, were $500,000,000, with a maturity date of April 27, 2022, subject to our right for a 12-month extension period. On February 15, 2022, upon closing of the New Revolving Credit Agreement, we extinguished all commitments associated with the KeyBank Credit Facility.

As of December 31, 2021, the maximum commitments available under our senior unsecured term loan with KeyBank as Administrative Agent for the lenders, or the Term Loan, were $500,000,000, with a maturity date of December 31, 2024. The Term Loan was funded upon the consummation of the merger with Carter Validus Mission Critical REIT, Inc., or the REIT Merger, on October 4, 2019. On February 15, 2022, we paid off the Term Loan in its entirety upon closing of the New Revolving Credit Agreement and the New Term Loan Agreement.

As of December 31, 2021, the maximum commitments available under the KeyBank Credit Facility (including the Term Loan) were $1,000,000,000. Generally, the proceeds of loans made under our credit facility may be used to finance the acquisition of real estate investments, for tenant improvements and leasing commissions with respect to real estate, for repayment of indebtedness, for capital expenditures with respect to real estate and for general corporate and working capital purposes.

During the year ended December 31, 2021, we drew $15,000,000 on our revolving line of credit related to a healthcare property acquisition. On July 16, 2021, we repaid $30,000,000 on our revolving line of credit with proceeds primarily from a note receivable in the amount of $28,087,000, consisting of principal and accrued interest. On July 22, 2021, we repaid $403,000,000 on our credit facility ($123,000,000 on the revolving line of credit and $280,000,000 on the term loan), with proceeds from the Data Center Sale. On December 23, 2021, we repaid $20,000,000 on our revolving line of credit primarily with proceeds from the sale of two healthcare properties on October 21, 2021 and December 22, 2021.

As of December 31, 2021, we had a total pool availability under our credit facility of $1,000,000,000 and an aggregate outstanding principal balance of $500,000,000; therefore, $500,000,000 was available to be drawn under our credit facility. We were in compliance with all financial covenant requirements as of December 31, 2021.

On February 15, 2022, we entered into the New Revolving Credit Agreement and New Term Loan Agreement. Upon closing of the New Revolving Credit Agreement, we extinguished all commitments associated with the KeyBank Credit Facility. The New Term Loan Agreement was entered into to replace our Term Loan, which was paid off in its entirety upon closing of the New Revolving Credit Agreement and the New Term Loan Agreement. See Note 22—"Subsequent Events" to the consolidated financial statements that are a part of this Annual Report on Form 10-K for additional information.

Financing

We anticipate that our aggregate borrowings will not exceed the greater of 50.0% of the combined cost or fair market value of our real estate-related investments. For these purposes, the fair market value of each asset is equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the

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value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of December 31, 2021, our borrowings were approximately 21.6% of the fair market value of our real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300.0% of our net assets, without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles) valued at cost prior to deducting depreciation, amortization, bad debt and other non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual REIT taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of December 31, 2021, our leverage did not exceed 300.0% of the value of our net assets.

In July 2017, the FCA, which regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR in the future. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the SOFR, as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. Subsequently, in March 2021, the Intercontinental Exchange (“ICE”) Benchmark Administration Limited (“IBA”), the administrator of LIBOR, issued an announcement confirming that it would cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on 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.

Cash Flows

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands)","2021","","2020","","Change","","% Change"],["Net cash provided by operating activities","$","136,942","","","$","112,838","","","$","24,104","","","21.4","%"],["Net cash provided by (used in) investing activities","$","1,226,842","","","$","(41,416)","","","$","1,268,258","","","3,062.2","%"],["Net cash (used in) financing activities","$","(1,398,813)","","","$","(83,743)","","","$","(1,315,070)","","","1,570.4","%"]]
[[/GREPCENT_TABLE]]

Operating Activities

•Net cash provided by operating activities increased primarily due to an increase in rental revenues resulting from the acquisition of six operating properties and placement of two development properties in service since January 1, 2020, lease termination fees received from three tenants at three properties, not incurring Internalization Transaction expenses, as well as the result of not paying asset management and property management fees to the former advisor due to the Internalization Transaction. The increase was partially offset by an increase in general and administrative expenses paid as a result of the Internalization Transaction. Upon completion of the Internalization Transaction, individuals who were previously employed by an affiliate of our Former Advisor became our employees, and the functions previously performed by our Former Advisor were internalized by us. As an internally managed company, we no longer pay our Former Advisor and its affiliates any fees or expense reimbursements arising from the advisory agreement that was terminated prior to the Closing.

Investing Activities

•Net cash provided by (used in) investing activities increased primarily due to the increase in proceeds from the Data Center Sale and the sale of two healthcare properties, an increase in repayments of notes receivable and a decrease in consideration paid for the Internalization Transaction, offset by an increase in acquisition of real estate properties.

Financing Activities

•Net cash (used in) financing activities increased primarily due to an increase in payments on notes payable and debt extinguishment as a result of the Data Center Sale, a decrease in net proceeds from the credit facility (primarily as a result of a $403,000,000 repayment on the credit facility with proceeds from the Data Center Sale) and an increase in distributions to common stockholders as a result of the special cash distribution, offset by a decrease in repurchases of our common stock under our SRP. On April 30, 2020, due to the uncertainty surrounding the COVID-19 pandemic and its potential impact on us, the Board decided to temporarily suspend share repurchases under our SRP, effective with

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repurchase requests that would otherwise be processed on the third quarter repurchase date, which was July 30, 2020. However, we have continued to process repurchases due to death or involuntary exigent circumstance in accordance with the terms of our A&R SRP.

Distributions to Stockholders

We have paid, and may continue to pay, distributions from sources other than from our cash flows from operations. For the year ended December 31, 2021, our cash flows provided by operations of approximately $136,942,000 covered 100% of our ordinary distributions paid (total ordinary distributions were approximately $100,748,000, of which $73,164,000 was cash and $27,584,000 was reinvested in shares of our common stock pursuant to the DRIP) during such period. Additionally, the Board declared a special cash distribution of $1.75 per share of Class A, Class I, Class T and Class T2 common stock. The special cash distribution was funded with the proceeds from the Data Center Sale on July 22, 2021. 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. For the year ended December 31, 2020, our cash flows provided by operations of approximately $112,838,000 covered 100% of our distributions paid (total distributions were approximately $107,070,000, of which $76,517,000 was cash and $30,553,000 was reinvested in shares of our common stock pursuant to the DRIP) during such period.

We do not have any limits on the sources of funding distribution payments to our stockholders. We may pay distributions from any source, such as from borrowings, the sale of assets, the sale of additional securities, and offering proceeds and we have no limits on the amounts we may pay from such sources. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding distributions from the sale of additional securities could dilute a stockholder's interest in us if we sell shares of our common stock to third party investors. Funding distributions to our stockholders will result in us having less funds available for acquiring properties or real estate-related investments. Our inability to acquire additional properties or real estate-related investments may have a negative effect on our ability to generate sufficient cash flow from operations to pay distributions. As a result, the return investors may realize on their investment may be reduced and investors who invest in us before we generate significant cash flow may realize a lower rate of return than later investors. Payment of distributions from any of the mentioned sources could restrict our ability to generate sufficient cash flow from operations, affect our profitability and/or affect the distributions payable upon a liquidity event, any or all of which may have an adverse effect on an investment in us.

For federal income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain distributions, or nontaxable distributions. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, such excess will be a nontaxable return of capital, reducing the tax basis in each U.S. stockholder’s shares. Further, the amount of distributions in excess of a U.S. stockholder’s tax basis in such shares will be taxable as a realized gain.

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The following table shows the character of distributions we paid on a percentage basis during the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["Character of Class A Distributions:","","2021","","2020"],["Ordinary dividends","","27.91","%","","\u2014","%"],["Capital gain distributions","","\u2014","%","","\u2014","%"],["Nontaxable distributions","","72.09","%","","100.00","%"],["Total","","100.00","%","","100.00","%"],["","","Year Ended December 31,"],["Character of Class I Distributions:","","2021","","2020"],["Ordinary dividends","","27.91","%","","\u2014","%"],["Capital gain distributions","","\u2014","%","","\u2014","%"],["Nontaxable distributions","","72.09","%","","100.00","%"],["Total","","100.00","%","","100.00","%"],["","","Year Ended December 31,"],["Character of Class T Distributions:","","2021","","2020"],["Ordinary dividends","","27.91","%","","\u2014","%"],["Capital gain distributions","","\u2014","%","","\u2014","%"],["Nontaxable distributions","","72.09","%","","100.00","%"],["Total","","100.00","%","","100.00","%"],["","","Year Ended December 31,"],["Character of Class T2 Distributions:","","2021","","2020"],["Ordinary dividends","","27.91","%","","\u2014","%"],["Capital gain distributions","","\u2014","%","","\u2014","%"],["Nontaxable distributions","","72.09","%","","100.00","%"],["Total","","100.00","%","","100.00","%"],["","","Year Ended December 31,"],["Character of Special Distribution (1)","","2021","","2020"],["Ordinary dividends","","12.39","%","","\u2014","%"],["Capital gain distributions","","86.66","%","","\u2014","%"],["Nontaxable distributions","","0.95","%","","\u2014","%"],["Total","","100.00","%","","\u2014","%"]]
[[/GREPCENT_TABLE]]

(1)Attributable to Class A shares, Class I shares, Class T shares and Class T2 shares of common stock.

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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 year ended December 31, 2021 and 2020 (amounts in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020"],["Distributions paid in cash - common stockholders","$","465,849","","(1)","","","$","76,517"],["Distributions reinvested (shares issued)","27,584","","","","","30,553"],["Total distributions","$","493,433","","","","","$","107,070"],["Source of distributions:"],["Cash flows provided by operations (2)","$","73,164","","","15","%","","$","76,517","","","71","%"],["Offering proceeds from issuance of common stock pursuant to the DRIP (2)","27,584","","","5","%","","30,553","","","29","%"],["Proceeds from real estate disposals (2)","392,685","","","80","%","","\u2014","","","\u2014","%"],["Total sources","$","493,433","","","100","%","","$","107,070","","","100","%"]]
[[/GREPCENT_TABLE]]

(1)Includes a special cash distribution declared by the Board of $1.75 per share of Class A, Class I, Class T and Class T2 common stock. The special cash distribution was funded with the proceeds from the Data Center Sale on July 22, 2021. 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.

(2)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, Class T shares and Class T2 shares as of December 31, 2021, were approximately $7,355,000 for common stockholders. These distributions were paid on January 7, 2022.

For the year ended December 31, 2021, we declared and paid distributions of approximately $493,433,000 to Class A stockholders, Class I stockholders, Class T stockholders and Class T2 stockholders, collectively, including shares issued pursuant to the DRIP, consisting of a regular distribution of $100,748,000 and a special cash distribution of $392,685,000, as compared to FFO and AFFO (which are Non-GAAP measures defined and reconciled below under "Non-GAAP Financial Measures") for the year ended December 31, 2021, of approximately $115,935,000 and $135,692,000, respectively.

For a discussion of distributions paid subsequent to December 31, 2021, see Note 22—"Subsequent Events" to the consolidated financial statements included in this Annual Report on Form 10-K.

Share Repurchase Program

Our SRP allows for repurchases of shares of our common stock when certain criteria are met. Under the SRP, we can only repurchase shares due to death or involuntary exigent circumstance 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. See Part II, Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for more information on the SRP.

During the year ended December 31, 2021, we repurchased 1,133,901 Class A shares, Class I shares and Class T shares of common stock (1,055,054 Class A shares, 11,836 Class I shares and 67,011 Class T shares), for an aggregate purchase price of approximately $9,528,000 (an average of $8.40 per share). During the year ended December 31, 2020, we repurchased 3,408,870 Class A shares, Class I shares, Class T shares and Class T2 shares of common stock (2,666,674 Class A shares, 408,346 Class I shares, 298,224 Class T shares and 35,626 Class T2 shares), for an aggregate purchase price of approximately $29,487,000 (an average of $8.65 per share).

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Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 20—"Commitments and Contingencies" to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Related-Party Transactions and Arrangements

As an internally managed company, we no longer pay our Former Advisor and its affiliates any fees or expense reimbursements arising from such respective agreement. As of December 31, 2021, we had no off-balance sheet arrangements.

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.

In the past, in addition to FFO and AFFO, we reported on modified funds from operations, or MFFO, which is a non-GAAP supplemental financial measure commonly used by non-traded REIT companies. Management determined that because we are no longer in the initial capital raise or initial deployment stages, MFFO is no longer a useful measure of the impact of long-term operating performance on value, nor is it used by management to evaluate our dividend policy. In lieu of reporting MFFO, we will continue to use AFFO, the more commonly used metric by the broader REIT industry.

A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, are provided below.

Funds from Operations and Adjusted Funds from Operations

One of our objectives is to provide cash distributions to our stockholders from cash 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 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.

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, 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 market 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,

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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, 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.

In developing estimates of expected future cash flows, we make certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, 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 asset impairment, the extent of such loss, if any, as well as the carrying value of the real estate asset.

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 net of right-of-use assets- operating leases and right-of-use assets- finance lease, resulting from above-and below-market leases, straight-line rent, acquisition expenses in connection with business combination transactions, 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 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.

By excluding acquisition expenses related to business combination transactions, the use of AFFO provides information consistent with management’s analysis of the operating performance of its real estate assets. Since AFFO excludes acquisition expenses, it should not be construed as a historic performance measure. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Under GAAP, acquisition expenses related to acquisitions determined to be business combinations are expensed as incurred, including investment transactions that are no longer under consideration, and, when incurred, are included in acquisition related expenses in the accompanying consolidated statements of comprehensive income (loss) and acquisition expenses associated with transactions determined to be an asset acquisition are capitalized. During 2020, we incurred and paid acquisition expenses in connection with the Internalization Transaction, which consisted of legal fees and other payments to third parties, including professional and financial advisors. Unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the real estate asset, all paid and accrued acquisition expenses and other costs related to such property have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us. As a result, AFFO may not be an indicator of our operating performance, especially during periods in which properties are being acquired.

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.

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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 flow 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 construed to be more relevant or accurate than the current 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 construed 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 years ended December 31, 2021 and 2020 (amounts in thousands, except share data and per share amounts):

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","","","2021","","2020"],["Net income attributable to common stockholders","","","","","$","402,660","","","$","36,776"],["Adjustments:"],["Depreciation and amortization (1)","","","","","81,999","","","105,476"],["Gain on real estate disposition from continuing operations","","","","","(89)","","","(3,142)"],["Gain on real estate dispositions from discontinued operations","","","","","(395,801)","","","\u2014"],["Impairment loss on real estate","","","","","27,166","","","\u2014"],["FFO attributable to common stockholders","","","","","$","115,935","","","$","139,110"],["Adjustments:"],["Amortization of intangible assets and liabilities (2)","","","","","(1,098)","","","(4,680)"],["Reduction in the carrying amount of right-of-use assets - operating leases and finance lease, net","","","","","860","","","970"],["Straight-line rent (3)","","","","","(15,503)","","","(21,161)"],["Internalization Transaction expenses (4)","","","","","\u2014","","","3,640"],["Amortization of discount of deferred liability","","","","","272","","","54"],["Impairment loss on goodwill (5)","","","","","671","","","\u2014"],["Loss on extinguishment of debt","","","","","28,751","","","\u2014"],["Amortization of deferred financing costs","","","","","3,425","","","3,884"],["Stock-based compensation","","","","","2,379","","","437"],["AFFO attributable to common stockholders","","","","","$","135,692","","","$","122,254"],["Weighted average common shares outstanding - basic","","","","","223,325,293","","","221,436,617"],["Weighted average common shares outstanding - diluted","","","","","224,293,339","","","221,622,444"],["Net income per common share - basic","","","","","$","1.80","","","$","0.17"],["Net income per common share - diluted","","","","","$","1.79","","","$","0.17"],["FFO per common share - basic","","","","","$","0.52","","","$","0.63"],["FFO per common share - diluted","","","","","$","0.52","","","$","0.63"]]
[[/GREPCENT_TABLE]]

(1)During the years ended December 31, 2021 and 2020, we wrote off in-place lease intangible assets in the amounts of approximately $1,120,000 and $4,693,000, respectively, by accelerating the amortization of the acquired intangible assets.

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(2)Under GAAP, certain intangibles are accounted for at cost and reviewed for impairment. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges related to amortization of these intangibles, AFFO provides useful supplemental information on the performance of the real estate. During the year ended December 31, 2020, we wrote off an above-market lease intangible asset in the amount of approximately $344,000, by accelerating the amortization of the acquired intangible asset and one below-market lease intangible liability in the amount of approximately $1,974,000 by accelerating the amortization of the acquired intangible liability.

(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 significantly different than the underlying contract terms. During the years ended December 31, 2021 and 2020, we wrote off approximately $70,000 and $72,000, respectively, of straight-line rent. By adjusting for the change in straight-line rent receivable, AFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns with our analysis of operating performance.

(4)Under GAAP, acquisition fees and expenses related to transactions determined to be business combinations are expensed as incurred. Internalization Transaction expenses consisted primarily of legal fees, as well as fees for other professional and financial advisors incurred in connection with the Internalization Transaction. We believe that adjusting for such non-recurring items provides useful supplemental information because such expenses may not be reflective of ongoing operations and aligns with our analysis of operating performance.

(5)During the year ended December 31, 2021, we wrote off goodwill related to three reporting units in the amount of approximately $671,000, which 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.

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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 following quarterly periods (amounts in thousands, except share data and per share amounts):

[[GREPCENT_TABLE]]
[["","Quarter Ended"],["","December 31, 2021","","September 30, 2021","","June 30, 2021","","March 31, 2021"],["Net income attributable to common stockholders","$","12,077","","","$","371,645","","","$","16,056","","","$","2,882"],["Adjustments:"],["Depreciation and amortization","17,156","","","17,289","","","21,592","","","25,962"],["Gain on real estate dispositions from continuing operations","(89)","","","\u2014","","","\u2014","","","\u2014"],["(Gain) loss on real estate dispositions from discontinued operations (1)","\u2014","","","(398,560)","","","2,759","","","\u2014"],["Impairment loss on real estate","\u2014","","","10,241","","","6,502","","","10,423"],["FFO attributable to common stockholders","$","29,144","","","$","615","","","$","46,909","","","$","39,267"],["Adjustments:"],["Amortization of intangible assets and liabilities (2)","141","","","13","","","(639)","","","(613)"],["Reduction in the carrying amount of right-of-use assets - operating leases and finance lease, net","186","","","189","","","216","","","269"],["Straight-line rent (3)","(3,011)","","","(3,414)","","","(4,452)","","","(4,626)"],["Amortization of discount of deferred liability","\u2014","","","163","","","55","","","54"],["Impairment loss on goodwill","\u2014","","","\u2014","","","431","","","240"],["Loss on extinguishment of debt","\u2014","","","28,751","","","\u2014","","","\u2014"],["Amortization of deferred financing costs","664","","","754","","","1,011","","","996"],["Stock-based compensation","623","","","637","","","563","","","556"],["AFFO attributable to common stockholders","$","27,747","","","$","27,708","","","$","44,094","","","$","36,143"],["Weighted average common shares outstanding - basic","224,054,323","","","223,661,774","","","223,082,912","","","222,481,179"],["Weighted average common shares outstanding - diluted","225,031,906","","","223,661,774","","","223,082,912","","","222,481,179"],["Weighted average common shares outstanding - diluted for FFO","225,031,906","","","224,652,226","","","224,046,603","","","223,420,969"],["Net income per common share - basic","$","0.05","","","$","1.66","","","$","0.07","","","$","0.01"],["Net income per common share - diluted","$","0.05","","","$","1.66","","","$","0.07","","","$","0.01"],["FFO per common share - basic","$","0.13","","","$","\u2014","","","$","0.21","","","$","0.18"],["FFO per common share - diluted","$","0.13","","","$","\u2014","","","$","0.21","","","$","0.18"]]
[[/GREPCENT_TABLE]]

(1)    Represents gain on real estate dispositions related to the Data Center Sale that occurred on July 22, 2021. We recognized a loss of $2,759,000 in transaction costs during the three months ended June 30, 2021, resulting in the total gain being higher during the three months ended September 30, 2021.

(2)    Under GAAP, certain intangibles are accounted for at cost and reviewed for impairment. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges related to amortization of these intangibles, AFFO provides useful supplemental information on the performance of the real estate.

(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 significantly different than the underlying contract terms.

Subsequent Events

For a discussion of subsequent events, see Note 22—"Subsequent Events" to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

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Impact of Recent Accounting Pronouncements

Refer to Note 2—“Summary of Significant Accounting Policies” to the consolidated financial statements that are a part of this Annual Report on Form 10-K for further explanation.